Wake me up when the tight money starts

Here’s the FT:

US retail sales rose more than expected in October, notching their biggest monthly increase since the start of the year.

Sales, which include spending on food and fuel, rose 1.3 per cent from the previous month to $694.5bn, according to data from the Census Bureau on Wednesday. That was up from no growth in September and marked the biggest month-on-month increase since January. Economists had expected a 1 per cent increase. . . .

The so-called retail control group, which excludes building materials, motor vehicle parts and petrol station sales, jumped 0.7 per cent, following an upwardly revised 0.6 per cent increase in September. Economists expected a 0.3 per cent increase.

FWIW, the Atlanta Fed 4th quarter RGDP estimate (that’s real GDP) has been bumped up to 4.4%. And inflation is still hot. Wake me when the Fed begins to tighten.

“But two quarters of negative GDP mean we’re in a recession.” LOL.

“So what should the Fed have done differently?”

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting

Level targeting



31 Responses to “Wake me up when the tight money starts”

  1. Gravatar of Andrew C Andrew C
    17. November 2022 at 01:44

    The recent PPI and CPI reports seem better than the ones before. Given that there doesn’t seem to be a slowdown in total spending/NGDP, do you think those recent decreases in inflation rates are just noise?

  2. Gravatar of Michael Rulle Michael Rulle
    17. November 2022 at 04:12

    In the olden days, I would have always thought that declining inflation (however small) and rising RGDP was self evidently good.

    For example, one could say productivity has increased (although I don’t if employment climbed lower than RGDP).

    As a superficial old fashioned follower of Friedman, I thought we needed to target money growth. I assume level NGDP growth is a function of some combo of money growth and velocity.

    So,why is this bad? I assume it is it is not sustainable and RGDP will decline while NGDP will rise (or decline less) and inflation will rise.

    While I have a very hard time believing the Fed has a handle on the situation, if Scott is correct, we are going to get worse before we truly get better.

  3. Gravatar of Spencer Spencer
    17. November 2022 at 04:38

    The FED is operating the economy in reverse. They literally don’t know a credit from a debit, nor money from mud pie.

    The correct course of action is the 1966 Interest Rate Adjustment Act. You suppress Nominal interest rates while driving real rates higher and keep the means-of-payment money frozen.

    You increase the supply of loan funds while keeping the money supply constant. You drive the banks out of the savings business.

    Banks create deposits. Banks don’t lend deposits. Lending by the banks is inflationary. Lending by the nonbanks is noninflationary.

    Short term money flows, proxy for real output, are up. Long-term money flows, proxy for inflation are headed down. The composition is offsetting. So, I agree with Sumner.

  4. Gravatar of Spencer Spencer
    17. November 2022 at 04:57

    Economists simply can’t differentiate between an individual bank and the system. The equation, the capacity of a single bank to create credit as a consequence of a given primary deposit, is also applicable to a nonbank, financial intermediaries.

    But this comparison is superficial since any expansion of credit by a commercial bank enlarges the money supply, enlarging the system, whereas any extension of credit by an intermediary simply transfers ownership of existing money within the system (a velocity relationship).

  5. Gravatar of George George
    17. November 2022 at 06:48

    Site owner wrote:

    ““But two quarters of negative GDP mean we’re in a recession.” LOL.”

    LOL, that’s merely ONE NAME used, a word choice, to REFER to the same underlying economic reality. The definition that has been taught at universities and colleges, and referenced by politicians such as Bill Clinton, for decades.

    Site owner keeps approaching this topic with a flawed logic of ‘compelled speech’. That people are allegedly using the wrong set of character string patterns to reference the same underlying economic reality. No no, don’t SPEAK the word ‘recession’ when referencing two consecutive quarters of negative GDP that actually occurred under Biden. Use ‘flibbertygibbet’ instead to refer to the same underlying economy that…HAD TWO CONSECUTIVE QUARTERS OF NEGATIVE GDP UNDER JOE BIDEN.

