Sunday, August 2, 2009

"Why oh Why Didn't I Take the Blue Pill?"

It has been my contention that the amount of slack in our economy is too great to allow for a quick rebound:

The above graphs pint out the excess in the manufacturing sector, the abundance of workers without employment and the excess of goods (falling prices).

As I have mentioned before, inflation is related to the growth of money supply. Some have mentioned that the decline in prices is mainly due to falling energy prices. This is true to some extent, but I would also like to point out the following:

Money supply growth, although positive, is hardly expanding at alarming rate. Especially when one considers the following:

So not only is there slack, but the government's efforts to reflate are not of the magnitude that many perceive.

Here is why:

Banks are STILL not lending, choosing to hang onto cash in unprecedented proportions. Be careful greenshooter..........

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