Monday, August 16, 2010

Sunday Night Economic Assessment

The US Industrial economy eased off again last week (if pipeline scheduling is correct) as industrial production slipped, while consumer spending surged on the heals of an announced resumption of quantitative easing (purchasing of treasury debt) by the Federal Reserve.

The Production Index (In terms of its 28-day moving average of gas-flow scheduling into US industrial facilities) dropped for its fourth straight week, declining to 115.0 (from last weeks 115.5), It's lowest level since May 5th. In its dailies the index started soft but ended the week with daily activity roughly in line with the prior week.

The paperboard-based Consumption Index surged robustly within the week (2nd up week in a row), soaring to 135.5 (from last weeks 128.0), its highest level since March 10th. In its dailies the measure started firm at the beginning of the week then built upon that momentum throughout the week.

The Inventories measure (the cumulative weekly difference between the Production Index and the Consumption Index) continued its pattern of re-accelerating decline.

On balance, the US economy looks to be underpinned by a thick cushion of excess of consumption over industrial production, and by recent gains in consumption. Deep divisions of optimism between the consumptive and productive ends of US society also remain evident in the disconnect between the gaining consumption index vs the declining production index, not to mention the ever-dwindling inventories measure.

If the implied surge in consumer spending can hold, it should argue for the resumption of US economic growth as factories respond to increased consumer activity, accommodating it by increased production scheduling.

The Federal Reserve announced last week that it would resume quantitative easing, a move that (though very much late) is necessary to keep us out of depression. I have very deep concerns of the rationality of past Federal Reserve & Governmental monetary policies, and have deep concerns of the practicality of its monetary-measurement-systems. I see the US as a country pulled into a sewer of debt by continuing patterns of monetary outflows resulting in a situation where the US "Money Supply" is a gigantic short position (private sector plus public sector) covered by ridiculous methods of accounting (we count dollar-assets without deducting dollar-liabilities).

If businesses were allowed to value themselves the same way the Feds count money supply, the big banks that failed the last couple of years, and GM and Chrysler, would have been shown to be worth a fortune... right before the days that they all went bankrupt! No wonder they never audit the Federal Reserve!