The Fed Taper is Presently Too Tight

Special Guest: Richard Duncan
Video: 22 Minutes, 25 Slides

According to global economist Richard Duncan, since 1952 every time Total US Real Credit Growth fell below 2%, the US has experienced a recession. This correlation has been marked on 9 separate occasions. We are now below 2% and as a consequence the Federal Reserve will soon have little choice but to make a course correction in the current "Taper" monetary policy.

$2.3 Trillion In Total Us Y-O-Y Credit Growth Required

Approximately $2.3 Trillion in total Y-o-Y credit growth is required. According to Richard Duncan's very detailed tracking at Macro Watch, the Fed will be between $500 and $1T short.

Problem Compounding Quickly

There are a number of developments that have placed the Federal Reserve and its new Chair Janet Yellen in this awkward policy quandary.

Sub 3% global growth levels have traditionally been a reliable indicator of recessionary economic troubles in the US. As 25% of the world economy, a US recession has historically been the catalyst for sub 3% world growth. Today with Emerging Markets being more than 50% of the global economy, the reverse may be a new contributing development.

Sub 3% World GDP Growth

Another consequential development is falling foreign direct investment. FDI is now at unprecedented Bear Stearns and Lehman lows and getting worse fast!

Dramatically Slowing Us Foreign Flows

Conclusion

The chart below, taken from a survey of 222 fund managers responsible for a collective $591 billion in assets under management conducted by BofA Merrill Lynch between Feb. 7 and Feb. 13, 2014, shows where investors think we are in the global economic cycle right now. We have overlapped it with our work and sense we are highly likely in the midst of a major inflection point.

Video: Halting a US Recession with Richard Duncan"

Video: 22 Minutes, 25 Slides

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