Beckworth and Ireland on NGDPLT

David Beckworth’s recent interview of Peter Ireland is one of his very best podcasts—highly recommended. In this excerpt, Ireland is discussing how a policy of NGDPLT would have done better in 2021:

Ireland: You just draw a target path for the level of nominal GDP, and you base the target path in the fourth quarter of 2019. What you see is that throughout 2020, and even on into early 2021, the economy was still in a big hole.

Ireland: So you could say, wow, compared to a Taylor rule, which is focused on growth rates, even though we’re having inflation that’s above 2%, that’s just putting us back to where everybody thought they would be when implicit or explicit nominal contracts were signed, when decisions were made before the pandemic. But with that kind of target, the nominal GDP goes back to the target path in the fourth quarter of 2021. In that case, what the strategy tells you is you should be all the way back to neutral. The thing is that… I’m willing to forgive some of this, but at a minimum, a consistent strategy like that would’ve dictated an earlier start to normalization. By not making reference to the target path all along, they got caught in a very difficult situation, too, because it became clear then later on in the year that inflation was going to be a problem. But the way the Fed operates, you have to prepare markets, and you have to prepare the political system. Actually, I was worried, late last year, that what they were going to do out of fear of the political system is just hope they could get away with not even talking about anything. They had that thing, we’re not even talking about talking about this. They were-

Beckworth: Right.

Ireland: … going to try and do that until the middle of this year. That would’ve been a total disaster. But the point is that they weren’t set up to make the transition they needed to from extraordinary ease to the beginning of normalization fast enough. They would’ve been able to do it… David, you could have maintained a consistent viewpoint, and I think you did by saying like, look, I’m looking at this target path. My strategy is nominal GDP level targeting, and then you could have said as the year wore on, “well, look, my forecasts were wrong, but my strategy remains in place, and now the strategy dictates an earlier start to lift off. But that’s simply because the economy is doing so much better than I expected, coupled with the fact that the price increases seem more persistent and broad-based than I expected.”

Beckworth: Yeah, I agree with that completely. In fact, mentioning Jason Furman, he actually took my rule that I developed in a paper I did on nominal GDP targeting, and he told me in an interview last year about midway through said, “Well, David, your rule would imply the Fed needs to raise rates right now.” I was a little reluctant to embrace that implication, but he was right. I think part of it also is… for me at least, is I was doing too much looking in the rear view mirror analysis, like, well, nominal GDP still a little bit below, it’s getting close. I think what I suffered from was more… I needed to be more forward looking. What’s the forecast of nominal GDP?

This is what so many pundits miss. Having the correct regime in place makes monetary policy more effective. In 2021, a regime of NGDPLT would have helped in two distinct ways:

1. As Peter Ireland suggests, it would have made it easier to quickly raise rates without spooking the markets with an unexpected change in policy. The Fed could have stated that a stable NGDP is the policy, and rates need to adjust as appropriate to keep NGDP stable.

2. More importantly, even if the Fed were a bit late in raising rates, financial markets would have pushed longer-term rates higher in anticipation of the future Fed rate increases required to stabilize NGDP along a 4% growth path.

In 2021, I naively assumed that the Fed was serious about FAIT, and that it was sort of similar to NGDPLT. Late in the year, the financial markets gradually realized that the Fed was not serious, and hence did not push rates high enough to slow NGDP growth as we approached the trend line.



61 Responses to “Beckworth and Ireland on NGDPLT”

  1. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    15. May 2022 at 10:24

    re: “But when we use nominal GDP to look back at the post-crisis but pre-COVID era, nominal GDP growth was slower than the Fed had intended, and, I would say, gives the correct signal that monetary policy, despite everything, was insufficiently accommodative over that period.”

    Yeah, Biden and Powell are both dopes. You don’t need a multi-year target path. You can ignore money lags.

    2020-10-01 6.6
    2021-01-01 10.9
    2021-04-01 13.4
    2021-07-01 8.4
    2021-10-01 14.5
    2022-01-01 6.5

    The 1st qtr. 2021 rebound should have given impetus to preemptive tightening.

