THE GREAT EASING - GOLDMAN SACHS STYLE

Goldman NGDP Idea Could Let Inflation Out of the Bottle: Amity Shlaes

By Amity Shlaes Nov 2, 2011 7:00 PM ET 11 Comments

There are bad ideas, and there’s the proposal that economists from Goldman Sachs Group Inc. (GS) released Oct. 14. They suggested that the Federal Reserve Board target a nominal gross-domestic-product growth rate of 4.5 percent to decide how much money to inject into the economy. The econo- speak name for this practice is “NGDP targeting.” The question is whether that unlovely abbreviation makes it into mainstream English and becomes policy.
In practice, NGDP targeting means the Fed will create money by a variety of methods, such as purchasing bonds, until the U.S. growth rate hits the magic level on paper. The extra money pours into the hands of consumers and companies, who spend. Voila: 4.5 percent growth.
The “on paper” part is important. “Nominal” means the Fed may disregard, at least for the moment, what share of that growth is real and what share is inflation.

SO - What does this mean really?  What are those sly cats over at Goldman really suggesting?  Well, since they're now a commercial bank as well as an investment bank they're suggesting the Fed give them trillions of dollars to gamble and spend and award themselves bonuses - as much as it takes to boost the Nominal GDP number - not counting the GDP deflator - from 2 percent to 4.5 percent.  That's mucho trillions of dollars for Goldman Sachs.  NONE for you and me.


But don't worry it helps all of us.  How?  By boosting Nominal (IE FAKE STATISTICAL GDP) without affecting real GDP one iota.  What's the difference?  Well, Nominal or Fake GDP counts in all the vicious price hikes for food, energy, commodities, health care etc. as if the economy were really growing - not just getting more expensive.  The more money Goldman is given by the government the less our money is worth and the more expensive everything gets.  Goldman's idea is that this would be just great.  


Unfortunately it's no joke as serious economists - like Paul (the dope) Krugman on the left and the Heritage Foundation on the right are endorsing this idea.  Why?  Because the world has gone crazy.


Buy Gold.