Stocks have room to run

[flow5]

The first column is the roc in the proxy for real-output (exactly 10 months for the last 100 years). So stocks are still a buy.

The second column is the roc in the proxy for inflation (exactly 24 months for the last 100 years). So gold is a sell.

The surrogate for MVt is required reserves on the BOG's H.3 release, ignore all seasonally mal-adjusted figures. This concept represents a trillion dollars of proprietary "intellectual property".

The roc in the proxy for inflation peaks this month.

2012-09 ,,,,,,, 0.033 ,,,,,,, 0.158
2012-10 ,,,,,,, 0.018 ,,,,,,, 0.150
2012-11 ,,,,,,, 0.025 ,,,,,,, 0.138
2012-12 ,,,,,,, 0.038 ,,,,,,, 0.125
2013-01 ,,,,,,, 0.043 ,,,,,,, 0.148
2013-02 ,,,,,,, 0.043 ,,,,,,, 0.155 spike
2013-03 ,,,,,,, 0.053 ,,,,,,, 0.138
2013-04 ,,,,,,, 0.043 ,,,,,,, 0.133
2013-05 ,,,,,,, 0.033 ,,,,,,, 0.135
2013-06 ,,,,,,, 0.025 ,,,,,,, 0.128
2013-07 ,,,,,,, 0.025 ,,,,,,, 0.108
2013-08 ,,,,,,, 0.018 ,,,,,,, 0.070

The roc in the proxy for real-output is still climbing. Stocks should resume their upward path after the seasonal pressure ends in the next 2 weeks.
-----------------

See how the effective FFR has been ticking up? (.13%->.15%)

This indicates there is some pressure in the interbank market for additional required reserve balances. You wouldn't think that would be a problem with so many excess reserves in the system. Obviously not so when the Fed drains (mops up) reserves after the holidays.

bit.ly/ImQEm7

" * Indicates the last day of a maintenance period"

02/20* 0.15 0.04 5/16 0.04 0.00 - 0.25

02/19 0.15 0.05 5/16 0.04 0.00 - 0.25

02/18 Holiday - No data.

02/15 0.16 0.05 5/16 0.04 0.00 - 0.25

02/14 0.14 0.05 5/16 0.04 0.00 - 0.25

02/13 0.14 0.05 5/16 0.04 0.00 - 0.25

02/12 0.13 0.05 5/16 0.04 0.00 - 0.25

02/11 0.14 0.09 5/16 0.04 0.00 - 0.25

02/08 0.14 0.05 5/16 0.04 0.00 - 0.25

02/07 0.13 0.10 5/16 0.04 0.00 - 0.25

[flow5]

See: "Primary Dealer Cash Shortage?" by ZeroHedge  Contrary to ZeroHedge stocks are going to go higher.
 

I.e., "Bankrupt you Bernanke" is incompetent. And everyone's got the wrong idea.

Seasonal adjustments have their roots in the fallacious "real bills" doctrine:

"In the original federal reserve act of 1913 "It was anticipated that credit extended by the Federal Reserve Banks to commercial banks would rise & fall with seasonal & longer term variations in business activity"

And: "From the beginning, the Federal Reserve was reasonably successful in accommodating the seasonal swings in the demand for currency—in the terminology of the act, providing for “an elastic currency”."

The FOMC is tasked to provide yearly seasonal adjustments as business activity waxes (the FRBNY's "trading desk" injects reserves) & wanes (mops them up). And the problem is the FOMC doesn't recognize that the theory & mechanics are the same for seasonal mal-adjustments & the "real Bills" arguments.

The Fed screwed up during the holidays. They always do. This year is worse than others. This delays any concerted effort to manage "expectations". When will the Fed be "back-on-track"? - probably, once again, thru sheer luck (or when both inflation & the economy simply "stall-out").

Monetary policy objectives should be formulated in terms of desired roc’s in monetary flows (MVt) relative to roc’s in real-gDp. Contrary to economic theory, & Nobel laureate, Dr. Milton Friedman, monetary lags are not “long & variable”. The lags for monetary flows (MVt), i.e. the proxies for (1) real-growth, & for (2) inflation indices (for the last 100 years), have been mathematical constants.

