Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21
Scan Computers - How to Test New Systems CPU, GPU and Hard Drive Stability With Free Software - 4th Jun 21
Hedge Funds Getting Bullish on Gold - 4th Jun 21
THERE ARE NO SOLUTIONS When the Media is the VIRUS - 4th Jun 21
Investors Who Blindly Trust the ‘Experts’ Will Get Left Behind - 4th Jun 21
US Stock Market Indexes Consolidate Into Flagging Pattern – Watch For Aggressive Trending Soon - 4th Jun 21
Microsoft (MSFT) Stock Trend Analysis - 3rd Jun 21
No More Market Bloodbath – Beyond Cryptos - 3rd Jun 21
Bank run, or run from the banks? - 3rd Jun 21
This Chart Shows When Gold Stocks Will Explode - 3rd Jun 21
The Meaning Behind Gold’s Triple Top - 2nd Jun 21
Stock Market Breakout Or Breakdown – What Does The Next Big Trend Look Like? - 2nd Jun 21
Biden’s Alternate Inflation Universe - 2nd Jun 21
What You Should Know Before Buying Car Insurance - 2nd Jun 21
Amazon (AMZN) Stock Summer Prime Day Discount Sale - 1st Jun 21
Gold Investor's Survival Guide - 1st Jun 21
Silver and Copper to Benefit from Global Electrification Push - 1st Jun 21
Will Gold Shine Under Bidenomics? - 1st Jun 21
Stock Market Buy the Dip, Again?! - 1st Jun 21
Stock Market Consolidation Ahead - 1st Jun 21
Stock Market Summer Correction Review, Crypto CRASH, Bitcoin Bear Market Initial Targets - 31st May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

The U.S. Economy Really is in Trouble

Economics / US Economy May 25, 2010 - 12:37 PM GMT

By: Gerard_Jackson

Economics

Best Financial Markets Analysis ArticleAlthough industrial production has continued to grow manufacturing has started to slow. There were mass layoffs in April with manufacturing taking the lead. The Fed reported that that its index of manufacturing activity for New York, New Jersey and Connecticut had slowed significantly while the Philadelphia Fed reported that manufacturing growth had decelerated and that in May there was a significant drop in orders for manufactured goods. Adding to the woe was a report by The Conference Board that its index of leading economic indicators dropped in April, the first fall in about twelve months. What the devil is going on? Without a doubt this is the worst 'recovery' in post-war history.


Now it was believed by many that Bernanke's massive monetary injection would send production and prices zooming, Neither happened. This is because the money largely ended up as idle reserves. Nevertheless, the money supply did expand. Adopting what some call "a narrow view of the Austrian definition of the money" the following chart shows a rapid monetary expansion from September 2008 to June 2009 of about 25 per cent. (Although money supply figures are subject to revision there can be no doubting -- irrespective of one's monetary measure -- that there has been massive growth in the monetary base.)

I have no doubt that this expansion stimulated production and manufacturing. However, from June 2009 to the following February a contraction set in and the money supply fell by about 8 per cent. This, in my opinion, is responsible for the current slowdown in manufacturing. We now find that from February to April that the money supply once again accelerated, growing by about 12 per cent.

So why was industrial production unaffected? It wasn't. The following chart shows that from June 2009 to January 2010 industrial production steadily rose, apart from a temporary flattening in September. It was in January and February that the expansion slowed, with production declining slightly in March and then accelerating in April. These changes suggest that industrial production could be particularly sensitive to large and sudden changes in the money supply

Readers are well aware of my belief that manufacturing is a vital economic indicator. (The reason for this belief has to do with the role time plays in production.) Right now the US economy is suffering from a frightful monetary policy that would make a roller-coaster ride feel like a stroll through the park. Destabilising doesn't describe the present situation. If the monetary acceleration continues then the US will eventually face a severe surge in inflation followed by another steep slump. Should the money supply continue its erratic course then I doubt if any kind of recovery is possible.

Aggravating the situation is Obama's impending tidal wave of taxes and a permanent avalanche of form-filling, not to mention the rest of the his agenda -- just the things a flagging economy needs. This is like trying to save a drowning man by throwing bricks at him, regardless of what Reuters and the rest of the lefty media assert. Then again, maybe he doesn't really want to save the economy. Perhaps what he really wants to do is transform it.

As if determined to prove that he has no understanding of the country's economic plight he appointed Janet Yellen, president of the San Francisco Fed, Peter Diamond of MIT and Sarah Bloom Raskin to the Federal Reserve Board. All three are Keynesians and all three believe in big-spending government. Any so-called economist who can still call himself a Keynesian should not be allowed near sharp instruments let alone a central bank.

It is largely Keynesianism that brought about the present mess. Now we have Janet Yellen who believes in the absurd Philips curve and the silly idea that excessive employment can cause inflation. Then there is Sarah Bloom Raskin who thinks greed caused the financial crisis. And this woman's Amherst College thesis was on monetary policy.

These people are -- as are most economists -- clueless on genuine monetary theory. No wonder the US is going down the gurgler. (The best stuff I ever read on monetary theory was written by the early economists. Their insights and grasp of monetary theory puts this lot to shame.)

*There are some differences among Austrians as to what ought to be included in a definition of the money supply. I try adhere to Walter Boyd's view who in his open letter to Prime Minister Pitt in 1801 defined money in the following terms:

By the words 'Means of Circulation', 'Circulating Medium', and 'Currency', which are used almost as synonymous terms in this letter, I understand always ready money, whether consisting of Bank Notes or specie, in contradistinction to Bills of Exchange, Navy Bills, Exchequer Bills, or any other negotiable paper, which form no part of the circulating medium, as I have always understood that term. The latter is the Circulator; the former are merely objects of circulation. (Walter Boyd, A Letter to the Right Honourable William Pitt on the Influence of the Stoppage of Issues in Specie at the Bank of England, on the Prices of Provisions, and other Commodities, 2nd edition, T. Gillet, London, 1801, p. 2).

In simple terms, money is the medium of exchange. Nevertheless, difficulties do arise. Are savings deposits money? This presents the problem of double-counting. If I take $10,000 in cash and deposit it in my savings account it cannot be seriously I argued that I have now expanded the money supply by $10,000. It therefore follows that if the bank lends out that $10,000 the money supply still remains unchanged. We now deduce that credit transactions do not alter the money supply. Whether we include savings deposits in our definition depends on whether or not it involves double-counting.

By Gerard Jackson
BrookesNews.Com

Gerard Jackson is Brookes' economics editor.

Copyright © 2010 Gerard Jackson

Gerard Jackson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in