Economic Business Cycle - Autumn

The economic news this week, including the jobs data, showed that the economy is stable and starting to show signs of growth. This newsletter is the 3rd in a series correlating economic business cycles and weather cycles. When the economy is stable after a decline it correlates to spring, when it is growing it correlates to summer, and when the economy stops growing it correlates to autumn. At the end of the newsletter are some autumn weather facts.

If the economy is growing what causes it to stop growing? The answer is the Federal Reserve and the control of monetary policy. It is the policy of the Fed to have 3% economic growth. The problem with this policy is that it is impossible to accomplish it.

When growth is below 3%, the Fed spurs growth with low interest rates and adds money into the economy to get the economy to grow. It is impossible to get exactly 3%, and inevitably the economy grows faster than 3%. To get it back to 3% the Fed raises rates and withdraws money from the economy because of an inflationary concern. Our economy is very diverse and is hard to regulate growth because people spend money based upon their feeling of the future.

So what are the signs of the autumn phase of the business cycle? The Fed says that they are concerned about fighting inflation. Interest rates are above 3%, the Fed has been raising them for awhile and autumn begins when interest rates are high and the Fed stops raising them. The treasury yield curve goes from increasing to flat. People will be looking at how great stocks have done in the past and will start rushing to buy them.

When autumn hits in the economic business cycle, ABORT ABORT ABORT. This means get out of the stock market and get ready for the roller coaster ride down. Do Not Follow The Crowd!!!!!

Right now our economy is stable and we are in the spring phase of the economic business cycle. The autumn phase will come a few years from now.

AUTUMN FACTS:

The Great Galveston Hurricane of 1900 killed more Americans than the Johnstown Flood , San Francisco Earthquake, and Chicago Fire combined.

A polar air mass moving out of the Arctic across the Mississippi River Basin may evaporate more than nine times the water flowing out of the river mouth in Louisiana.

Only three years in recorded history have not seen tropical storm occurred in the Atlantic Ocean during August: 1941, 1961 and 1997.