However, the FED's target (interest rates), is INDIRECT, varies WIDELY OVER TIME, & in MAGNITUDE. What the net expansion of money will be, as a consequence of a given injection of additional reserves, nobody knows until long after the fact (& since Oct 2008, the Fed's new IOeR policy has emasculated this "open market power"). The consequence is a delayed, remote, & approximate control over the lending & money-creating capacity of the banking system.

The money supply (& commercial bank credit), can never be managed by any attempt to control the cost of credit (i.e., thru pegging the interest rate on governments; or thru "floors", "ceilings", "corridors", "brackets", etc). In other words, Keynes’s liquidity preference curve is a false doctrine.

Irving Fisher's "equation of exchange" is a truism: roc's in MVt = roc's in n-gDp. Roc's in bank debits (our means of payment money times its rate of turnover-MVt) can serve as a proxy for all transactions (aggregate monetary purchasing power). I.e., without the IOeR policy, member bank legal reserves should grow at no greater rate than would allow rate of increase in monetary flows to equal the rate of increase in real output.

There is evidence to prove that [roc] in nominal-gDp can serve as a proxy figure for [roc] in all transactions (the R2 was always > .95 up until the Fed discontinued the G.6 debit & deposit turnover release in 1996). Rates-of-change in real-gDp have to be used as a policy standard. Don't need a disclaimer. This is, & always has been, the "Holy Grail".

[flow5]

The Fed just released its latest figures. Looking at MVt I would not be short stocks. But I would be short gold.

[flow5]

Zerohedge:

"Goodbye Bond Vigilantes, Hello Brent Vigilantes"

"No need for complicated formulas when one knows base money increases by at a minimum $85bn/month"
------------------

"Bankrupt you Bernanke" is directly responsible for this confiscation. It is axiomatic that gas prices will peak as the rate-of-change in monetary flows MVt (our means-of-payment money Xs its transactions rate-of-turnover) peaks. The roc in the proxy for inflation (a 24 month cummulative figure), spikes in Feb. This is inviolate & sacrosanct. It is the "Holy Grail".

[flow5]

I give you the Gospel - a trillion dollars of proprietary "intellectual property":

Not "seasonally mal-adjusted" required reserves:

1/17/2007 ,,,,,,, 38275
1/31/2007 ,,,,,,, 47566
2/14/2007 ,,,,,,, 39070
2/28/2007 ,,,,,,, 43272
3/14/2007 ,,,,,,, 38149

These are of course the "true ups". But if you look at the original figures you will find that Bernanke drained $7b of reserves in one reserve maintenace period. That's fundamental. So you know gold & stocks were going to fall in response. My post said "if gold doesn't fall there's a new paradigm". 

Some people think Feb 27, 2007 started across the ocean. "On Feb. 28, Bernanke told the House Budget Committee he could see no single factor that caused the market's pullback a day earlier".  In fact, it was home grown. It was the seventh biggest one-day point drop ever for the Dow. On a percentage basis, the Dow lost about 3.3 percent - its biggest one-day percentage loss since March 2003.

In the latest biweekly reporting period the roc in legal reserves hasn't decelerated. Don't fight the Fed (required reserves)

[qcqwerty]

Flow, why would you give the gospel away? There's nothing in it for you, makes no sense.

[flow5]

Politics.

[qcqwerty]

Feb 23, 2013 10:52:34 GMT -5 flow5 said:

Politics.

So Bernanke should, pertaining their announcement to monitor the webs that you said earlier, find out about the gospel, then somehow save the USA because they can avoid recessions with it? Is Bernanke smart enough? Are you sure about doing this?

I'm trying to look at what you look at but I can't seem to recreate those tables. What's a 10-month roc? When I take the required reserves for example I take april 2012 to jan 2013 and get 17% which is 0,017 divided by ten. The closest thing you have is august 2013 or oktober 2012, which makes no sense because this is not april or jan. Also, how do you get 24-month rocs if the H.3 only shows 13 months (jan 2012 to jan 2013) and some biweekly numbers (im assuming they aren't used because you only use monthly tables)?

[Aman A.K.A. Ahamburger]

Sounds like our excess reserves conversation . 


 Stocks will run at one point, but there are a few external problems that the Fed can't control that might effect the direction for the next little bit. Debt problems in across the pond like Moody's strips Britain of triple-A rating in major blow to Osborne, which will cause further pain across Europe because Despite downgrade, UK officials vow to press on with austerity.  We can see in recent earnigs reports and Gdp reports there is no growth in the EU yet and it will be a little while longer before that happens.  Instead of finding a way to work their way out, Tens of thousands in Spain protest economic policy, corruption. 