  2. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    15. May 2022 at 10:48

    In regulating the money supply, using monetarist guidelines, the monetary authorities, will be cognizant of the volume and rate-of-change of money flows (bank debit to deposit accounts), i.e., the volume of money times its transactions velocity of circulation, M*Vt.

    It should be obvious that the extent of money’s impact on prices and the economy is measured by money flows not the stock of money. If the transactions velocity of money was a constant it would not matter, but money turnover has varied from an annual rate of 13 in 1945 to over 525 in September 1996 (last figure from the G.6 Debit and Demand Deposit Turnover release, then the Fed’s longest standing reported banking statistic).

    Lastly the money authorities must have sufficient independence to immunize their decision from all special interest pressures including the federal government itself.

    By using the wrong criteria / Keynesian dogma, interest rates as a monetary transmission mechanism, rather than member bank complicit IBDDs, in formulating and executing monetary policy, the Federal Reserve has always been, and will always be, behind any inflationary curve.

  3. Gravatar of Carl Carl
    15. May 2022 at 11:37

    I went back and re-read the Fed’s justification of FAIT
    (e.g. and wondered whether the Fed had made a mistake we often make in measuring software performance: they focused on a secondary not a primary performance indicator. The problem with focusing on secondary performance indicators is you’re still left doubting whether you need to make a change even when the metric starts flashing because the metric doesn’t, on its own, tell you whether the system is healthy.

  4. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    15. May 2022 at 12:25

    You don’t have to wait for the BEA’s N-gDp report. But you don’t use Vi, a fudge factor, as displayed on Friedman’s’ license plate.

    You could use ACH, Visa, transactions. Fed-wire and CHIPs have the same curves.

  5. Gravatar of Todd Ramsey Todd Ramsey
    15. May 2022 at 14:25

    Core PCE level increased at a 2% annual rate from December 2019 to April 2021 (116.100/112.824).

    On May 14, 2021, shortly after release of the April data, both the 5-year and 10-year TIPS spreads exceeded 2.5%.

    Should the Fed have begun tightening on that date?

  6. Gravatar of Matthias Matthias
    15. May 2022 at 15:54

    Spencer, it would be ok to officially use numbers that only come out even ten years after the fact: just use a prediction market to anticipate them.

    Just like we use TIPS spreads to anticipate inflation.

  7. Gravatar of ssumner ssumner
    15. May 2022 at 16:59

    Todd, Probably yes.

  8. Gravatar of Don Don
    15. May 2022 at 19:59

    With the highest inflation in generations, we must conclude that NGDPLT is a failure. Too bad.

  9. Gravatar of Cameron Cameron
    16. May 2022 at 04:45

    Has anyone directly asked Powell about the status of FAIT?

  10. Gravatar of Jeff Jeff
    16. May 2022 at 07:09

    >where everybody thought they would be when implicit or explicit nominal contracts were signed

    This is a very casual use of the word “everybody”. Who exactly is being referred to here as “everybody”? The Fed did not have any explicit NGDP target before the pandemic so I don’t see how “everybody” supposed to divine something like this. Also, if readers (and the author) of this blog are so confused as to what an actual stated policy like FAIT was supposed to mean, or if it was even serious, it seems to me like almost nobody knows what policy the Fed is going pursue long-term, let alone “everybody”.

  11. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    16. May 2022 at 07:50

    R * or N-gDp level targeting? Only N-gDp is an observable statistic. And a prediction market would vastly shore up predictions as a lot of money would then be on the line.

  12. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    16. May 2022 at 08:43

    The first round of stimulus checks was c. $300 million (CARES) Act ($2.3 trillion package), March 2020. while the second round was $164 billion December 2020 as part of the Consolidated Appropriations Act, $2.2 trillion package (FY 2020 U.S. Government Spending: $6.5 trillion), and the third check was in March 2021 under the American Rescue Plan ($1.9 trillion) for $411 billion.

