Tim Duy reports, I analyze

Tim reports periodically on likely policy changes expected from the Fed. Let's look through his current posting.

Starting with his inventory to sales chart. It simply shows that the excess inventory resulting from store closings has started to work itself off over time. I mentioned this effect in an earlier post. This working off of excess inventory did not produce more goods flow. Looking at his chart on industrial production, most of that production was due to increased military expenses, total base spending up by 5.7% in 2009.

As noted by Zero Hedge, auto sales will likely be at their lowest level in 218 years for September. Cash for Clunkers simply sold off excess inventory resulting with the closings of thousands of auto dealerships. Tom quotes the WSJ to confirm:

The July/August average for “core” retail sales is still not much stronger than the [second-quarter] average, but after a string of contractions, these data suggest that consumer demand is, at a minimum, stabilizing. Core retail sales may even be starting to firm slightly (up in 2 of the past 3 months), but we will need to see another month or two of positive data to have confidence in that view. –Stephen Stanley, RBS

Trade with China, still way down, so China is not restocking our store shelves.

Then Tim goes back to the Great Depression and makes this common mistake:

"And - critically for divining the path of policy - the growth in the 1933-1937 period was not sufficient to allow for policy tightening, as evidenced from the 1937 recession."

Which I covered in a previous post. The 1937 recession was caused by the fascist uprising and FDR switched from domestic production to war materials. That switch, a zero crossing, required a tightening by the Fed in 1937.

The real bottom line, we are still working off excess inventories. We are still trying to find solutions to the oil efficiency problem. We will continue to deflate until we solve the oil problem, cut the defense budget, raise taxes, and shrink both state and federal government. Or some combination of these.