[flow5]

qcqwerty

I habitually disguise my calculations.

www.federalreserve.gov/releases/h3/current/h3.htm

Go to the very bottom of the release.
---
Table 3
Aggregate Reserves of Depository Institutions and the Monetary Base
Adjusted for changes in reserve requirements1
Not seasonally adjusted
Millions of dollars
---

Date	Reserves of depository institutions			Monetary base4
	Total2	Nonborrowed	Required3
Month5

Jan 9, 2013	1577128	1576539	113649	2687392
Jan 23, 2013	1637986	1637421	116096	2741646
Feb 6, 2013	1701809	1701270	123625	2804759
Feb 20, 2013 p	1726876	1726408	111482	2839639

The 3rd column reflects biweekly changes to required reserves. With roc's you apply the 2nd derivative. Your math is good enough. The absolute figure doesn't matter. It's the direction + or - (increasing or decreasing) that's important.

Only insofar as (as the weighted arithmetic average of reserve ratios & reserveable liabilities remains constant) will velocity be accurate.

You can use the FED's data download, take percent change for (1) 10 months for 1 column & (2) 24 months for the other column on Excel's spreedsheet. So your calculation of 17% is correct & can be used to project market junctures.

Take the latest reported figure & hold that constant on your spreadsheet to get future turning dates.

These numbers will of course change as the FED's open market operations add or subtract to them. I've followed these figures for over 40 years so certain patterns become obvious & I can make educated guesses as to their final disposition.

So, congratulations. Welcome to the comedy club.
Now with a little study you too can bust a gut.

[flow5]

One caveat. You can’t interpret these rocs in retrospect, only going forward. I.e., these are ex-ante calculations, not ex-post calculations. As the FRBNY’s “trading desk” performs “true ups” to satisfy any pent up demand for reserves in the current maintenance period (based upon transaction account levels 30 days prior), smoothing the supply of reserves distorts the prior policy path (overlays the original data, i.e., the payment & settlement flow impact).

[qcqwerty]

Flow, thanks for the additional explanation. So I guess you are quite serious about this.
Maybe I'm being dumb but what do you mean by

"So your calculation of 17% is correct & can be used to project market junctures.
Take the latest reported figure & hold that constant on your spreadsheet to get future turning dates"

I just have percentage change tables for the current month, for example 17% for january or 22% if you take from march 2012 instead of april ( I dont really know if you count to 10 from the end or the beginning of the month)
How does it help project future months? I only have roc's for current and past months because there aren't values for the next few months.

Also, do you mean with "true ups" that the historical data here at www.federalreserve.gov/releases/h3/ aren't reliable? It goes all the way back to 1998, and this is all different from back then?

[Aman A.K.A. Ahamburger]

One caveat. You can’t interpret these rocs in retrospect, only going forward.

 Exactly, yet some try.... 

[flow5]

"do you mean with "true ups" that the historical data here at www.federalreserve.gov/releases/h3/ aren't reliable?"

Exactly. You must follow these numbers as they are first published. The Fed "covers their tracks". If your a conspiracy theorist (Leninism/debasing the capitalists' currency), then that's why they eliminated the G.6.

Match these #'s:

2012-08	103760	0.11	0.55	85416	18344
2012-09	107290	0.13	0.63	87106	20184
2012-10	106424	0.07	0.60	88800	17624
2012-11	109790	0.10	0.55	90595	19195
2012-12	110684	0.15	0.50	92249	18435
2013-01	117329	0.17	0.59	94063	23266
2013-02	117554	0.17	0.62	95895	21659
2013-03	117554	0.21	0.55	97771	19782
2013-04	117554	0.17	0.53	99516	18038
2013-05	117554	0.13	0.54	101213	16340
2013-06	117554	0.10	0.51	102923	14630
2013-07	117554	0.10	0.43	104583	12971
2013-08	117554	0.07	0.28	106050	11504

See how I hold the 117554 figure constant going forward? That's because the analysis is not based on absolutes but rocs in conjunction with the lag in MVt.  It is the lag that tells you where things are headed.

[qcqwerty]

I get it now. This is quite the revelation. Did you "true ups" these numbers? I can't replicate them.

