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The Fed Has No Choice But To Expand Quantitative Easing

Nothing released this week stood out as an argument whether the USA was in or not in a recession (I believe the evidence says there is no recession but it is not overwhelming). The big news this week was the Fed continuing its Quantitative Easing Program by trying to grow their balance sheet by $85 billion per month.

The reasons are:

  1. that the Fed was losing ground on its balance sheet unless it brought in a new source - you see, the government's debt is growing at $85 billion per month, and
  2. the Fed does not want the private sector investing money in the government sector while the economy is so weak

Some are worried this is an inflationary event. This thinking is wrong as:

  • money is not moving - the velocity is falling. money velocity must grow to have an inflationary event

 

  • the government buying its own debt is not inflationary;
  • what the Fed does (monetary policy) effects the global dollar more than the USA economy.

The Econintersect economic forecast for December 2012 shows weak growth. The underlying dynamics continue to have a downward bent. There are recession markers still in play, and one of our alternate methods to validate our forecast is recessionary. All in all, not a great forecast - but not one which would cause you to jump out the nearest window either.

ECRI believes the recession began in July 2012. ECRI first stated in September 2011 a recession was coming . The size and depth is unknown. The ECRI WLI growth index value is enjoying its fourteenth week in positive territory (but slightly improved from last weeks ten week low). The index is indicating the economy six month from today will be slightly better than it is today.

Current ECRI WLI Growth Index

/images/z weekly_indexes.PNG

Initial unemployment claims fell again from 370,000 (reported last week) to 343,000 this week. Historically, claims exceeding 400,000 per week usually occur when employment gains are less than the workforce growth, resulting in an increasing unemployment rate (background here and here).

The real gauge - the 4 week moving average - fell significantly from 408,000 (reported last week) to 381,500. Because of the noise (week-to-week movements from abnormal events AND the backward revisions to previous weeks releases), the 4-week average remains the reliable gauge. This is the highest 4 week average since June 2012.

Weekly Initial Unemployment Claims - 4 Week Average - Seasonally Adjusted - 2010 (blue line), 2011 (red line), 2012 (green line)

/images/z unemployment.PNG

Bankruptcies this Week: LifeCare Holdings, Internal Fixation

Data released this week which contained economically intuitive components (forward looking) were:

  • Rail movements (where the economic intuitive components indicate a moderately slightly expanding economy).
  • Imports continue to show the economy is marginally growing

All other data released this week either does not have enough historical correlation to the economy to be considered intuitive, or is simply a coincident indicator to the economy.

Weekly Economic Release Scorecard:
Investing.com Weekly Wrap-Up 14 December 2012
What We Read Today 14 December 2012
ECRI's Weekly Leading Index Growth Index Improved w/e 07 December 2012
November 2012 Industrial Production Improves but Remains Lower than 2012 High
November 2012 CPI Declines to 1.8% Inflation Year-over-Year
Infographic of the Day: Dangers in Capping Income Tax Deductions
Saving America, Chinese Style: Peeking Inside ...
Trend Change Warnings
What Made Sandy So Destructive?
LIBOR Scandal: Another Billion of Chump Change
Draghi: I Have an Inch Now Give Me a Mile
Fed's Balance Sheet 13 December 2012: Balance Sheet Up $15 billion
Rail Week Ending 8 December 2012: Carloads sans Coal / Grain Continue to Strengthen
Factory Orders Respond To The Fed: Bullish Sign
Marking Down Global Growth
What We Read Today 13 December 2012
Business Inventories and Sales Seem OK in October 2012
November 2012 Producer Price Index Continues to Moderate
08 December 2012 Unemployment Claims: Significantly Lower than Last Week
Retail Sales Showed Average Growth in November 2012
Infographic of the Day: Grey Charges by Banks On Your Credit Card Statement
What Does The Trillion Dollar Coin Do?
Dollar Responds to FOMC by Moving Lower
Bank Regulator Agreement for Eurozone
Europe: October 2012 Industrial Production Plummets
From North Dakota to Scotland: Exploring the Public Bank Option
What We Read Today 12 December 2012
11 December 2012 FOMC Meeting Statement: QE4 to Begin When QE2 Ends
Nonfinancial Leverage NFCI Increased Slightly w/e 07 December 2012
Purchasing Managers Believe Economic Growth Will Continue in 2013
Supplemental Security Income Program Costs Projected to Start to Moderate
Export Price Deflation Continues in November 2012
Infographic of the Day: Santa Should Relocate to Alaska
Oiling the Rebalancing Machine
The Problems of the Economics Profession
Safe Sectors for the Coming Year and Beyond
Differentiation Among Commodities May Be Very Bullish for Gold Producers
Bank Fraud: Underlings Arrested, Banks Too Big to Indict
Banks "Sitting On Reserves" Is A Fallacy
What We Read Today 11 December 2012
October 2012 JOLTS An Improvement Over Last Month's Report
October 2012 Wholesale Sales & Inventories Show Nice Rebound
October 2012 Trade Data: Exports Continue Less Good Trend
Stratfor: The Israeli Periphery
November 2012 Small Business Optimism Plummets
Infographic of the Day: Is Facebook On Its Way Out?
Paying for Lunch - MMT Style
Shame On Us, America!
Employers: About Face on Health Insurance
Market Cycles: Where are We Today?
Obamacare: Regulations Continue Development
Monster: Jobs Opening Growth Continues for UK in November 2012
Average Gasoline Price Decline $0.044 in Week Ending 10 December 2012
Jobs Data Is On Trend and There's No Reason For Fed To Print More Money
What We Read Today 10 December 2012
November 2012 Employment Index: Jobs Growth Will Decelerate
Are the Wealthy Benefiting from Medicaid?
Taxing Business: Government Revenues Reduced Due to Growth of Single Tax Entities
Infographic of the Day: Fiscal Cliff and You and Me
2013 Tech Stock Forecast: The "Buzz-Worthy" Stocks The Market Will Love Next Year
Gold Confiscation: Lessons from the 20th Century
Japan in Recession
Are we Looking at Things too Narrowly?
The Myth of Austerity
China: Trade Data Slows, Domestic Economy Strengthens
Metaphysical Constructs and Monetary Policy
A 100% Recession Risk That Wasn't
Falling Expenditures, Rising Receipts
Insider Trading 07 December 2012: Amazon CEO Sells Nearly $200 Million of Amazon Shares
What We Read Today 09 December 2012
Sunday Economic Comedy: Indentifying the Real Owners of the United States
Infographic of the Day: Chinese Investment in North America
The Week Ahead: The Same Old Fed?
Rail Traffic Stronger in November 2012
The Economics of Home Ownership: Whether to Buy or Rent
Zig Ziglar: See You at the Top
Decision Time On Gold Is Fast Approaching
What We Read Today 08 December 2012
Infographic of the Day: The Next Step In Internet Domain Names
Saturday Economic Comedy: Going into Debt
ILO: Wage Growth is a Global Macroeconomic Problem
Monster: European Employment Down 4% Year-over-Year in November 2012

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.