It is worth another look at two factors in the economy; the growth of Treasury Holdings by the FED and the GDP numbers in some detail.
First the growth of Treasury holdings by the FED. Simply if the Treasury wants money and there may be no buyer for its notes then the FED will buy it with "printed" money. This is the stuff which ends up creating inflation if it gets loose out in the economy. So lets see what we have. The Figure below depicts this as of last week. Note the tremendous growth and more importantly look at the rate of growth on a 12 week running average, it is in excess of 30% per annum on a going forward basis. This is the main concern and if others decide not to buy Treasuries then things just get worse. Also remember that the money has not been let loose quite yet. The worry and concern should be watching that continuing rate of growth.
Now let us look at the GDP changes. This is the throttle on the economy to date. First GDP of Domestic Investment. This is what we all are worried about. The engine for continued growth is dying off. The big concern is that in Q1 2009 it is still falling off the cliff. There is no money going into creation of new enterprises and the fear is that with the stimulus package pumping money into Government expenditures this will not grown and in addition it will be starved for a long while.
Second GDP of Personal Consumption. This is a worry. People are spending, and Q1 2009 showed a growth, perhaps a comfort zone but that spending may result in strong inflationary trends.
Then GDP of International Trade. Both imports and exports are down and decreasing in that direction. The linkages in international trade will cause further decline throughout the year.
Finally GDP of Government Expenditures. As expected if you can print money then things will not be that bad. Yes there was a decline but not as great as we had expected. In fact we should be aware of what is happening in Q2 2009 with the stimulus kicking in. In a weekend ride to New Hampshire I saw dozens of signs touting stimulus money going for highways. Useful but not long term stimulating for growth. They were for bridges which frankly were being done anyway!
First the growth of Treasury holdings by the FED. Simply if the Treasury wants money and there may be no buyer for its notes then the FED will buy it with "printed" money. This is the stuff which ends up creating inflation if it gets loose out in the economy. So lets see what we have. The Figure below depicts this as of last week. Note the tremendous growth and more importantly look at the rate of growth on a 12 week running average, it is in excess of 30% per annum on a going forward basis. This is the main concern and if others decide not to buy Treasuries then things just get worse. Also remember that the money has not been let loose quite yet. The worry and concern should be watching that continuing rate of growth.
Now let us look at the GDP changes. This is the throttle on the economy to date. First GDP of Domestic Investment. This is what we all are worried about. The engine for continued growth is dying off. The big concern is that in Q1 2009 it is still falling off the cliff. There is no money going into creation of new enterprises and the fear is that with the stimulus package pumping money into Government expenditures this will not grown and in addition it will be starved for a long while.
Second GDP of Personal Consumption. This is a worry. People are spending, and Q1 2009 showed a growth, perhaps a comfort zone but that spending may result in strong inflationary trends.
Then GDP of International Trade. Both imports and exports are down and decreasing in that direction. The linkages in international trade will cause further decline throughout the year.
Finally GDP of Government Expenditures. As expected if you can print money then things will not be that bad. Yes there was a decline but not as great as we had expected. In fact we should be aware of what is happening in Q2 2009 with the stimulus kicking in. In a weekend ride to New Hampshire I saw dozens of signs touting stimulus money going for highways. Useful but not long term stimulating for growth. They were for bridges which frankly were being done anyway!
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