2012-09 ,,,,,,, 0.033 ,,,,,,, 0.158
2012-10 ,,,,,,, 0.018 ,,,,,,, 0.150
2012-11 ,,,,,,, 0.025 ,,,,,,, 0.138
2012-12 ,,,,,,, 0.038 ,,,,,,, 0.125
2013-01 ,,,,,,, 0.043 ,,,,,,, 0.148
2013-02 ,,,,,,, 0.043 ,,,,,,, 0.155 spike
2013-03 ,,,,,,, 0.053 ,,,,,,, 0.138
2013-04 ,,,,,,, 0.043 ,,,,,,, 0.133
2013-05 ,,,,,,, 0.033 ,,,,,,, 0.135
2013-06 ,,,,,,, 0.025 ,,,,,,, 0.128
2013-07 ,,,,,,, 0.025 ,,,,,,, 0.108
2013-08 ,,,,,,, 0.018 ,,,,,,, 0.070

Looks like Aham already got it.

[Aman A.K.A. Ahamburger]

We will just have to wait and see what Friday will bring, like I was saying in the no matter what the markets will be up thread, any "correction" aka "dip" should be looked at like a buying opportunity.  The 200+ point drop this week is a perfect example, I know for a fact that the economy has room to run and I know that has A LOT to do with how Mr. B handled the situation after he admitted he was wrong. 

[flow5]

Federal Reserve chairman Ben Bernanke delivered his twice-yearly testimony to the Senate Banking Committee on Tuesday, and during the question period, Senator Bob Corker asserted the following: “I don’t think there’s any question that you would be the biggest dove, if you will, since World War II,” referring to someone with a policy that isn’t “hawkish” on preventing inflation, and may in fact intentionally risk it. Corker asked, “I think that’s something you’re rather proud of . . . Do you all ever talk about the longer term degrading effect of these policies as we try to live for today?”

Bernanke responded by claiming the best record of inflation of any Fed head since World War II: “You called me a dove. Well maybe in some respects I am, but on the other hand, my inflation record is the best of any Federal Reserve chairman in the post-war period, or at least one of the best — about 2 percent average inflation.”


Non-growth is nothing to brag about.

www.nationalreview.com/corner/341831/bernanke-right-money-inflation-target-patrick-brennan

testimony...

"(anonymous Senator): "Professor Bernanke. Hubert Humphrey would take you to task...you have a dual mandate. Is this your idea of "full employment?"

"Er, yes Senator. Have you seen the numbers from Europe? I have achieved an unemployment rate of...(guffaws from the assembled union activists)..."

(Chairman banging gavel) "Order, order..." "

[flow5]

Confirmation: Roc's in MVt (the proxy for inflation) peaked in Feb

yhoo.it/WMWJ8W

"It may not be fast enough for some consumers, but the drop in pump prices is accelerating.

A man pumps gas on February 4, 2013 in Miami, Florida. Retail gasoline prices are down a penny overnight to $3.74 a gallon for the national average on Tuesday, which is down 3 cents from a year ago. Last month, pump prices on average were the highest on record for February.

Analysts said the gasoline price slide could continue.

"The savings could widen out to 20 cents to 25 cents per gallon this month," said OPIS analyst Tom Kloza. "The expanding gap should come as much cheaper wholesale prices work their way downstream and are compared with very steep increases that were characteristic of March 2012."

[flow5]

Reserves are calculated from the volume of transaction based accounts held during the CB's computation period (on reservable liabilities 30 days prior), & are aggregated based upon the CB's 2 week maintenance period. So RRs will change weekly only as there are revisions.

Wed. is bank squaring day (new figures will be reported on thurs. release). That would be occasion for the markets to pivot on a seasonally adjusted basis. 

However, the seasonal pivot came early - validating an extended run-up in stock prices.

The only way stocks will fall is if the roc in the proxy for real-output falls (MVt). But the roc in MVt will only decelerate gradually (& not at all if the Fed continues with its open market operations of the buying type). This has been the case for the last 100 years. Economics is a science. Economic prognostications within a year are infallible. There is a Gospel - a "Holy Grail".

[flow5]

13,135.01 Friday, 14^th’s DJIA close

I commented on 12-16-12, 01:50 PM #1 flow5

"We’re close to seeing the real power of OMOs. R-gDp is likely to accelerate earlier & faster than anyone now expects. The roc in M*Vt before any new stimulus is already above average.