    Site owner is arguing semantics and, hilariously, HAS NO MEASURABLE DEFINITION HIMSELF FOR WHAT A RECESSION EVEN IS.

    “A period of economic growth well below trend” = variable definitions subject to site owner interpretation, not an intersubjective measurable definition.
    “A substantial rise in unemployment” = see above.

    The real reason why the site owner keeps criticizing and ‘LOL’ing’ at the definition of ‘two consecutive quarters of negative GDP’, is to deflect from his own absence of any coherent, measurable definition in his own information set. A pre-emptive criticism of the measurable definition to cover up his own flawed definition that depends on unstated additional definitions.

    “Two consecutive quarters of negative GDP” does not depend on any unstated definitions because it’s already explicitly defined in measurable terms that multiple observers can utilize.

    Site owner’s ‘definitions’ are really just attempts to retain for himself and deny everyone else the ultimate authority on HOW TO SPEAK about the same underlying economic reality, and the tactic used to persuade, the smearing, and mocking people into conformity with the site owner’s self-retained ultimate authority over what people should say, doesn’t even have an EXTERNAL REALITY REFERENCE. It’s ‘I will tell the world what words to use and when to use them when referencing the same economic reality, or else I’ll LOL at the world.’

    There’s only one way to react to that insanity: LOL!

    (What must really trigger is that there were two consecutive quarters of negative GDP under Biden, that is a ‘forever fact’)

  6. Gravatar of ssumner ssumner
    17. November 2022 at 07:07

    Andrew, The recent decreases are mostly supply side. Recall when in 2021 inflation was higher due to supply side factors, now that’s reversing. Focus on NGDP, not prices.

  7. Gravatar of George George
    17. November 2022 at 07:54

    Post #2:

    1. The ‘elite’ who want express lanes at abortion clinics under the guise of ‘women’s right to choose’, and who want to sterilize children under the guise of ‘gender affirming surgery’, are the same people trying to legalize 40 million illegal immigrants because our birth rates are too low. Do you see what is happening, and why? This is what ‘5th generation warfare’ looks like.

    2. https://i.imgur.com/Xexh3s6.png
    Mitch McConnell BUSTED taking Zelensky’s stolen FTX money, according to new FEC docs.
    From the article: “According to the documents, someone from FTX, the crypto business that failed last week, donated $2,500,000 to McConnell’s Senate Leadership Fund.”
    NO WONDER there was such bipartisan support to keep sending $ billions in ‘aid’ to Ukraine. The ‘kickbacks’ are a lucrative business!

    3. Now that the world knows the missile strike against Poland was FROM UKRAINE, of course the corrupt Ukraine trolls will whitewash this, because we must all protect and defend the nazi Ukraine government as the globalist cult needs it as a means to steal taxpayer money, and Biden needed it to launder money through his son being on the Board of Burisma. Remember when Biden and the Fed said that they need to regulate and control the cryptocurrency market to ensure it’s not used for criminal activity? Turns out they wanted to use it for conducting criminal activity themselves. Ron Paul was right.

    4. https://truthsocial.com/@X22Report/posts/109359750169652302
    Republicans open investigation into Joe Biden’s HUMAN TRAFFICKING crimes.

  8. Gravatar of Carl Carl
    17. November 2022 at 08:56

    I looked at https://fred.stlouisfed.org/series/NGDPPOT#0 and changed the units to “percent change”. That seemed to be telling the story of a decelerating economy not an overheating one. What am I doing wrong? (And I hadn’t realized just how out of whack Q1/Q2 2021 was.)

  9. Gravatar of Carl Carl
    17. November 2022 at 09:02

    And, by the way, thanks for answering my question if you do. I don’t think you get thanked enough for writing this blog and answering people’s questions.

