The New Fed contract

Since Jay Powell announced the Fed's new average inflation targeting (AIT) strategy last week, both Scott Sumner and David Beckworth have welcomed it as a step, albeit only a tenuous one, toward their own (and my) preferred policy of NGDP level targeting. Scott calls "average inflation targeting…a tiny step forward," though one that will allow the Fed more discretion than a move to price-level targeting would. David likewise observes that, although it isn't quite an NGDP level target, AIT "is a step in that direction."

First, these three are talking about events after the New Fed contract.   There is no targeting of anything except the one year under the currents system.  And I do not need to show, for the umpteenth time, that the Fed follows the one year Treasury. But I will:

And we can see that the Fed follows the one year, and has been doing this since the 80s.  This is not changing until we get the New Fed contract, and there is no sneaking up on it.

How would the Fed target Nominal GDP?  Only if the New contract specifies a much longer period of independence than one quarter.  It will need at least 15 year period.  Where is all the new nominal money coming from? Fed losses,  or a government default sequence, there is no other mechanism for the tax dollar.  We have a growing NGDP now because of Fed taxes will  support NGDP growth as long as government increases the debt, until the rebellion.

But collecting taxes or default are both are direct means for Fed losses.  Collecting taxes from the banks targets the banks, default is a general tax.  We cannot target the banks, they will collapse.

So, the logic is quite persuasive and I think the Overton window is in play. All three know that default is the way to target NGDP but cannot say it except by code word. I figure we will be doing code words all through the election and well into 2021. But eventually the 'No taxation without representation' crowd will win.

Why the Overton window on this?  Mainly because this will require digi cash, bearer digital assets and that is opposed by government and tech. We are headed for a larger rebellion first, then capitulation by the Overtone enforcers. But it will happen, the rebellion is growing, not shrinking.