Changing the RBA Goalposts - Nominal GDP or Inflation targeting

[bull_bear]

Interesting Idea from Nick Xenophon, that could be worth looking into.
Its slightly left field, but not as much as you would think,

At the moment the Central Bank set interest rates with the aim of keeping inflation at 2-3% p.a.
This idea is for the Central Bank to target Nominal GDP growth of say 5%


Targeting Nominal GDP essentially, means that you can set interest rates lower when Nominal GDP growth is lower than average, even if it means inflation goes higher than the current 2-3% band, and then when you have boom times, (such as the period just before the GFC) you set interest rates higher than you might under the current system.


http://www.theage.com.au/business/c...get-growth-not-inflation-20160821-gqxlcd.html

http://www.economist.com/news/leade...rich-economies-zero-interest-rate-world-after

Thoughts?

 

[BuggedOut]

Perpetual growth of 5%.....sounds moronic and utterly populist.

I prefer LDP policy of targeting 0% inflation and a balanced budget. In my opinion a healthy economy has both peaks and troughs. The troughs are required to clear out mal-investment. Similar to how back burning clears out dead wood and both prevents raging bushfires and promotes new growth.

 

[BuggedOut]

"mal-investment" seems like a coined phrase that might be associated with our PM Malcolm

 

[SpacePete]

Perpetual growth of 5%.....sounds moronic and utterly populist.

I prefer LDP policy of targeting 0% inflation and a balanced budget.

Stagnation? That will just prolong the pain and doom us to a slow, soul-destroying decline. We desperately need growth.

 

[BuggedOut]

Perpetual growth of 5%.....sounds moronic and utterly populist.

I prefer LDP policy of targeting 0% inflation and a balanced budget.

Stagnation? That will just prolong the pain and doom us to a slow, soul-destroying decline. We desperately need growth.

At what price? 5% growth with 10% inflation - How does that sound?

Growth is over-rated. We need sound money and sensible allocation of capital. Not populist drivel.

 

[mmm....shiney!]

^ unrealistic?

 

[BuggedOut]

^ unrealistic?

Which part is unrealistic? The 5% growth, the 10% inflation or the sound money with sensible allocation of capital? :/

 

[Ipv6Ready]

Can it be done, Especially from Australia's economic point of view.

We are by in large price takers. If we had that policy during the boom how would have the reserve gone about keeping it there.

 

[BuggedOut]

That's a very good question. I guess it depends on whether you believe in Keynesian economics. It also might depend on whether you care about our AAA ratings.

You could probably argue that we could drop our interest rates further now to try and stimulate some growth (and drop our AUD) but it would be at a risk of creating inflation. That was kind of my initial point.

 

[Caput Lupinum]

Businesses aren't going to invest in capital expenditure if nominal GDP is less than 5% yet inflation to running away higher stopping the central bank from raising rates. Would be great for gold investors though, just ask Paul Volcker and 1980

 

[mmm....shiney!]

^ unrealistic?

Which part is unrealistic? The 5% growth, the 10% inflation or the sound money with sensible allocation of capital? :/

It was tongue in cheek mate. Just echoes from a previous post of yours in another thread. Nothing serious.

 

[BuggedOut]

^ unrealistic?

Which part is unrealistic? The 5% growth, the 10% inflation or the sound money with sensible allocation of capital? :/

It was tongue in cheek mate. Just echoes from a previous post of yours in another thread. Nothing serious.

Gotcha

Yes, I am a moderate....and that probably makes me unrealistic.

 

[BuggedOut]

Businesses aren't going to invest in capital expenditure if nominal GDP is less than 5% yet inflation to running away higher stopping the central bank from raising rates. Would be great for gold investors though, just ask Paul Volcker and 1980

Very true. The previous mis-management and commonly proposed populist solutions is why I have been investing in gold recently.

But I would much rather go back to being able to put money in the bank and invest in blue-chip shares with some confidence in the financial system.

 

[mmm....shiney!]

Is GDP a satisfactory measure of growth?
OECD Observer
If ever there was a controversial icon from the statistics world, GDP is it. It measures income, but not equality, it measures growth, but not destruction, and it ignores values like social cohesion and the environment. Yet, governments, businesses and probably most people swear by it. According to Franois Lequiller*, head of national accounts at the OECD, part of the problem is that perhaps we expect too much from this trusty, though misunderstood, indicator. He explains.

- See more at: http://www.oecdobserver.org/news/ar..._measure_of_growth_.html#sthash.6ad0aKeM.dpuf

There is more and more reference being made to inequality, happiness etc in articles about government policy and central planning. Those that support central planning are realising that governments can only fail in their attempts to control the economic outcomes of countries, so they're turning their attention to managing the social outcomes instead. All it just means is that they can keep stealing the wealth of the productive in order to remain in power.

 

[BuggedOut]

It doesn't matter if we're poor, as long as we can feel good about ourselves

 

[errol43]

Are the GDP figures correct, In the UK Prostitution and the drug trade are included in the GDP figures. In Australia it seems like total production is included in the GDP and not the monetary amount...ie Mining Industry, production up. revenue down!

GDP can be and are manipulated!

When interest rates go to zero there is nothing left to stimulate the economy. Oh! I forgot QE 4.

Regards Errol 43

 

[mmm....shiney!]

Government expenditure is also included.

 

[blesbok]

Government expenditure is also included.

It would be interesting to know how many $'s are spent to create $1 of GDP. I read somewhere that in the USA its $7 or $10 debt to create $1 GDP.

 

[millededge]

Interesting Idea from Nick Xenophon, that could be worth looking into.
Its slightly left field, but not as much as you would think,

At the moment the Central Bank set interest rates with the aim of keeping inflation at 2-3% p.a.
This idea is for the Central Bank to target Nominal GDP growth of say 5%


Targeting Nominal GDP essentially, means that you can set interest rates lower when Nominal GDP growth is lower than average, even if it means inflation goes higher than the current 2-3% band, and then when you have boom times, (such as the period just before the GFC) you set interest rates higher than you might under the current system.


http://www.theage.com.au/business/c...get-growth-not-inflation-20160821-gqxlcd.html

http://www.economist.com/news/leade...rich-economies-zero-interest-rate-world-after

Thoughts?

Income vs product

Easy to see productivity without income

In present circumstances, not so much the other way, income leading to productivity

Gross national income is down, but GDP is up

What actually matters is our quality of life and we should strive to make it better for ourselves and for others, with a societal emphasis on others. Unfortunately for us, the Left, which is in reality Big Money, pretends to be "for others" but is clearly Big Money.

We need to find a way to reassert basic human altruism away from these parasites.