    Who wouldn’t have thought that the 3rd package wouldn’t cause un-necessary inflation (excessive N-gDp)?

  13. Gravatar of ssumner ssumner
    16. May 2022 at 08:59

    Don, You said:

    “With the highest inflation in generations, we must conclude that NGDPLT is a failure.”

    LOL. Have you checked the NGDP growth rates?

    Cameron, He insists the Fed is still committed to it.

    Jeff, Obviously “everybody” is too strong, but his basic point seems right to me.

  14. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    16. May 2022 at 11:01

    The Effective Federal Funds Rate (EFFR) is @ .83%. That’s a large deviation from the 8.3% CPI. That’s a large negative real rate of administration.

  15. Gravatar of Rajat Rajat
    16. May 2022 at 11:55

    I’m glad David now believes NGDPLT was right all along and that Furman’s argument against it turned out to have been wrong.
    I wonder how much the Fed’s reluctance to stick to FAIT was due to controversy over Powell’s reappointment. Certainly the timing seems to coincide in a way that explains his reluctance to move earlier.

    BTW, I take it Scott, that is your car, not one that you share with your wife 🙂 Maybe I’m being crazy to think that Californians do anything as collective as ‘share’ cars…

  16. Gravatar of ssumner ssumner
    16. May 2022 at 12:48

    Rajat, My wife had her own car when she commuted to work in Boston, but now we share what was previously my car. It’s a hassle to adjust the seat each time I get in. 🙂

    People occasionally ask me about the plate.

  17. Gravatar of Sean Sean
    16. May 2022 at 14:30

    AIT and NGPDLT are nothing alike in this environment.

    This is the exact environment with big supply side shocks where AIT is a terrible policy. Still they ran things too hot for ngdplt which is a double mistake.

  18. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    17. May 2022 at 05:45

    R-gDp didn’t exceed 4th qtr. 2019 @ 4900.857 until 4th qtr. 2021 @ 5064.930. That’s why you use N-gDp – which exceeded 4th qtr. 2019 @ 5512.768 in the 2nd qtr. of 2021 @ 5711.844 (which should have prompted Powell to aggressively tighten).

  19. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    17. May 2022 at 06:08

    Bernanke: “So you could call that stagflation”

    Bernanke: ““The question is why did they delay that. … Why did they delay their response? I think in retrospect, yes, it was a mistake,”

    But Bernanke “I would like to say to Milton and Anna: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” (drained legal reserves for 29 contiguous months causing the housing market to burst, bankrupting half the home builders).

    Professional economists don’t know a debit from a credit. The banks are credit creators. The nonbanks are credit transmitters.

  20. Gravatar of Capt. J Parker Capt. J Parker
    17. May 2022 at 06:27

    The one thing missing in the Beckworth-Ireland discussion was how to deal with the long and variable lag problem when doing NGDPLT. In other words, how do you deal with the problem of the Fed needing to forecast NGDP if they are to do NDGPLT and not have such policy be destabilizing or even if they are just to use the path of GDP as one indicator guiding policy. Beckworth even admits that his thinking in 2021 was too backward looking which led him to under estimate the need to keep inflation in check.

    We know Dr. Sumner’s solution is a NGDP futures market. But even without such a market, the Fed does have an army of economic modelers and a number of modeling techniques that were mentioned early in the podcast. Yet, as far as I can tell, the specific predictions of these sophisticated models never get discussed in the economics in the blogosphere. Why? Is US monetary policy really driven, as Beckworth suggests, only by simple models you can do in your head?

  21. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    17. May 2022 at 06:36

    Powell: Sep 05, 2020 · “We think that the economy’s going to need low interest rates, which support economic activity, for an extended period of time … it will be measured in years,”

    Implementing monetary policy in an ample reserves regime abdicates the FED’s Open Market Power. The money stock, and therefore N-gDp, can never be managed by any attempt to control the cost of credit.

