Posts Tagged ‘targeting nominal gdp’

Federal Reserve signals inflation-spiral

December 15, 2012

At his press conference this week, Fed Chairman Ben Bernanke committed the Federal Reserve to near-zero interest rates until the US unemployment rate falls below 6.5 per cent. Currently, the unemployment rate stands at 7.7 per cent.

Given the massive expansion of federal spending under President Obama, and given the elimination of many unskilled jobs as a result of technical change and out-sourcing, the natural rate of unemployment in the United States may now be as high as 7 per cent. If this is correct, the Federal Reserve will pay for a 6.6 per cent unemployment rate with inflation rates that increase over time more or less rapidly depending on whether rational  or adaptive expectations determine responses to such monetary expansion.

In any event, Bernanke has announced a revolution in US monetary policy. Henceforth monetary policy will not seek to hold inflation to a maximum of two per cent per annum.  It will allow inflation to rise to whatever rate is necessary to lower unemployment to 6.6 per cent in response to near-zero interest rates.

Some apologists will laud this as a move to a nominal GDP target. But they are Obama-sycophant serpents speaking  with forked tongues.

The real objective of such a shift in Fed policy is socialism.

“The best way to destroy the capitalist system is to debauch the currency.” V.I. Lenin


Follow

Get every new post delivered to your Inbox.

Join 76 other followers