The Dieli model and the FED.

I would like to add that the Dieli Model is an empirical model. What does that mean exactly? It means that the Model is useful in predicting a recession, but the recession is not necessarily dependent on the factors considered. Not in a cause and effect mode, anyway.

Ever since the 2008 meltdown, I have been studying how the FED is affecting the economy. My first definitive post was published July 30, 2009 (on this website). The data show that the 2008 meltdown was caused by the FED changing the accounting rules. The new rules froze the money in the banks, causing M2 to drop which caused the GDP to nosedive.  The crisis created in Oct 2008 helped to elect Obama.

Since 2008, the FED has followed a deflationary policy, which increased unemployment while keeping down the inflation. Contrary to what Bernanke says publicly, the Dollars created in the several Quantitative Easings did not enter the economy, but became sequestered as bank reserves and Treasury Notes.

In terms of the Dieli numbers, the FED can keep us from slipping into a recession by keeping unemployment high and inflation low. One of the tools of keeping inflation low is keeping gold prices as low as they can get them. Larry predicts that gold prices will hit a low between Jan 2013 and June 2013 and then gold prices will take off. The general belief is that the longer a trend is delayed (such as the rising in gold pries), the larger and quicker the action will be when it can no longer be prevented.