NGDPLT isn’t about printing money to solve any economic problem. It is about managing the expectations of economic actors throughout the chain of economic activity, and removing uncertainty and instability in markets that comes from defects in current monetary management processes.

The current monetary management processes at the Fed and elsewhere (with the exception Australia) are ineffective in managing expectations, at best.  Inflation targeting that establishes a ceiling on the growth of core PCE, but lacks an explicit floor, with the amount of instability floating around the globe is irresponsible and loaded with hubris, of which we have plenty of evidence concerning the content of communications from the majority of central banks involved with BIS, and BIS itself, with both political establishments and the public regarding sovereign finances and supply-side policies that are clearly beyond the scope of the authority of central bankers.

Markets are unstable because there is no signaling regarding the circumstances in which monetary authorities will stabilize them. We went over the monetary deflation cliff once and there are no changes indicated that illustrate a commitment to preventing a reoccurrence, but just the opposite. Due to the attempt to control sovereign fiscal policy, monetary policymakers are threatening to allow it once again, and as often as necessary to achieve their political goals by assuring everyone they have no control over the situation. They continue to reinforce the idea of having no control as they stand idly by and watch the sovereign and societal tragedy from market instability unfold. Bernanke’s discussion of the “fiscal cliff” illustrates this point, as there would be no such cliff if the Fed were focused on achieving its legislated mandates and letting the voters punish the politicians for budgetary largess and excess inflation as warranted.

The proponents of NGDPLT are telling us that monetary policy makers do, indeed, have control over a large portion of the situation and can provide needed stability to markets any time they wish by implementing a rules-based proaction function based on the level of NGDP growth.  The inflation fear-mongering and wholesale permissiveness of economic instability that is exponentially self-perpetuating is only for the purposes of maintaining the economic uncertainty necessary to achieve the political goals of the central banks. These are my words, and mine alone. None of the experts have said it in this way. No, they are too polite when it comes to pointing out the problem, as well as willing to provide the benefit of a doubt in assuming there is a lack of understanding involved. I do not preclude ignorance as a cause, but I am not so willing to assume it is a major contributing factor given copious evidence that there are those, like Bernanke, who no doubt understand the wrongheadedness of the current situation and choose to perpetuate it rater than call it out for what it is. Bernanke chooses the path of going along to get along and it is quite a tragedy for everyone who transacts in dollars or relies on such transactions for their well being.

Advertisements