  22. Gravatar of ssumner ssumner
    17. May 2022 at 09:45

    Sean, Yes, but FAIT and NGDPLT are similar.

    Parker, “Is US monetary policy really driven, as Beckworth suggests, only by simple models you can do in your head?”

    Unfortunately, I suspect the answer is yes.

  23. Gravatar of Kester Pembroke Kester Pembroke
    17. May 2022 at 09:46

    It doesn’t necessarily require new M. The entire economy can be settled with one £10 note if you can get it to change hands fast enough. That’s because everybody creates credit in the final analysis.

    I have a hypothesis that monetarists can’t get their head around the idea that their M can be static, so they want to make it behave statically by separating the static bit into bonds and the dynamic bit into money, and having an interest rate between the two that they then assign causality to.

    MMT rejects the quantity of money concept. NFAs are the residual, not the flow.

    They are savings, so they don’t “V”. The general problem with any monetarist concepts is that can never explain which bits of M moves, and which bits stay still.

    That’s a good point. I will think about that

  24. Gravatar of Justin in Texas Justin in Texas
    17. May 2022 at 10:18

    We should be grateful they didn’t turn the 2020 NGDP crash into a decade+ disaster. This is still a great outcome given the way the Fed operates. The longer I follow the Fed, the more I wonder if they aren’t subject to behind the scenes political pressure from people who don’t get monetary policy, or who don’t necessarily care much and have other goals.

  25. Gravatar of ssumner ssumner
    17. May 2022 at 10:19

    Kester, LOL, you know literally NOTHING about monetarism.

  26. Gravatar of David S David S
    17. May 2022 at 10:56

    I have a question that is somewhat related to this thread. The lead letter in the May 14th issue of The Economist was by a professor named Mr. Luther, who cited research by the Fed* that implied that the policy goal should 0% inflation. I am puzzled by this, because the 2% inflation rate has been a consistent number in nearly every media source I’ve consumed over the past few decades.

    A 0% inflation rate has been the Japanese experience and the effects have been less than ideal. What is Mr. Luther trying to get at? That Fed policy is inconsistent? That any inflation rate above 0% is a policy failure?

    *The research was done by an economist named Anthony Diercks

    p.s.—I happen to agree with the first part of Justin’s comment.

  27. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    17. May 2022 at 10:56

    Powell: “It’s going to be a judgement call going forward”…”We don’t know with any confidence where neutral is, we don’t know where tight is.”

    What about N-gDp? And he got re-elected.

  28. Gravatar of Christian List Christian List
    17. May 2022 at 11:23


    Can you possibly say something about Andrew Bailey? According to the media, he’s currently predicting over 10% inflation in the fourth quarter. He says, it “already happened” and there’s basically nothing he can do about it, and that 80% is due to external factors over which monetary policy has no influence. What do you say about that? How cool is that?

    I looked a bit further and he might have actually said it:

    I think the best way I can put a sort of calibration on that is to say that at the forecast peak in inflation that we currently have, which comes in the fourth quarter of this year, when I’m afraid it goes over 10% – it is notable that 80% of the overshoot over the target at that point is due to energy and tradeable goods. That is the piece that I would put into the category of “things that have happened”— particularly the impact on global prices that is coming through to this country.

    It is more than uncomfortable; I am trying to think of a word that is even more severe than that. It is a very, very difficult place for us to be. To forecast 10% inflation and then say, as we were saying a few minutes ago, “There’s not a lot we can do about 80% of it” is, I can tell you, an extremely difficult place to be. We have to recognise the reality of the situation we face.

    Is this really the ideal man in the right place right now, or wouldn’t it be better for all sides if he resigned immediately and Scott Sumner would take the job?

  29. Gravatar of Gene Frenkle Gene Frenkle
    17. May 2022 at 12:24

    I think Democrats learned the wrong lessons from 2009/10. I believe the economy from 2001-2009 was dysfunctional due to an underlying energy crisis and that the dysfunctional economy produced a decade of malinvestment…so why would one want to perpetuate a dysfunctional economy with fiscal stimulus?? You don’t perpetuate it…unfortunately you have a few years of pain.

