With its recent discount rate cut, the Federal Reserve gave a clear sign that it was worried about whether the economic recovery has adequate momentum.
The latest very weak employment figures must have genuinely alarmed the authorities, but their alarm might have been all the greater because the monetary aggregates were also weakening further at the time.
Earlier this year, at least growth in the narrow transactions aggregate (M1) was strong - though the broader, targeted aggregate, M2, remained weak.
But the recent weakening in M1 while M2 faded further would suggest that policy of late was actually becoming tighter from the perspective of the supply of liquidity to the economy.
Sluggish economic performance in this country has been matched by unsatisfactory growth in other industrial countries - notably Japan and much of Western Europe.
I would say the basic reason is that authorities in the major countries have been tilting more toward anti-inflation than progrowth policies.
This has increased the risk of mutually reinforcing weakness among the major countries, especially if few independent sources of economic strength remain within each country - factors such as an active fiscal policy, pent-up consumer demand, or new technology and goods requiring expanded investment.
A change in policy focus is needed, but authorities have been hesitant.
Underlying conditions in each major country or area do vary, of course. In the United States, we have faced certain structural problems restraining recovery. The debt hangover from the consumption, real estate, and leveraged buyout binges of the 1980s is one such problem but may not be the chief one.
Consumers have not increased their savings rate during the past two years of recession and slow recovery as they might have been expected to do if they were compensating for their earlier debt buildup. They are however, saving somewhat more on average than they did in 1987 before the stock market crash.
Business Spending Lags
Thus, consumers are a passive force. They cannot be expected to be positive, as they were in most of the 1980s, when they reduced their savings rate. And let us hope they do not turn negative over the near term by increasing their savings rate before other sources of recovery are well on stream.
The problem is that we have been staggering along without the usual investment spending that generates strong growth in spendable income and strengthens recoveries.
Business spending on plant and equipment has lagged, so far, and - most unfortunately from an anticyclical perspective - we have not been able to employ fiscal policy (at the federal or local levels) to offset deficiencies in private spending.
U.S. fiscal policy has been hamstrung in aiding recovery for well-known reasons.
Neither the federal government nor the market had any confidence that we could both employ anticyclical fiscal policy and later cut budget deficits as needed to enhance long-term growth prospects.
Waiting for the World to Grow
Under all these circumstances, the Fed was left with a very heavy burden. The United States has had the most expansionary monetary policy of any major country - judging by our steeply sloping yield curve - but the authorities may still have underestimated the burden.
The Fed's latest policy move suggests that growth is now taking priority over fighting inflation.
Even, so given our structural problems, a sustained, dynamic U.S. economy is most likely to evolve only within the context of stronger economic performance in the rest of the industrialized world. That would require less hesitancy and further stimulative action abroad.
Japan is in the best position to undertake such policies - via a combination of fiscal and monetary expansion - since it has virtually attained its policy objectives of deflating the bubble economy and minimizing the potential for wage inflation.
The Western European countries have somewhat less flexibility, partly because of the need to restrain remaining inflationary threats in Germany and elsewhere. But they have also limited themselves by an apparent political desire to demonstrate the feasibility of economic union and a common currency - which has thus far prevented many countries from fully addressing internal needs.