Some economists talk about central bankers targeting NGDP. For me, that is equivalent to saying we want to target a yield curve. So let's do that.
Going to my Universal Economic Calculator, I pick a particular economic period which I want to replicate, say Apr 11, 2005. I like that curve and inflation is about 3.5%. I also like the curve because there are about five small slope changes, a rank of 5 economy, the curve says we are busy beavers.
So central banker tells everyone I am going to make a curve like that one. So everyone looks to see what they have on schedule for the10 year, 5 year, etc investment cycle, and how different will it be with the new yield chart. Especially important is how long the Fed will take to move short term rates to that point. A lot of large institutions will have to start meeting targets or risk bankruptcy. The curve has become a management chart of sorts, and careers are on the line if targets are not met. And whatever is constraining the consumer had better be solved soon. Targeting nominal GDP means targeting some real growth if money is to stay viable.
So the Money illusion, if it exists, is like a snap-to taskmaster, the program project manager. The illusion is that we have no other projects to work on, there is only one form of monaey and its yield curve is thus.
Might work, but Congress will be the first to rebel.
2 comments:
In my Tract The Age of Turbulence: Plea for a New World Economic Order, I explain the nature and causes of economic depressions.
It proves that after the inflation of the Mother of all Asset Price Bubbles the ominous fate of this economy is Keynes' Liquidity Trap.
Its consequences are a new, bigger Crash causing, this time, a real Great Depression II.
A turbulence in fluid mechanic is a chaotic state of a liquid. It Owns Most of the Proprieties of The Liquidity Trap, Origin of The Crash, it is a filled with Random Phenomenon and Discontinuities.
What do we do Before The Crash?
Preparing for the Crash, The Age of Turbulence. Proposes a way to profit from The Crash.
Using the yield curve as a predictor that strategy covers Treasuries, Corporate Bonds, Minerals (Oil, Precious Metals and Base Metals.) and Stocks.
Its aim is to profit from both the Asset Price Bubble and Irrational Exuberance and The Crash and Economic Depression that will necessarily ensue.
It tries, and for the time being very profitably, to accomplish Alan Greenspan Mission Impossible:
"That is mission impossible. Indeed, the international financial community has made numerous efforts in recent years to establish such oversight, but none prevented or ameliorated the crisis that began last summer.
Much as we might wish otherwise, policy makers cannot reliably anticipate financial or economic shocks or the consequences of economic imbalances.
Financial crises are characterised by discontinuous breaks in market pricing the timing of which by definition must be unanticipated - if people see them coming, then the markets arbitrage them away."
....
The clear evidence of underpricing of risk did not prod private sector risk management to tighten the reins.
In retrospect, it appears that the most market-savvy managers, although conscious that they were taking extraordinary risks, succumbed to the concern that unless they continued to "get up and dance", as ex-Citigroup CEO Chuck Prince memorably put it, they would irretrievably lose market share.
Instead, they gambled that they could keep adding to their risky positions and still sell them out before the deluge. Most were wrong."
Alan Greenspan
The Age of Turbulence: Adventures in a New World [Economic Order?].
But what do we do After The Crash?
I propose a plausible alternative solution to the Depression: I designed a System that will allow us, when The Crash will come, to get out of Credit Based Free Market Economy, Capitalism, and transfer to my Adjusted Credit Free, Free Market Economy and Abolish the FED:
To participate in our new economy you need to Enter Your €5 in The Cra$h R€gi$t€r. Before The Crash.
I.10.82
"People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.
It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice.
But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
I.10.83
A regulation which obliges all those of the same trade in a particular town to enter their names and places of abode in a public register, facilitates such assemblies. It connects individuals who might never otherwise be known to one another, and gives every man of the trade a direction where to find every other man of it.
I.10.84
A regulation which enables those of the same trade to tax themselves in order to provide for their poor, their sick, their widows and orphans, by giving them a common interest to manage, renders such assemblies necessary."
Adam Smith
June 5th, 1723 – July 17tn, 1790
An Inquiry Into the Nature and Causes of the Wealth of Nations.
Inequalities Occasioned by the Policy of Europe.
March 9th, 1776
Buy Now The Tract That Will Be Published September 17th, 2009.
You will enjoy my popular articles:
Ron Paul vs. Bernanke.
Ben "Systemic" Bernanke.
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