I agree with you on the quality of official opinions emanating from the Fed/White house/treasury etc. They say that they want China to reevaluate Yuan. But I'm assuming, internally, the US govt officials are begging China not to revalue until Bush leaves office. The officials probably understand that yuan revaluation will cause CPI to go up - and hence interest rate to go up and cause recession very soon. In other words, the CPI is becoming complex because it also depends on what China does (besides what the Fed does)!! But I think, China has become a factor only because China has sucked US into the financial vortex by accumulating USTreasuries and now it has become a substitute/partner of US Fed. If you sum-up the activity of USFed/Asian Central bank - then the CPI should obey the old law. The rate at which fed release USD and the rate at which Asia appreciates/depreciates their currency, CPI in US will show up...
Or for that matter, I see the Fed saying inverted yield curves dont matter - again this is another obfuscation. They argue that inverted ycurve does not mean liquidity demand falling on the long term i.e there are less long term projects than short term ones and hence people preferring some ratio of money in long term would outbid long term prices. And this little money is too high at this stage of credit bubble - they virtually sink the long term rates. The officials would say that, Asian carry trades will be delivering sufficient money for long term projects in US and hence the long term rates are falling in US!! But if you add the carry trades from Asia and yield Curve carry trade in US - you should have the right "net yield curve". I agree the computation is getting complex - but any argument based on this "net curve" should be same as old curve inversion theory.
Ofcourse, there is this NBER which fudges the recession date - it states it almost when the recession is to be over!! They are atleast 18 months late!! The govt is hoping, they can lull people with these ansurdly stale statistic!!!!!! However, none of these shenigans can mask the symptoms. They can mask the cause but not the symptoms like defaults, falling house prices, rising oil (which is part of PPI and CPI), rising metals, raw materials, tires, equipment shortage (all of them are part of PPI), bank failures that are going to happen...In S&L crisis so many banks went bust...They were forced to merge with existing bank....Some amount of deduction can be made from symptoms when the recession hits (although this guestimate will happen later than when the Fed officials realize this as the Feds have access to the "Cause" data). May be when Fed lowers interest rate, it must be pretty obvious the economy is in bad shape although Fed will argue that inflation is low...So watch for symptoms for easier analysis.... |
