82 The Pleasure Of Statistical Narcissism Money Growth Policy Called Economic Peril Amociated Press WASHINGTON Two prominent economists said yesterday that the Federal Reserve Board would damage the nation's economy if it maintains the money supply at its recent low level of growth. But the two, Milton Friedman of the University of Chicago and Paul A. Samuelson of the Massachusetts Institute of Technology, both said they generally agreed with the Fed's kong-range target for money growth of 5 to 7.5 percent. "I have no objection to the Federal Reserve's targets, but I believe sert ous criticism can be leveled against the Fed for its failure to achieve its objectives." Friedman told the Sen-i ate Banking Committee. He said that after growing at a 8.6 percent rate from January through June, the money supply was almost frozen with only three-tenths of one percent growth from July through Oct. 15. "If the Fed continues the extremely restrictive policy it has followed since July for another few months, the recovery could be aborted and we would be back in a recession," Friedman said. But Friedman said he did not believe that the Fed would continue its restrictive policy but would shift instead to "another explosion in the other direction," which would also have harmful economic quences. conse Both Friedman and Samuelson said the Fed's restrictive money policies in the second half of 1974 damaged the economy. Friedman said it was a major factor "converting a mild recession into a severe recession," and Samuelson agreed it made matters worse. Samuelson said he also doubts the "recent weak rates" of money growth "are consistent with a continved healthy recovery," but, like Friedman, said if the Fed sticks to its stated targets, money growth 'should be adequate. Board Chairman Arthur F. Burns outlined the Fed's 12-month target for money growth of 5 to 7.5 percent before the same committee on Tuesday. The target involves the amount of money in circulation, plus checking account deposits in banks. Fed May Speed Up Pace of Expansion In Money Supply Nov. 11 WASHINGTON, (Reuters)-The chairman of the Federal Reserve Board, Arthur F. Burns, said today that the board might allow more growth in the United States money supply than previously permitited because of a low rate of growth since July. "A somewhat larger growth in the monetary aggregates might be tolerated for a while," Dr. Burns said at a meeting of Republican House members. The Fed has set target growth rates of 5 to 7.5 percent for the narrowiy defined money supply (checking accounts and currency in circulation) oyer the next 12 months. Dr. Burns said in previous testimony that the narrow money supply grew at an annual rate of 2.2 percent from July through September. The narraowly defined money supply increased 6.9 percent in the third quarter of this year from the first quarter of 1975. No Shortage of Money Seen Dr. Burns said neither what specific monetary growth the Fed might allow nor how long the higher growth rate would be permitted. He asserted there was no shortage of money in the economy was keerin some of this money from being used. He added that the economic re covery was proceeding satisfactorily but that renewed inflation was still a concern. Dr. Burns called the rise in unemployment in October to 8.6 percent somewhat disturb¡ing. By SOMA GOLDEN The nation's money supply moved up sharply in the week ended Wednesday, Oct. 15, the Federal Reserve Bank of New York, reported yesterday. After six weeks of almost continuous decline, the money supply-defined to include currency in circulation and checking accounts in the bankssoared by $1.7-billion, to a scasonally adjusted annual rate of $294.6-billion. This turnaround in what the experts call "the aggregates" had been widely anticipated by money market analysts. They were surprised in recent weeks by the combination of a rapidly recovering economy and a ver weak, almost flat performance of the aggregates. Many analysts said in recent days, that if the flatness continued for a few weeks longer, they would worry about the. strength of the recovery and its continuance. Supply of Money Climbed by $3.2 Billion The nation's money supply The top article is how the press reported the Fed's M1 statistical mirage for a big gain of $1.7 billion October 15, 1975 --- and how this mirage was widely anticipated. grew sharply in the latest reporting week, the Federal Reserve Bank of New York re. ported yesterday. The Fed said currency in circulation plus checking account blances the monetary aggre. gates called M-1 had climbed $3.2 billion to an average of $295.7 billion in the week ended Nov. 5. The increase, which surprised analysts because of its size, came after three months of sluggish growth or actual declines, following the Fed's efforts to forestall a renewal of inflation by adopting a restrictive attitude toward the money supply. Recently, however, the Fed has relaxed its hold, pushing interest rates downward. Initially the money supply did not respond to the Fed's relaxation. but yesterday's report. filed late in the day, pointed to a resumption of strong growth. 84 The Pleasure Of Statistical Narcissism HOW & WHY FED IN JUNE/JULY 1975 ABORTED RECOVERY What the Fed did for its June/July tight money action was to read this chart which is a statistical concoction of faulty mathematics applied to a faulty seasonal adjustment in the first place. This chart is a mirage. This booklet series will show Congress why it must kill this seasonal adjustment snake which led the Fed to repeat the 1975 error in 1976 and in 1977. The Fed, in reading the mirage chart above, tightened money during July to abort the 1975 recovery, as shown by the Sindlinger HM$ chart below. Prepared As An Exhibit For July 28, 1977 --- Congressional Testimony Before The Committee On Banking, Finance And Urban Affairs PUBLISHED BY SINDLINGER & COMPANY, INC. 104 W. State Street Media, Pennsylvania (19063) 94-542 O - 77 - 20 Light from the sky is reflected to your eye from a pool of water. Since your eye does not "see" by itself, but needs the brains to interpret the light impulses it receives, a strange thing happens. Although the sky light is reflected by the warm air ahead of you on the road, your brain interprets it as light reflected by water. Because the brain misinterprets the information received by the eye, mirages are optical illusions. There is no water on the road, nor lake in the desert, but the light that brings the image is real and so mirages can be photographed. As this booklet series documents, the Federal Reserve Board for the past three years establishes monetary policy for the nation based upon mirages, or by optical illusions. These mirages, upon which monetary policy are based are created by the use of OFFICIAL seasonal adjustments. The reason these mirages have been appearing during the past three years is and will get even worse each year explained in our first booklet series. |