Monday, February 28, 2011

Model the revisions

Stolen chart from Calculaed Risk

Why are the revisions growing?  Data is skewed because the global economy is still undergoing adaption. What we see is the still winding up of the gobal commodities shortages. We take the minimal number of steps to make adjustments to inventory levels. This occurs mainly in oil, and food. In the peripheral area of the supply chains, the future estimate of commodities demand is not determined until the shortage hits. At that point, we discover who is short and who is not, so we readjust orders to compenstate. It is a step by step process.

The normal macro estimates are way off, and it takes longer and longer to get accurate estimates of where things stand. The whole excercize in monetary and fiscal policy becomes unstable bullshit, quite frankly, they make a measurements on a time scale that was valid three years ago and expect the same time scale to be valid in the middle of the restructuring.

This makes nonsense of the paradox of thrift delusion which is still floating around. Government planning becomes absurd because we elect Congress from the periphery which is out of whack relative to macro measurements coming into DC. It means that the pipe Ben thinks he is filling with money is a different pipe than is being filled, so he doesn't get feed back until the bounce back.

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