Mike Shedlock has come up with an excellent Post for research into the Money Supply, it mattering little that I basically disagree with him and Dave Rosenberg. Contraction of M1 and M2 may seem like a Red Light, but it has been a simple Reserve transfer to M3; the internal damage to Banking practice will be nil, without need for injection of funds. The Mortgage Crisis, though, has forced Banks to review loan applications with more vigor; it is this element which both Mish and Rosenberg criticize. The Banking system had jumped off the precipice upon passage of the Bush Tax Cuts, and the Crisis was the result. Proper review of loan application remain necessary in order to prevent crises from occurring down the Road, as deviancies activate in the loose extension of Credit. An attempt to regain dangerous practice through extension of a additional Cash flow is bad policy.
I also disagree with Goldman Sachs. They predict a Recession based upon unimproved data, and I would estimate the new Year will see an end of a mild Recession which started in the 2nd Quarter of last year, but which did not meet traditional criteria for Recession. I believe it all depends upon Consumer reaction–which I hope is relatively over, and the price of Energy–which I believe will start to enter a Short-term Oil Glut in the Spring. The Reader should realize this puts me way out on a weak shelf over the Grand Canyon. The weak Employment picture hopefully stands as a mid-winter weak spot. I most certainly hope the Fed will not lower the fed fund rate below 4.25%, else We will never get the Money Supply flow adjusted correctly. It will only be an attempt to drown poor Bank management policies in a flood of Cash. lgl
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