    Unfortunately the 2021 economy was dysfunctional because of a somewhat strong but fundamentally inequitable economy since 2014 along with crappier than expected vaccines and resistance to the vaccines. So in the context of a dysfunctional economy in 2021 you don’t have a huge fiscal stimulus.

  30. Gravatar of Student Student
    18. May 2022 at 06:09


    I am sure that car has programmable seat settings… let your wife know one of your commenters thinks she should be nice push your seat setting when she gets out of the car.

  31. Gravatar of Student Student
    18. May 2022 at 06:10

    IMO it’s the smaller drivers job to do that lol.

  32. Gravatar of ssumner ssumner
    18. May 2022 at 08:30

    David, The optimal inflation rates depends on the situation. Right now, I’d advocate a rate higher than 0% for the US.

    Christian, I’d have to know the NGDP growth rate before commenting. And the UK is better off with Bailey than with me.


    “I am sure that car has programmable seat settings”


  33. Gravatar of Student Student
    18. May 2022 at 09:11


    You would know, but I’d check the manual again. I have changed a seat memory switch on a 2010 maxima before so I know the existed on at least some models as far back as 12 model years ago.

  34. Gravatar of Christian List Christian List
    18. May 2022 at 10:37


    Every time I think I understand your theory a bit, you say something that shows me that I don’t understand it at all. I think I’m beginning to give up on it.

    Here is the only thing I have found about growth rates. NGDP forecasts are apparently hard to come by, I assume that’s why you wanted to set up these prediction markets.

    UK economic growth is expected to match the US in 2022, but in 2023 it will slump to the bottom of the league table of comparable economies in the G7, the IMF said. It will also face the highest inflation.

  35. Gravatar of Christian List Christian List
    18. May 2022 at 10:43


    Yes, Nissan Maxima has Memory Seat for example on the driver’s door. You can’t really miss it. The buttons are huge. But it seems to be extra equipment. It is not always equipped.

  36. Gravatar of ssumner ssumner
    18. May 2022 at 11:41

    Student, Some models do, but my model does not have memory seats. Obviously I checked.

    Christian, I merely asked for data on their NGDP growth rates. What is it that you don’t understand?

  37. Gravatar of Student Student
    18. May 2022 at 13:09

    Very strange how you can link key fobs to all Maximas but only some have the seat position memories. Learn something at themoneyillusion every time i come here lol.

  38. Gravatar of Kester Pembroke Kester Pembroke
    19. May 2022 at 04:27

    Exports are a real cost for a nation, and therefore ideally need to be translated into imports. Preferably some of the exports should be ‘financial savings’, but only against imports that are ‘wanted’ not ‘needed’. Trouble ensues when a nation has needed imports without sufficient supply or export diversity. Then you get a Turkish situation.

  39. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    19. May 2022 at 06:06

    The Federal Reserve Act mandates that the Federal Reserve conduct monetary policy “so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.”

    Powell won’t have hit a single mandate. NAIRU has risen. Biden has restricted oil exploration and transportation. And see: “The Great Demographic Reversal” by Charles Goodhart and Manoj Pradhan.

    And the economy is still strong:
    Net domestic investment: Private: Domestic business (W790RC1Q027SBEA) | FRED | St. Louis Fed (
    Gross private domestic investment: Domestic business (W987RC1Q027SBEA) | FRED | St. Louis Fed (

  40. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    19. May 2022 at 08:43

    Lenin once pontificated to the effect that he would destroy capitalism, and presumably capitalists, by making their money worthless. That’s what Powell is doing.

    Remember the stagflationists
    Link: “Rethink 2%”

  41. Gravatar of Christian List Christian List
    19. May 2022 at 13:16

    What is it that you don’t understand?

