I Want Your (Hands on Me)
COCOA BEACH, Fla. -- And today we drop a jaw at yet
We see, and do let's
hum while we gawk.
See the Purchasing Managers Index (or PMI).
See it go.
It has risen steadily (and tacked on 11.7 points) since it bottomed in December; its second-quarter average of 55.0% goes down as its best since the third quarter of 1997. Its January-June average of 53.5% typically corresponds to
gross domestic product
growth in the 3.5% area; its June reading of 57.0% typically corresponds to GDP growth in the 4.7% area.
See it dump cold water on the half-baked notion that the economy is now slowing (or will soon slow) permanently and materially all on its own.
See the prices index.
See it go.
It has risen steadily (and tacked on 22.4 points) since it bottomed in December; its June reading of 53.5% goes down as its highest since October 1997.
See it point to continued upward pressure on the
core (excluding food and energy) intermediate producer price index
(which, coincidentally enough, bottomed in January).
See the export index.
See it go.
It has risen steadily (and tacked on 11.0 points) since it bottomed in October; it has posted five straight expansionary readings in the wake of 14 straight contractionary ones.
See it point to a world economy up out of its deathbed.
See the new orders and production indices.
See them go.
See them rise to their highest levels since July 1997. See the former point to even stronger orders for durable goods; see the latter point to even stronger industrial production showings.
See them both point to an overall economy even more unlikely to falter now that the factory sector is back on track.
Anyone Else Smell Fish?
Which brings us to the most intelligent question to surface in the wake of yesterday's
announcement (and here your narrator paraphrases Paul Kasriel of
): Given that a 5.5%
federal funds rate
could not slow an economy growing at 3.5% a year ago, what in the world makes
think that a 5.0% funds rate will slow an economy growing at 4.0% now?
One does wonder why the
continues to pump away full force.
Think about it. Growth is positively soaring. And what is it that facilitates such robust economic performance? It is liquidity. In one form or another, it is money; it is money and credit that make the economy go.
And right now we are awash in both.
growing at a 6.3% year-on-year rate; the
measure of the money supply is
growing at an 8.0% rate and the
measure is growing at an 8.6% rate; and the
(currency plus reserves) is
growing at a 9.3% rate.
All of those measures are growing faster than nominal GDP (which is currently growing at a 5.1% rate), and all of them have been doing so since at least the first quarter of 1998.
So again. Why?
G. Love says he wants the economy to slow; he says he wants to protect against the potential emergence of inflationary forces.
Yet yesterday he opted for action that is exponentially more likely to produce precisely the opposite result.
By holding the funds rate at a level even lower than its 1998 average -- by agreeing to keep pumping at an overly generous pace -- he provided both the grease for even speedier economic growth and that much more kindling for a price spark down the road.
Too much a slave to shares?
A hostage to the big, bad brokerages?
Just plain old bank coddling?
Surely it's not something crawling to the surface of a dark hedge-fund lake.
The Mazda Miata.
That KRAFT staple.
Any Mentos commercial.