Let s look at some figures. No wonder the federal funds rate fell from 17.6 per cent in 1980 to 3 per cent in 1993. Nevertheless, the fact that consumer spending rose by 8.3 per cent in the last quarter of 2000 is not evidence that credit is still expanding. The growth in M3 demonstrates how reckless monetary policy has been. From December 1990 to December 2000 this monetary measure grew by more than 70 per cent.
Credit has much in common with a house flooded by burst water pipes.
Even though the water is turned off it will still take time to drain the remaining water out of the structure and dry the place out. In other words, there is a time element. Nevertheless, even if credit is still expanding a shrinking cash base will eventually end it and bring on a credit crunch. And as I have explained before, real forces eventually move to burst the boom, no matter what happens to M1 or any other monetary measure. The length and depth of the expansion combined with the country s low level of savings and the clear emergence of real forces strongly suggests to me that Americans should look to the near future with considerable misgivings, and make some attempt to recall Aesop s fable of the Ant and the Grasshopper.