    That you definitely need NGDP data to evaluate Bailey. I wouldn’t have expected that until you said it. That tells me I still don’t fully understand your theory. If I really understood your theory, I would have known that you would request NGDP data.

    And then, I would have expected you to have NGDP data. Why should I have something that you, as an economist, apparently don’t even have either.

  42. Gravatar of ssumner ssumner
    19. May 2022 at 14:24

    Kester, “Needed” and “wanted”, such precise terminology!

    Christian, I’m lazy. And busy.

  43. Gravatar of Capt. J Parker Capt. J Parker
    19. May 2022 at 14:31

    @ Christian List,
    If you’ll permit me, I’ll take stab at commenting on Baily. Here is a Graph of NGDP in the US and UK:

    In the graph I’ve laid in trend lines to show the path of GDP since the 2008 recession. Ideally NGDPLT would seek to get us back on this line. As you see the US has greatly overshot the trend while the UK is only slightly above trend. So, looks like the FED and BOE are causing inflation!

    BUT, We keep being told that there is a supply shock. The theory behind a short term supply shock is that it will cause a temporary increase in the rate at which the price level increases (i.e. inflation) But then, as long as the central bank has maintained a monetary policy consistent with a long term 2% inflation rate, the rate of price increases will return to the long term 2% rate once the supply shock has corrected itself. What this means is the the PATH of prices that were originally chugging along at 2% will see a inflationary bump upward but then continue along their 2% path.

    This bump upward in the path of prices will get reflected in the path of GDP. How big the upward bump should be – I can’t tell you. Just for comparison I created two additional trend lines that represent the path of GDP for the for the US and UK that parallel the original trend lines but are bumped up by 5% in each case.

    So what this has to do with Bailey is this: I think he is saying that the UK is seeing a supply shock and that before its all over prices and the path of GDP are going to bump up some as you would expect from a supply shock. I think his claim that it already happened is just reflecting BOEs claim that it is following appropriate policy for a supply shock but the expected bump up in prices will be felt the hardest at years end. From the GDP graphs it looks like the BOE has a good chance of returning to an only slightly upward shifted GDP trend. Different story for the US.

    PS See this post for a discussion of the path of prices in a supply shock.

  44. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    20. May 2022 at 06:57

    The problem with inflation is with measuring supply-side shocks. Peak oil is a permanent shock. Demographics is a permanent shock. The gap between short-term money flows and long-term money flows is not wholly explanatory.

    N-gDp targeting is not rocket science. It is common sense. The rate-of-change in short-term money flows, proxy for real output, bottomed in the 1st qtr., as evidenced by Atlanta’s gDp now latest estimate: 2.4 percent — May 18, 2022. There will be no recession this year without a deceleration in the growth of the money supply. N-gDp growth will remain too high until the 4th qtr.

  45. Gravatar of ssumner ssumner
    20. May 2022 at 08:34

    Thanks Captain.

  46. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    20. May 2022 at 09:01

    With the rising U.S. $,
    you wonder about a contraction in the E-$ market,
    as the demand for money is increasing.

    You wonder if demand destruction, inelastic supply, secular shocks, will cause an absolute decline in the velocity of money, reversing the trend in financial innovation.

  47. Gravatar of Christian List Christian List
    20. May 2022 at 10:28

    Thank you very much, Captain. Nomen est omen. You are a true captain. Thanks again.

  48. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    21. May 2022 at 13:19

    Economics is like Idiocracy, a 2006 American science fiction comedy film. The proposed solutions just get dumber and dumber (ignoring the past).

    The money stock cannot be properly managed by any attempt to control the cost of credit.

