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Strategies & Market Trends : US Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: gpowell who wrote (1)	8/3/2005 2:09:19 PM
From: gpowell	Read Replies (1) \| Respond to of 97

Most of shifts in the monetary aggregates over the last 30 years are the result of increasing wealth, individual choice, and financial innovation in an era of relaxing regulation. In fact, much financial regulation was rendered moot by financial innovation prior to that regulation being repealed. For instance, regulation Q (abolished in 1980), which set the maximum interest rate that could be paid to demand deposit accounts, had already been circumvented by NOW and MMMF accounts. The point is when looking at the monetary aggregates one must keep in mind that the Federal Reserve is not necessarily the primary cause of every wrinkle and shift. But, that is not to say that Federal Reserve actions are not without real consequences. Thus, the mission of this thread is to analyze the actions of all market participants, government and its agencies included, giving proper accounting to each. For some this may seem an obvious mission, but too often among popular accounts of economic activity there is an assumption that the public’s tastes and preferences are fixed, and therefore, any change in relative prices (house prices for instance) must come from government interference. Consider this post, for instance: Message 21547164 Free market interest rates and no creation of money in excess of savings? Sounds good to me. Your house would still sell for the same amount of money you paid for it in the 70's. Could you live with that ? Apparently this poster has never heard of goods with an income elasticity greater than one: tutor2u.net The original poster (OP) must either assume an income elasticity of one, or that wealth growth is zero. Whatever the actual hidden assumption, the result of such erroneous assumptions is bound to lead to a sub-optimal portfolio allocation.

To: gpowell who wrote (1)	8/3/2005 3:54:29 PM
From: gpowell	Read Replies (2) \| Respond to of 97

If CPI overstates inflation, is there a better indicator? Economists usually use the GDP deflator: en.wikipedia.org , and it does seem to indicate past inflation fairly well. But, given that the Federal Reserve has inflation targets, i.e. they act as if a positive rate of inflation is a desirable goal, is there a measure of "potential inflation" that leads Federal Reserve action? Let’s look at this chart: i10.photobucket.com The chart is a collection of inflation indicators compared to 2.4% reference line, which is assumed to be a target rate of inflation. Given this target, unit labor costs (ULC), which is price of a unit of output per price of a unit of labor, appears to indicate the degree of “accommodation” bias in the Federal Reserve action. More specifically, the rate of change in ULC growth (second derivative of ULC) seems to lead Fed action. This thread will keep a close eye on ULC trends.

To: gpowell who wrote (1)	6/2/2006 3:31:35 PM
From: gpowell	Respond to of 97

The late 19th century American economist, F.A. Walker, defined money with the phrase, “money is that money does.” This phrase illustrates that there is no “a priori” definition of what should, or could, be money. Alan Greenspan on the definition of money (February 1999): “I must say that I have not changed my view that inflation is fundamentally a monetary phenomenon. But I am becoming far more skeptical that we can define a proxy that actually captures what money is, either in terms of transaction balances or those elements in the economic decisionmaking process which represent money. We are struggling here. I think we have to be careful not to assume by definition that M1, M2, or M3 or anything is money. They are all proxies for the underlying conceptual variable that we all employ in our generic evaluation of the impact of money on the economy.”