With low inflation (given some deficit resolution), Jan-Apr could be a zinger"

[flow5]

Confirmation: Roc's in MVt (the proxy for inflation) peaked in Feb

yahoo.it/WMWJ8W

"It may not be fast enough for some consumers, but the drop in pump prices is accelerating.

A man pumps gas on February 4, 2013 in Miami, Florida. Retail gasoline prices are down a penny overnight to $3.74 a gallon for the national average on Tuesday, which is down 3 cents from a year ago. Last month, pump prices on average were the highest on record for February.

Analysts said the gasoline price slide could continue.

"The savings could widen out to 20 cents to 25 cents per gallon this month," said OPIS analyst Tom Kloza. "The expanding gap should come as much cheaper wholesale prices work their way downstream and are compared with very steep increases that were characteristic of March 2012."

-----

Reserves are calculated from the volume of transaction based accounts held during the CB's computation period (on reservable liabilities 30 days prior), & are aggregated based upon the CB's 2 week maintenance period. So RRs will change weekly only as there are revisions.

Wed. is bank squaring day (new figures will be reported on thurs. release). That would be occasion for the markets to pivot on a seasonally adjusted basis. 

However, the seasonal pivot came early - validating an extended run-up in stock prices.

The only way stocks will fall is if the roc in the proxy for real-output falls (MVt). But the roc in MVt will only decelerate gradually (& not at all if the Fed continues with its open market operations of the buying type). This has been the case for the last 100 years. Economics is a science. Economic prognostications within a year are infallible. There is a Gospel - a "Holy Grail".----

13,135.01 Friday, 14^th’s DJIA close

I commented on 12-16-12, 01:50 PM #1 flow5

"We’re close to seeing the real power of OMOs. R-gDp is likely to accelerate earlier & faster than anyone now expects. The roc in M*Vt before any new stimulus is already above average.

With low inflation (given some deficit resolution), Jan-Apr could be a zinger"

[bimetalaupt]

Flow5,
 Yes and 50/50 Expert system has some backup results that are with what you are saying.  On average Equity Risk Premium for beta one is about 2% and Interest on 10 year bond is 5%.

return low beta	5.2064%
10Y T-Note	1.94000%
ERP	3.26639%
erp beta 1	5.35784%
market	7.29784%

AS long as interest is low like less then 3% we have a long way for equities to run..

Great Call... In theory stocks could go up 45.8% as messsured by Dow Jones US Total market.. This broke 16,000 today!!! So the market is very broad...

Parson Correlation of Dow Jones Industrral to Dow Jones US Total market is

98.03397%

[Aman A.K.A. Ahamburger]

BiMetal,

With the 10 yr bond touching 2.08% and inflation peeking in Feb is 16k a 2015 call like 14k was in 2010?   

A+++

Mar 5, 2013 23:38:12 GMT -5 flow5 said:

 Economics is a science. Economic prognostications within a year are infallible. There is a Gospel - a "Holy Grail".

  It's interesting to see that things are returning to normal after the unprecedented situation of 2007-2011, that Ben B. was instrumental in handling. The math based on consumer trends is lining up more consistently now, which means that the consumer seems to be back in the market, aka, the stock market is "back".  Just in time for a shit storm in the mid east, another thing that the FED is unable to control, like the situation in Europe. Apr(?)

 I also find this interesting because it confirms that economics IS the "holy grail" and that my theory that JC understood economics is correct. 2000 ys ago he was not only a Rabbi, but was instrumental in the Roman empire.  Like BiMetal and I have been talking about for 18 months now; JC set up the economic cycles that we are on today and that is why the entire world is heading towards a consumer based economic cycle, based on HIS gospel.(LOVE not war).  The meek are in control, but it's still up to us with our free will to make the right decisions in life, which can be the hardest part. 

Good Sabbath all! 

[flow5]

"that Ben B. was instrumental in handling"

Bernanke caused the Great Recession.

The current run-up is due to a mistake (not knowing the difference between money & liquid assets)

[flow5]

"AS long as interest is low like less then 3% we have a long way for equities to run.."


Looks like a long bull market runup.

[flow5]

If you trade futures:

www.federalreserve.gov/releases/h41/Current/h41.htm

www.cmegroup.com/trading/interest-rates/us-treasury/30-year-us-treasury-bond.html

then the seasonal inflection points should be of interest. Turns reflect the FRBNY "trading desk's" seasonal accommodation of required reserves.