  10. Gravatar of foosion foosion
    17. November 2022 at 09:34

    Carl, to share the page with units changed, click on the Share Links button. https://fred.stlouisfed.org/graph/?g=Sa4G

    You’re looking at the page for N Potential GDP, not NGDP. See https://fred.stlouisfed.org/graph/?g=Wvhb for NGDP.

    And yes, Scott should be thanked more often.

  11. Gravatar of ssumner ssumner
    17. November 2022 at 09:53

    Carl, A graph of potential NGDP is like a graph of the number of unicorns. There is no such thing as potential NGDP.

  12. Gravatar of Klaus Klaus
    17. November 2022 at 10:35


    It’s a big club, and you ain’t in it.

    Look at this, the same FTX guy who helped launder US taxpayer funded Ukraine ‘aid’ back into Democrat and RINO coffers in the form of ‘donations’, and a Ukrainian nazi cross dressing President, and the same guy who spent $400 million to help create ripe for fraud ballot boxes to rig the 2020 election, are going to be guest speakers at a WEF / NYT event on Nov 30 with Treasury Secretary Janet Yellen.

    bUt tHe NwO iS a CoNsPiRaCy tHeoRy

  13. Gravatar of Capt. J Parker Capt. J Parker
    17. November 2022 at 10:55

    Let’s say Powell wakes up tomorrow and says “Sumner’s right by jove, we need to do level targeting!” Then he looks at this chart https://fred.stlouisfed.org/graph/fredgraph.png?g=WvoZ
    and sees GDP is something like $1.7 Trillion above the pre-covid trend.
    1) What “level” would he target? I claim he wouldn’t try to get back to the pre covid trend line. Deflating GDP by $1.7T is a big time recession. Instead, he’d pick a new path for GDP that parallels the pre-covid GDP growth rate but starts not for from our current level.
    2) Why would that be bad?
    3) GDP growth rate has been slowly coming down. Is it not conceivable that by the end of Q1 GDP will be trending at the pre covid growth rate?

  14. Gravatar of ssumner ssumner
    17. November 2022 at 11:06

    Capt., Two points:

    1. The whole point of doing level targeting is to prevent the overshoot in the first place.

    2. Even if we started level targeting from this point forward, that would be a vast improvement over the policy the Fed is actually likely to implement.

    You said:

    “GDP growth rate has been slowly coming down.”

    Yes, but the LEVEL of NGDP is getting further and further above trend. That’s very bad!

  15. Gravatar of TF TF
    17. November 2022 at 13:53

    I absolutely agree with you that level targeting would be much better. I understand you are a great academic economist, however I have not read a practitioner economist that would agree with you that monetary policy is not significantly tighter now. TIPS markets and inflation swaps provide ample liquidity to make money if you think money is not tight. Those who think CPI will stay anywhere near here can make a nice amount of money.

  16. Gravatar of Ricardo Ricardo
    17. November 2022 at 14:23

    If it’s not measurable, then it’s psuedoscience. The general accepted definition is two quarters of negative gdp growth, so if you want to change it than choose a definition that is not subjective.

    This is something you and other postmodernists do a lot. The electoral college in 2016 was a threat to democracy, but in 2020 it was the most beautiful and wonderful thing. Voting fraud occured in 2016; it was everywhere; clinton was robbed, but in 2020 voting fraud never happens because voting fraud is a figment of the imagination.

    In 2007 two quarters of negative gdp was a sufficient definition, but in 2022 it is no longer sufficient.

    And calling him a “great academic economist” is somewhat misleading. I think “fringe economist” with some support among the community is a more accurate definition. Not that fringe is bad. You could argue that all great ideas start as fringe. But let’s be honest here: Sumner was rarely published throughout his career. He was essentially sent to the doldrums of a third-rated university after graduating from Chicago, because nobody thought he was gifted enough for positions at Yale, Harvard, Colombia, MIT, Chicago — even BU, etc. He has zero verbal skills, which is problem number 1. He has yet to learn the definition of diplomacy which is problem number 2. Nobody likes to hire a verbally inept asshole. Combine those two things, and you might have a deep thinker that presents himself like an imbecile, or you might just have an imbecile. History will determine what he is later. I think the latter is more likely, but we’ll see.

