26 August 2009

Holy Crap. The Fed is Going 1937 on Us

It's the Recession all over again, with the Fed tightening money as something resembling a recovery begins:
Guess what? The Federal Reserve has not only stopped depositing copious amounts of liquidity into the economy -- it now appears to be in the process of making a sizable withdrawal.

A close look at quantitative measures of monetary policy reveals a sudden change in trend. After growing at unprecedented rates for well over a year, these aggregates stopped rising several months ago and have since declined, according to data provided by the Federal Reserve Bank of St. Louis.

For example, the monetary base -- the raw material for the money supply -- has fallen at a seasonally adjusted annual rate of 8% from early April of this year through mid-August, after soaring at a 187% pace during the previous eight months.
I'm a pessimist, and I do not believe that the current recovery is "real". I think that it is largely being driven by the Fed laundering money and pushing it into the equities markets (stocks), which has pushed up the indices, and that the rising stock market is creating the perception* of a recovery.

But even if I'm wrong, and the recovery is real, if very anemic, this is absolutely the wrong time to put your foot on the break.

*Yes, I know, perception is a BIG percentage of what constitutes a recession, but it is not everything.


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