RRs (bi-weekly maintenance periods), are based on transactions based accounts (bi-weekly computation periods), 30 days prior since July 1998. As RRs are "smoothed" by the Manager of the Open Market Account every two weeks (as reflected on "Factors Affecting Reserve Balances of Depository Institutions" - Fed's H.4.1 release), these levels end up rotating (from high to low) each reporting period. 

Rotations simply reflect how banks behave when complying with REG D. E.g., the end of each maintenance period (* bank squaring day) is especially revealing. Checking to see whether the banks have to pay higher rates towards the end of the period (effective federal funds rate) for their reserve balances can signal tighter & easier money market condition's ahead. 

There's a lot of information in these numbers. On a non-seasonally (non-maladjusted) basis, #'s peak in Jan, bottom in March, peak in May, bottom in June, peak in July, bottom in Oct, etc.

These numbers determine seasonal fluctuations in stocks, bonds, commodities, etc. Seasonal patterns differ a little bit every year just because of the rotation in computation & maintenance periods & dates.

Seasonal patterns should be matched with non-seasonal patterns (roc's in MVt - where legal reserves are a proxy).

[flow5]

Real-gDp is up only 2.5% in 16 quarters ($13,326 in 4th qtr 2007 vs. $13,656 in 4th qtr 2012). And it took 4 years to get back to “break even”.

But the PCE is up 5.5% in 16 quarters ($110.275t in 9/2008 vs. $116.342t in 1/2013).

Reflation has accelerated faster than real-output (giving us stagflation).

From 2000 real-gDp has increased 24% but the PCE has increased 31%. I.e., the stock market doesn’t like that mix.

----

Now, take the bull market in stocks from the bottom of real-gDp in the 3rd qtr of 1982 ($5,861.4t vs. $11,033.6t in 1st qtr 2000).

Real-output grew 88% during this period (while the PCE @ $53.873t in 7/1982 vs. @ $88.809t in 1/2000) grew at 65%.

That’s the recipe for a bull market (irrational exuberance as Greenspan would say).

[flow5]

The next inflection point isn't until c. 5/5/2013. And the 10 month roc in MVt (the proxy for real-output) will support stocks until May. I.e., short-sellers should be focusing on the first of May.

[flow5]

The rates-of-change (roc’s) used by economists are specious (always at an annualized rate; which never coincides with an economic lag).

parse: dt; 10 roc; 24 roc

2013-01 ,,,,,,, 0.17 ,,,,,,, 0.59
2013-02 ,,,,,,, 0.16 ,,,,,,, 0.61
2013-03 ,,,,,,, 0.23 ,,,,,,, 0.58
2013-04 ,,,,,,, 0.20 ,,,,,,, 0.56
2013-05 ,,,,,,, 0.15 ,,,,,,, 0.57
2013-06 ,,,,,,, 0.12 ,,,,,,, 0.54
2013-07 ,,,,,,, 0.13 ,,,,,,, 0.45
2013-08 ,,,,,,, 0.09 ,,,,,,, 0.31

The transactions velocity of money (Vt) has increased - pushing up prices:

(1) expiration of widespread FDIC insurance coverage,
(2) increasing roc's in the lags for RRs,
(3) continued open market operations of the buying type,
(4) rising interest rates (both a cause & an effect),
(5) housing bottom, etc.

The currency-deposit ratio confirms the trend. This brew will simply end up feeding on itself. Lucky for the Fed there's a short-fall of money at year-end.

[flow5]

Reserve Bank credit (unlike CB credit), has been impounded (like the voluntary savings held by the CB system's customers). I.e., the CBs don't loan out interbank deposits, nor their existing customer's deposits (saved or otherwise). Nor do they loan out the owner’s equity, nor any liability item.

Prima facie evidence that the Reserve Banks & the commercial banks have created credit, as with all bank credit creation, is an expansion in the money stock. Prima facie evidence that the money stock (transaction based accounts) has expanded, is given by the rate-of-change in legal (required) reserves (the base).

So long as the 24 month roc in RRs (proxy for inflation) is no more than 2-3 percentage points above the 10 month roc in RRs (proxy for real-output), inflation is otherwise quiescent (i.e., for the last 100 years anyway).