  17. Gravatar of Andrew C Andrew C
    17. November 2022 at 14:28

    Thanks for your response. Further question: you said in another response that the level is getting far above trend. If you were made dictator of monetary policy, how would you resolve this? Presumably attempting to return the level to its trend would result in an awful recession, but any time the level is returned to its trend we have inflationary problems. Thanks

  18. Gravatar of Andrew C Andrew C
    17. November 2022 at 14:29

    *presumably immediately attempting to return etc., my bad

  19. Gravatar of ssumner ssumner
    17. November 2022 at 14:41

    TF, You said:

    “TIPS markets and inflation swaps provide ample liquidity to make money if you think money is not tight.”

    Six months ago a whole bunch of commenters told me the same thing. In retrospect, it turned out that I was right and they were wrong. Maybe this time I’ll be wrong, but I’d like to see some hard evidence that money is tight.

    To me, tight money is below 3.5% NGDP growth and easy money is above 3.5% NGDP growth. What sort of NGDP growth do you expect over the next 6 months?

    Ricardo, You said:

    “The general accepted definition is two quarters of negative gdp growth”

    Yes, accepted by idiots. Some of us understand the NBER’s criteria.

    Andrew, One cannot answer that question without knowing the regime. The first thing I’d do is set up a NGDPLT regime. At that point we can start worrying about where to set interest rates, the monetary base, etc. Without a regime, it’s impossible to construct a coherent policy. That’s why we are in this mess.

    Until the Fed commits to level targeting, it’s pointless to even discuss possible trend lines.

  20. Gravatar of ssumner ssumner
    17. November 2022 at 14:44

    Andrew, Here’s another way of stating the problem. I’ll define what I think is an optimal policy. Then commenters will compare actual Fed policy to my optimal proposal. But if the Fed hasn’t committed to my policy regime, I DON’T WANT THEM TO ACTUALLY IMPLEMENT THE POLICY. I want them to implement the policy they have committed to, not one I view as ideal. This is why I’m reluctant to answer “What should the Fed do now? questions. It entirely depends on the regime.

  21. Gravatar of Sara Sara
    17. November 2022 at 14:57

    He’s not just an imbecile; he’s a child.

    What other 70 year old man uses teenage exclamations like “LOL” in their writing?

    Like babyboomers, Scott never grew up. In fact, we’ve got a lot of these petty people in Washington too, and it’s quite scary. It’s why they can never work together and accomplish anything; it’s actually a sign of cultural degeneracy, and like the degenerates of the old Roman empire, it’s a danger to our republic.

    Keep voting them out folks.

    We don’t need 15 year olds leading us.

  22. Gravatar of Carl Carl
    17. November 2022 at 16:00

    foosion and ssumner:
    Thanks. I had managed to miss the big word “Potential” in the title. When I look at the correct graph, we seem to be looking like we’re somewhere between the descent of Q4 1951 and that of Q4 1984.

  23. Gravatar of TF TF
    17. November 2022 at 16:00

    I wouldn’t base my views on your commenters being right or wrong. I said TIPs are correct.

  24. Gravatar of Klaus Klaus
    17. November 2022 at 16:15


    Another conspiracy theory that the site owner believed, debunked.

    MSM silent now, but they were loud SOBs before the midterms weren’t they?

    Remember, the DOJ told 2 separate courts the Mar-a-Lago documents were so super-secret that even a FISA court judge (who signed one of the Carter Page FISAs) couldn’t be allowed to look at them.

    Misleading and lying to a federal court is a crime, even if you’re a prosecutor in the National Security Division of the Dept. of Justice.

