Whenever bankers and politicians start using opaque, flowery prose to describe something simple, you know it’s bad. And today’s phrase is ‘nominal GDP targeting’
Now in fairness, our central banking overlords might do well to consider a new approach, the current one having failed so spectacularly. You will recall the Bank of England rarely hit its 2% inflation target, and Mervyn King ended up sending George Osborne more letters than a besotted school girl sends Robert Pattison. If a double-glazing salesman missed his target as often as Mervyn did, he would have been sacked long ago, but then we expect higher standards from people who sell windows door-to-door.
The UK economy is about 3% smaller than in 2008 but we are paying about 15% more for our troubles. I am unclear why higher prices are a good thing for us in this context but then I am more stupid than our wise overlords.
Rather than allowing the corrections and liquidations to occur as Austrians think they should, the B of E quadrupled its balance sheet and monetised a third of our entire national debt. Straight Mugabe-economics with the fig-leaf of buying our own sovereign bonds in the never-never pretence that we will one day ‘repay this money’ I wonder who we would repay? Ourselves?
Now this is a disaster for anyone with eyes to see and the ability to tell the truth, so we can discount most of parliament. My guess is about 95% of ‘em just don’t understand and the 5% who do can’t see any other way, having been inculcated in the system for so long.
But never fear, we maybe about to try something ‘new’ apparently. Chancellor George Osborne has recruited Mark Carney, the ‘finest central banker of his generation’ Sounds to me like damning with faint praise, but I think George was serious. You may remember Alan Greenspan was the former holder of that title.
So what is ‘nominal GDP targeting’? Apparently you set a nominal GDP target (key word being nominal not real or actual) of say 5%. This is composed of the aggregate of inflation and growth. So say you achieve only a 3% nominal GDP target (say 2% inflation and 1% growth) you simply print some more cash and stoke inflation and with it growth. In some way. Even if your economy fails to grow at all, or goes into reverse again, all you have to do is create enough inflation and hey presto you are on target. I presume the bureaucrats discount the possibility of growth above 5% and in current circumstances I think they are correct to do so.
That’s it. A smokescreen to keep the printing presses whirring without the tiresome necessity of having to write letters explaining why you are a failure in your own terms. Private Frazer, your time is now
For a fuller and frankly better explanation of the above, take a look at this website