Keywords: Business cycle, Euro area, cycle dating, cycle synchronization dating committee, analogous to the NBER's dating committee for the US economy. Despite recent statements by some NBER Recession Dating Committee members, the Committee is not ready to declare the recession over. The NBER's Recession Dating Procedure. Business Cycle Dating Committee.
To overcome this problem economists employ total monetary expenditure on goods, which they divide by an average price of those goods.
But is the calculation of an average price possible? Suppose two transactions are conducted. In order to calculate the average price, we must add these two ratios and divide them by two. Since GDP is expressed in dollar terms, which is deflated by a dubious price deflator, there is a high likelihood that the fluctuations of so-called real GDP will be driven by fluctuations in the amount of dollars pumped into the economy.
Hence various statements by most economists regarding the rate of growth of the real economy are nothing more than a reflection of fluctuations in the money-supply rate of growth and has nothing to do with true real growth, which cannot be quantified. Once a recession is assessed in terms of real GDP it is not surprising that the central bank appears to be able to counter the recessionary effects that emerge.
For instance, by pushing more money into the economy, the central bank's actions appear to be effective, because real GDP will show a positive response to this pumping after a time lag.
Conversely, once the central bank tightens its stance and slows the pace of monetary pumping, the so-called economy in terms of real GDP follows suit — a recession is set in motion.
Because fluctuations in real GDP are a reflection of fluctuations in money supply, we suggest that, contrary to popular thinking, an increase in the rate of growth of real GDP should be seen as reflecting economic impoverishment rather than economic growth. Conversely, a fall in the rate of growth of real GDP could be seen as a reflection of less pressure on the wealth-formation process and hence should be seen as positive for economic growth.
Why is this so? Note that a loose central-bank monetary policy sets in motion an exchange of nothing for something, which amounts to a diversion of real wealth from wealth-generating activities to non-wealth-generating activities.
In the process, this diversion weakens wealth generators and this in turn weakens their ability to grow the overall pool of real wealth. Observe that loose monetary policy after a time lag follows by a strengthening in the rate of growth of real GDP and a weakening in the process of real wealth formation. Hence again, contrary to popular thinking, what we have here is not a strengthening but a weakening of the economy.
In this sense the expansion in the activities that sprang up on the back of loose monetary policy is associated with what is labeled as an economic "boom," which is in fact false economic prosperity that leads to economic impoverishment.
Once the central bank tightens its monetary stance, this slows down the pace of monetary pumping and after a time lag slows down the rate of growth of real GDP.
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Note that a slowdown in the monetary pumping slows down the diversion of real wealth from wealth producers to non wealth producers. Also note that, on account of a time lag, previous loose monetary policy tends to lift price inflation at the time when the present tighter stance is set in motion.
This means that the nonproductive activities are now confronted with a decline in the rate of monetary pumping and a rise in price inflation. This amounts to the erosion in their purchasing power. Activities that sprang up on the back of the previous loose monetary policy nonproductive activities now get less support from the money supply — they fall in trouble.
The liquidation of various nonproductive activities on account of a tighter monetary stance of the central bank is associated with a decline in the rate of growth of real GDP — seen as bad news by most commentators including the NBER. In reality however, there is now less pressure on the process of wealth generation. This means that a fall in the rate of growth of real GDP here is actually associated with the strengthening in the underlying fundamentals of the economy.
We can thus conclude that ,contrary to the NBER and popular thinking, a fall in the rate of growth in real GDP is the manifestation of the strengthening in the economy's economic fundamentals while the strengthening in the rate of growth of real GDP mirrors the weakening in the economy's fundamentals.
Peaks, Troughs, and Money Supply Once it is observed that the central bank has adopted a tighter monetary stance and consequently the yearly rate of growth of money supply starts to decelerate, we can view this as the beginning of the liquidation phase, or the beginning of a recession in terms of real GDP.
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Needless to say, that this is good news for economic fundamentals. As long as the downtrend in the growth momentum of money supply stays in force, the liquidation phase also stays intact.
Once the trend is reversed, i. The end of a recession here is the beginning of a buildup of new nonproductive activities or a strengthening of any still surviving nonproductive activities.
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Observe that since changes in money supply affect the economy with a time lag this in itself is important information regarding the future state of economic activity in terms of real GDP. So rather than dating the fluctuations of real GDP without paying attention to the causes of these fluctuations, it is more useful to follow movements in money supply to make sense of the state of the economy. Now, the key reason for the so-called current economic recovery in terms of real GDP and other economic indicators such as industrial production is a strong increase in our monetary measure AMS during May to August The yearly rate of growth of AMS jumped from 0.
We suggest that, after a time lag, a fall in the yearly rate of growth of AMS from In the framework of a still-growing pool of savings this type of information could be very useful to businesses. Once the cleansing of various nonproductive activities takes place, this provides a greater scope for wealth generating activities in the months ahead.
As a result of ongoing loose monetary stance of the central bank a situation can emerge where the ability of wealth generators to produce savings is badly damaged — not enough wealth is generated. By paying attention to the size of monetary pumping and how various economic indicators respond to this pumping, one can also make certain qualitative guesses regarding the state of the wealth-generating process.
For instance, given the lackluster response of indicators such as unemployment to the strong increase in the growth momentum of AMS, this raises the likelihood that the pool of savings is not in good shape.
Consequently, given a likely renewal of a policy of aggressive pumping by the Fed, this doesn't bode well for the wealth-generation process in the months ahead. Dates of last recession calls are https: Both approaches accurately identified the nber business cycle synchronization. Jeff frankel,the judgment today and macroeconomics, and.
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