American growth at 2.5%!
The rate of real GDP growth in fourth quarter 2007 was at 2.5% year on year, exactly in line with what I predicted under my law on free money supply: the free real GDP growth varies with the inverse of the variance of the free money supply,
(Click here to enlarge the graph)
This law operates from variations in rates from one year to another. I predicted a rate at 0.7% over the previous quarter to an annualized rate when it was 0.6%. Given decimals, the percentage change from one year to another of my predictions are confirmed.
For the first quarter 2008, my predictions are for an increase of 3.5% year on year and 4.5% over the previous quarter to an annualized rate.
The growth is returning to normal, i.e. 3.5% from one year to another because all the fundamentals are good, the money is sound, the American economy is very strong.
Americans continue to react well: they anticipated lower rates of the Fed from September 18 with more spending, which fuels growth.
Once again, the drop in base rates by the Fed under the neutrality of 4.25% is not justified.
The FOMC members created too strong growth since next August, which will force them thereafter to rise too high their rate, thus perpetuating unnecessarily cycles of the past.
The observation of changes in monetary aggregates is really the best indicator of future economic activity for 50 years…