Was just looking back over the Fed's money supply figures for the past year, and the correlation with speculation seems even closer than I had thought. Not as a cause, but as an enabling condition.
For example, look at what had been going on for 3-4 months before the August drop: a marked contraction of the rate of growth of the aggregates (you have to scroll down to see the two tables of percentages):
bog.frb.fed.us
Then we look at what has been going on for the 3-4 months preceding the present moment:
bog.frb.fed.us
It's an incredible acceleration--the result, I believe, of the Fed panicking in the middle of the late summer decline.
We cannot know what the present trend is, though, so we cannot use it to place bets. We can only speculate that perhaps, having "rescued" the banking community, and having seen far more "irrational exuberance" than before--possibly than ever before--the Fed may be currently once again restricting the rate of growth of money. I am not as confident as Milton Friedman is of the complete power that the Fed has to control monetary aggregates, but surely they do have the ultimate power. When the dam furthest upstream releases a lot of water, the dams further down may release even more.
I was watching the Peter Sellars festival yesterday (Dr. Strangelove and Being There). If only he were still alive and could do a satire on the present mania! (Actually Garry Trudeau was doing pretty well a few weeks ago.) |