    As I said: The only tool, credit control device, at the disposal of the monetary authority in a free capitalistic system through which the volume of money can be properly controlled is legal reserves. The FED will obviously, sometime in the future, lose control of the money stock.
    May 8, 2020. 10:38 AMLink

    Ben Bernanke, pg. 137 The Courage to Act: “Over the past few decades, a network of diverse nonbank financial firms and markets, dubbed the shadow banking system by economist Paul McCulley, had developed alongside the formal banking system. The shadow banking system included nonbank lenders like mortgage companies and consumer finance companies, as well as companies operating in securities markets, such as investment banks. This firms relied on short-term fund other than government-insured deposits…This short-term, uninsured financing-typically provided by institutional investors, like money market funds or pension funds – is called wholesale funding…wholesale funding is potentially subject to runs…mostly in the form of commercial paper or repurchase agreements. Commercial paper – short-term debt with a typical maturity of thirty days or less…However, the years before the crisis saw a rapid expansion in the use of a new form of commercial paper – so-called asset-backed commercial paper (ABCP).

    NO, Bernanke raised the remuneration rate higher than all money market rates. That obviously destroyed the nonbanks. That caused the Sept. 2019 repo spike.

  49. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    21. May 2022 at 13:22

    Banks don’t lend deposits. Deposits are the result of lending. The DFIs do not loan out existing deposits saved or otherwise. The DFIs could continue to lend/invest even if the non-bank public ceased to save altogether. The size of the commercial banking system is predicated on monetary policy, not on whether the non-bank public saves or did-saves.

  50. Gravatar of Effem Effem
    22. May 2022 at 04:21

    Why does the Fed need to “prepare the markets” for tightening but not easing? This is a fundamental asymmetry that I don’t think NDGPLT would fix.

  51. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    22. May 2022 at 06:36

    Powell: “high inflation, which we do not expect. If we do get it, we have the TOOLS to deal with it.”

    There are negative cyclical (business cycle) supply-side shocks and negative secular (structural) supply-side shocks. Commodity, food, and demographics have become secular supply-side shocks.

    Beckworth: “When movements in the price level reflect changes to the productive capacity of the economy, it is best for the Fed to ignore them”

    Beckworth “NGDPLT provides a simple work-around to this supply-shock problem: focus directly on demand and ignore inflation in the SHORT-RUN. NGDPLT automatically does this by stabilizing the growth path of total dollar spending”

    So, what are the tools?

  52. Gravatar of Jeff Jeff
    22. May 2022 at 06:47

    >Why does the Fed need to “prepare the markets” for tightening but not easing?

    This is another great “cui bono” question. Is the answer simply that the Fed implicitly insures asset prices against any unexpected risks? Investors can only lose money if they ignore policymakers’ warnings that a controlled repricing is about to occur. Their intent is to fully insure against everything else.

  53. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    22. May 2022 at 12:14

    Further evidence that the economic engine is being run in reverse:

    “from 2009 to 2020, real income generated from the private sector increased at roughly 2.9% per annum. Since February 2020, the 2.9% pace has declined to 0.5%.”

    Banks pay for the deposits that they already own (that FED policy passively permits, the aggregate volume of bank earning assets are controlled by the Reserve authorities).

    Never are the banks financial intermediaries in the savings->investment process. The expansion of savings deposits/time deposits adds nothing to total bank liabilities, assets, or earning assets.

  54. Gravatar of Effem Effem
    23. May 2022 at 11:23

    Wouldn’t it be odd for the Fed to insure asset-owners from unexpected risks but not insure consumers from unexpected inflation? This is exactly what their asymmetric framework entails.

    And we wonder why conspiracy theories are so popular…

  55. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    23. May 2022 at 14:30

    The arrogance and ignorance of economists are egregious. Both R * and (NAIRU) are fictitious. M1 and M2 are meaningless. Currency on the other hand is telling. The cash-drain factor signals important turns.

    Powell is an idiot: “The connection between monetary aggregates and either growth or inflation was very strong for a long, long time, which ended about 40 years ago”.

    We knew this already:
    After a 45 year hiatus, this research paper was “declassified” on March 23, 1983. By the time this paper was “declassified”, Nobel Laureate Dr. Milton Friedman had declared RRs to be a “tax” [sic].

    If you look at the G.6 release, you’ll know what means of payment money is:

    AD = M*Vt not final N-gDp as the Keynesian economists claim.

