The Last and Fatal Lie 
of the Political Career of George Walker Bush Jr.

Why with such a growth (7.2% the highest since 1984) would the FED keep the rate at 1% (the lowest since 1958) at the FOMC meeting on October 28th, 2003? 

Better even: the  Fed released a statement saying that "policy accommodation can be maintained for a considerable period". 

Seems illogical, but if you look at M3, the Money Supply, like the Board of the Federal Reserve did, you can see that their expected growth for Q4/Q3 is much lower than 7.2% or even the 4% expected by the Market:

According to Monetarist Economic schools: 

Nominal GDP = V x M

Where V is the velocity of the Money and M is the Money Supply.

Note:

This must be taken with a grain of salt as people with low income and revenues don't do the same thing with their money as people with higher income and revenues and hence the money repartition is as important as the total Money Supply in evaluating the Supply and Demand. This however is true for small variation of M and nominal GDP:

Delta (Nominal GDP) = V x Delta (M) [2]

Keynesians argue that there is a money effect and that increasing the Money Supply may in fact increase the real GDP on the short term.

Myself I would rather integrate [2] accross the revenues or incomes to get the relation between nominal GDP and money supply.)

Conclusion:

So if V is considered constant then the variation of GDP is proportional to the variation in Money Supply!

Now it makes sense, doesn't it? 

Now you know that the "surprisingly high" growth of the economy is an American Dream and a political lie. 

Unless you suppose a "surprisingly high" growth of the velocity of money you have to conclude that someone is lying...

When you know who has an history of playing with numbers you know who is lying.

He should have known better:

"Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back."

- Lord John Maynard First Baron Keynes of Tilton

- Died: 21 April 1946 in Firle, Sussex, England

Greenspan blows the whistle:

On Thursday November 6th Greenspan said in prepared remarks for delivery to the Securities Industries Association in Boca Raton, Florida.

"I am pleased to join you today to discuss the outlook for the United States economy. The views I will be expressing are my own and not necessarily those of the Federal Reserve Board."

"A critical factor distinguishing the current economic environment from much of the previous experience of the past half century is the inflation backdrop. In previous recessions since the 1960s, the underlying rate of inflation at economic troughs remained clearly above any level that could be associated with effective price stability [2]. As a consequence, with some risk to economic activity, monetary policy typically had to move aggressively in the uncertain early stages of past economic recoveries to ensure that inflation would be contained.

By contrast, in the current episode, core consumer price inflation as measured in the national income and product accounts has been running only a little more than 1 percent over the last year, and firms exhibit scant evidence that they are gaining appreciable pricing power despite the pickup in the pace of economic growth. Indeed, the Federal Open Market Committee has judged that the probability, though minor, of an unwelcome fall in inflation exceeds that of a rise in inflation from its already low level. In these circumstances, monetary policy is able to be more patient. That said, no central bank can ever afford to be less than vigilant about the prospects for inflation."

Which means: if it does not look like an economic recovery, if it does not smell like an economic recovery and it does not taste like an economic recovery, it probably is not an economic recovery.

He then warns us about the use of credit, as much as a Fed chairman can do that:

"Recent budget deliberations are not encouraging. The current debate appears to be about how much to cut taxes or how much to increase spending. No significant constituency seems to support taking the actions that will be necessary to move toward, and one hopes achieve, budget balance. In retrospect, the emergence of budget surpluses in the late 1990s eroded the discipline that emerged as a consequence of the earlier fear of ever rising and, hence,
 potentially destructive deficits."

On productivity:

"The combination of growing output and falling hours worked was made possible by a startlingly large rise in productivity. Indeed, since the fourth quarter of 2001, output per hour in the nonfarm business sector has increased 5 percent at an annual rate. And during the second and third quarters of this year, output per hour increased at the astonishing average annual pace of about 7-1/2 percent. This outcome has been associated with a dramatic increase in profits despite little evidence of corporate pricing power."

It is the Productivity Paradox

On unemployment:

"Although layoffs seem to be diminishing, surveys indicate that households continue to be worried about the condition of labor markets."

"Greenspan went out of his way to talk about the downside risk to the forecast," said Cary Leahey, an economist at Deutsche Bank in New York.

It is time to take

#764 - Roadmap to Exit for Open Source of Freedom: 
A Cure for Recession, Depression & Unemployment: Realist & transcendental proposal for solving the problems of the instability of the economy and its symptoms: recession, depression, deflation, liquidity trap, unemployment, stock market crash, unwanted side effects of globalization.
Open Source of Freedom: Adjusted Credit Free, Free Market Economy

Open Source of Freedom

Sincerely Yours,

Name Surname

* These data are released each Thursday, generally at 4:30 p.m., unless Thursday is a federal holiday, in which case the data will be released on Friday, generally at 4:30 p.m. This page is update immediately after back

[2] This intentional and obvious mistake or significant lapse is meant to draw your attention.

References:

Monetarism, by Allan H. Meltzer

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