Meet the blogger who may have just saved the US economy. Yes, that’s the title of a blog celebrating Bentley University professor Scott Sumner’s championing of the latest and greatest Keynesian scheme to steal from the middle class. He calls it Nominal GDP targeting, but at this point it’s more like looting a burning building.
A quick review of the US transition from gold as money to its current state of monetary carnage:
1913 – Woodrow Wilson signs the Federal Reserve Act creating the United States’ third central bank.
1933 – FDR confiscates gold and even though the US is presumably on a gold standard to preserve the value of the dollar, it is devalued by 43% overnight.
1971 – Nixon closes the gold window after the dollar is inflated to the extent that US trading partners are no longer willing to accept dollars in trade.
1973 – The Smithsonian agreement ends as central banks are unable to maintain fixed exchange rates between fully fiat currencies.
1979 – Milton Friedman’s ideas of strict money supply targeting are abandoned when Volcker is forced to massively increase interest rates to stop rampant inflation.
2008 – Price inflation and interest rate targeting prove to be a failure as the global financial crisis takes root.
2009+ QE1 and QE2 fail to provide anything more than a short term sugar high to the financial markets.
Every time one of these policies fails, the answer is always more of the same in greater amounts. What they have managed to do is take the United States from the largest creditor nation to the largest debtor nation. A debt so large that it can never be paid off in today’s dollars.
Modern Keynesian economics is merely scholarly sounding fallacy used to promote the transfer of wealth via inflation. Economists have been so successful at establishing the idea that 2% inflation is the ideal for managing growth, that they are now faced with a dilemma: how to increase the rate of inflation to 4-5% without losing credibility? Obviously a new economic principle is required. Enter Stephen Hill’s blog and Nominal GDP targeting. His solution – don’t stop printing money until the GDP succumbs to the wishes of the central planners.
GDP has been universally presented as the standard metric for gauging economic health, but the reality is they have little to do with one another. GDP is driven significantly by debt and inflation. It is easy to increase GDP through monetary malfeasance, but it does no good for the real economy. If a household manages to rack up $10,000 more credit card debt this year than previously, would you consider that a positive indicator? The household GDP would say it is. If you received a 5% raise in a year in which your cost of living increased 20%, would you consider yourself better off? Your personal GDP would say you are.
Now it’s true that in a particularly bad economy GDP can go down, but it’s only because things are so bad, that they more than offset all of the fake gains imparted to the number by currency debasement. And currency debasement is what this is all about. Each event in the timeline above has been used to accelerate the death of the dollar. Each new policy is designed to further pillage the hard earned savings of the productive class. I find it particularly ironic that I can go to the St. Louis Fed’s website to find some of the most incriminating evidence as to the real purpose of these policies. If you look closely at the graph below of the Adjusted Monetary Base you can probably spot the trend.
The fact that the price of an ounce of gold is still well south of five figures tells me that the vast majority of folks have no clue what is coming. But for the few who are willing to look, the answer is not hard to find. Economic policymakers are hard at work providing cover for ever increasing inflation. Nominal GDP targeting is just their latest weapon of monetary destruction.
Interesting is that in June Bill Haynes nailed it when he wrote QE3 is a given. Ironic is that Scott Summer’s blog is called The Money Illusion.