  56. Gravatar of Spencer Bradley Hall Spencer Bradley Hall
    24. May 2022 at 05:37

    Sumner: “The most important tool is open market operations, which is the buying and selling of government securities. Buying securities directly puts more base money into the economy, while selling securities takes money out.”

    “the aggregate RRP balance throughout 2022 has continued to rise – reaching $2 trillion for the first time just today – bank reserves have contracted by a whopping $919 billion (-21.5%) since that previous peak nearly six months ago” – Jeffrey Snider

  57. Gravatar of Jeff Jeff
    24. May 2022 at 22:20

    >Wouldn’t it be odd for the Fed to insure asset-owners from unexpected risks but not insure consumers from unexpected inflation? And we wonder why conspiracy theories are so popular…

    Yes, in a traditional sense, but today that sort of thinking seems quaint and anachronistic. I don’t think there is any conspiracy, just a widespread, very self-serving belief amongst elites that state support for investors, even to the point of high inflation, is justified on the grounds that it creates jobs for the masses. Which would seem to point to yet another disquieting but widely held belief that jobs themselves are for the most part a form of charity from the employer to the employed.

  58. Gravatar of Kester Pembroke Kester Pembroke
    25. May 2022 at 06:12

    inflation is controlled by buffer stocks, not interest rates. You remove people from high paying roles and put them on low paying roles or unemployment. The MMT analysis is that ‘interest rate changes’ only work to the extent that they make and keep people unemployed – both workers and profit seekers.

    The unemployed then have less money to spend and the distributional conflict that is inflation – who gets what – is resolved by the newly unemployed getting less.

    That resolves the expectation issue and puts it where it needs to be for stability. Workers expect to lose their jobs if they ask for more money because there are many other workers after their job. Profit seekers expect to lose sales if they ask for more money because there are many other profit seekers after their market share.

    The buffer stock is the stabilisation mechanism in the economy. Nothing else.

    So then the analysis moves to “which is better: an unemployed buffer stock or an employed buffer stock”

    An unemployed buffer stock leads to a large transition gap – the difference between the unemployment ‘wage’ level and the wage/cost level the private sector has to pay to get the unemployed work ready and into work. That is a dead loss to the economy which can be eliminated by changing the unemployed buffer stock to an employed buffer stock.

    In other words the cost of the transition gap is greater than the cost of hiring people away from the private sector to supervise and manage a Job Guarantee. Moving those few people collapses the transition gap. Overall that is more efficient and leads to a far greater GDP than can be achieved by interest rate targeting methods.

    The Job Guarantee is the system stabilisation mechanism that is superior to the ‘Unemployment Guarantee’ we have as the current system stabilisation mechanism. (The other reasons the JG is superior are discussed here:

    Arguably it would be better to talk about it as a separate ‘stabilisation policy’ – the buffer stock along with the base level tax required to produce the necessary fiscal drag that helps make the buffer stock work by forcing the currency to circulate widely.

    Then ‘fiscal policy’ can just be ‘tax and spend’, and ‘monetary policy’ can just be ‘regulate the banks’.

  59. Gravatar of Kester Pembroke Kester Pembroke
    25. May 2022 at 06:14

    Open Market Operations don’t really happen that much now we have interest on reserves.

    It’s essentially a legacy way of targeting interest rates because of the belief that too many bank reserves would blow out lending. We now know that belief is nonsense so it is unlikely that we will go back to that process. Interest on reserves is a far better system.

    The only better system, in fact, is not to pay interest on reserves at all and just let reserves float to those desired by the banking system.

  60. Gravatar of Kester Pembroke Kester Pembroke
    25. May 2022 at 06:17

    Why not just guarantee people have a job so they can earn income and pay it back?

    Why not just let lending float and reduce base interest rates to zero so that the level of interest paid is the lowest possible permanently?

  61. Gravatar of ssumner ssumner
    26. May 2022 at 19:32

    Kester, Thanks for providing some comic relief.

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