    But they’re Democrats so they’re above the law at Biden’s DOJ!

    But hopefully the new GOP majority House will blow the lid off the whole criminal cult.

    Tuesday: Trump announces his run for presidency and says human trafficking is worse than it’s ever been in history.

    Wednesday: Pizzagate famous James Alefantis’ ex, David Brock, resigns from Media Matters.

    Today: GOP leaders announced an investigation into the Biden family’s criminal business dealings including their involvement in human trafficking.

    Nothing to see here.


    What a difference a day makes, haha.

  25. Gravatar of Lizard Man Lizard Man
    17. November 2022 at 17:05

    Isn’t strong RGDP growth amid disinflation exactly what a soft landing would look like? I don’t see why Sumner is so glum. Inflation is coming down while RGDP growth is going up. So yes, NGDP growth is still above trend. I guess I don’t see why anyone would care about NGDP growth except for it having some impact on things like RGDP growth and inflation. And the path of those two is looking good at the moment.

  26. Gravatar of TF TF
    17. November 2022 at 17:41

    You are correct, SS is wrong.

  27. Gravatar of ssumner ssumner
    17. November 2022 at 18:46

    TF, Yes, the TIPS might be correct, but they were wrong a year ago. That’s why level targeting is so essential; it prevents a major policy failure when the TIPS spreads are not correct.

    Lizard, You said:

    “Isn’t strong RGDP growth amid disinflation exactly what a soft landing would look like?”

    Not at all. If we are lucky (and I emphasize lucky) a soft landing will be very slow RGDP growth and gradually falling inflation. If we are unlucky, we’ll have an outright recession.

    RGDP matters for things like long run living standards, but that’s not what’s at stake with monetary policy. For monetary policy, RGDP is irrelevant; all that matters is NGDP growth. If that’s too high then it destabilizes the economy, and it makes no difference if it’s too high because of high price inflation or high RGDP growth. Ignore the components and focus on the total. I hope I’m wrong, but I fear another 7% or 8% NGDP figure in Q4. This year has been a disaster for monetary policy.

  28. Gravatar of veritas veritas
    18. November 2022 at 07:45


    In case any of you msm watching sheep weren’t aware, the world’s largest protest ever in human history is taking place in Brazil (over the rigged election).

    You also need to put this into context. Brazilians are for the most part pretty laid back. So the fact that the protest has risen to the largest ever is HIGHLY significant.

    And the msm is silent. Why? Because they are in fact the propaganda arm of the very same radical left globalist cult rigging elections worldwide, they don’t want you to see this, because you might start to question their narrative. They put power above truth, regardless of it means authoritarianism.

    But guess what? That very silence is motivating the Brazilian people even more, so f the fake news.

    Brazilian Military: “It is not possible to say the electronic voting system is free from the influence of malware that could affect its outcome”. I guess the Brazilian Military shall be known as, Darth Conspiracy Nut. LOL

  29. Gravatar of anon/portly anon/portly
    18. November 2022 at 09:36

    “So what should the Fed have done differently?”

    SS poses this question and then we get 16 different answers? What’s up with that?

    For me, the 9th invocation of “level targeting” was the most coherent and persuasive one. After that, I felt that there was a perceptible drop in quality.

  30. Gravatar of veritas veritas
    18. November 2022 at 11:22


    No predicate. Weaponized DOJ.

    They tried to frame Trump for treason, they attempted to impeach him twice by lying about what he said on a phone call and a made up the Alfa Bank hoax, they tried to eliminate him behind the scenes, assassination attempt after assassination attempt, they spent six years smearing him with the mainstream media industrial complex, and now they are attempting to indict him before 2024.

    There is no limit to what they won’t do to stop Donald Trump, and no clearer depiction of this truth:


  31. Gravatar of ssumner ssumner
    18. November 2022 at 11:47

    Anon, It’s all about copy and paste. 16 is 2 to the 4th power.

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