According to data from negative Real Interest Rates, another US recession is likely to occur between 2012-Q1 to 2014-Q1, with 2012-Q4 being the most likely. See below.
The growth of the Net Monetary base (M0 minus excess reserves) over inflation has been above the historical average since September 2010 and has increased even further with an April reading of 540. This is an increase from last month's reading of 536.
Inflation readings in May continue to grow. The index reading of 224.804 implies annual inflation of 3.4%. Prices since December (220.186) have increased by 2.1%, which implies an annualised inflation rate of 5.0%, still uncomfortably high. As 2011 continues the momentum of these high monthly figures will translate into higher annual inflation.
Since the introduction of QE2 in November 2010, the net monetary base has increased faster than inflation.
The 10 Year Bond Rate has increased over the past few months while the Federal Funds rate remains at near zero. The April spread comes in at 308 basis points, well above the historical average.
As a result of recent discoveries in this area of Real Interest Rates, I have chosen instead to report the monthly results of 10 Year Bonds Rates minus inflation, rather than the previous method of the Federal Funds Rate minus inflation.
As this recent discovery noted, real interest rates in the US dropped to -0.27% in May 2011, which means that a recession indicator has been triggered. Since recessions have occurred between 5-32 months after negative readings, we can expect another recession to begin between 2012-Q1 to 2014-Q1, with 2012-Q4 being the most likely.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
Net Monetary Base vs Inflation (spread)
The growth of the Net Monetary base (M0 minus excess reserves) over inflation has been above the historical average since September 2010 and has increased even further with an April reading of 540. This is an increase from last month's reading of 536.
Inflation readings in May continue to grow. The index reading of 224.804 implies annual inflation of 3.4%. Prices since December (220.186) have increased by 2.1%, which implies an annualised inflation rate of 5.0%, still uncomfortably high. As 2011 continues the momentum of these high monthly figures will translate into higher annual inflation.
Since the introduction of QE2 in November 2010, the net monetary base has increased faster than inflation.
Note: A negative result implies that inflation is growing faster than the money supply, an event which indicates that a recession will occur within 1 to 36 months (with an average of 12 months).
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
Federal Funds Rate vs 10 Year Bond Rate (spread)
The 10 Year Bond Rate has increased over the past few months while the Federal Funds rate remains at near zero. The April spread comes in at 308 basis points, well above the historical average.
Note: A negative result implies a highly restrictive monetary environment, an event which indicates that a recession will occur within 4 to 39 months (with an average of 22 months).
Note: If both the first and second graphs are negative at the same time it indicates that a recession will occur within 1 to 21 months (with an average of 11 months).
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
Real Interest Rates
As a result of recent discoveries in this area of Real Interest Rates, I have chosen instead to report the monthly results of 10 Year Bonds Rates minus inflation, rather than the previous method of the Federal Funds Rate minus inflation.
As this recent discovery noted, real interest rates in the US dropped to -0.27% in May 2011, which means that a recession indicator has been triggered. Since recessions have occurred between 5-32 months after negative readings, we can expect another recession to begin between 2012-Q1 to 2014-Q1, with 2012-Q4 being the most likely.
Note: Real Interest Rates based upon 10 year Bonds can indicate how the value of money is determined in comparison with the market's safest investment. A negative result implies that inflation is eroding the savings of those who have invested in 10 Year Bonds, and indicates that a recession may occur between 5-32 months, with an average of 16.5 months and a median of 14.5 months.
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
No comments:
Post a Comment