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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: russwinter who wrote (1430)10/12/2003 10:32:51 AM
From: austrieconomist  Read Replies (4) of 110194
 
Yes, it is the rate of change that matters. MZM grew at an 8% rate until November, 2000, but that growth rate was insufficient to support and offset the vast accumulated debt structure, and the recession began. The Fed saw the recession coming (the always reliable inverted yield curve in place but, curiously, widely ignored at the time by the financial press) and acted to gun MZM at a better than 20% annual rate beginning in November, 2000. This massive infusion of new money was indeed successful in working out a short and mild recession but at the price of exacerbating let alone working off the excesses of the previous cycle. The Fed backed off the 20% rate in January, 2002, apparently believing (my interpretation) that the markets could now "work on their own" to resurrect the recovery. The rate has now been below 8% for more than half a year and more recently has dropped to 2.4% over the past two months.

A simplistic question for the thread: If an 8% rate was insufficient to keep the U.S. from dropping into recession in 2000-2001, does it not seem likely that with at least a trillion dollars in new debt in place since 2000-2001 (I don't have the figures at hand), that the current rate of growth is a recipe for the next recession? I cannot figure out what is motivating the Fed to drop the supply of liquidity at this time.
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