Carney suggest targetinhg GDP rather than inflation

moneyinmypocket

At last people finally get it - there is no recovery without a big increase in house prices - lets inflate the debt away and let house prices rocket

brit1234

Generali wrote: »

It's an absolutely terrible idea, albeit one that has come up many times over the past couple of years.

The reason? Inflation creates costs on an economy so by targeting nominal GDP you can get into a cycle where falling real GDP causes the Central Bank to try to push inflation up which depresses real GDP further and so the cycle continues.

Fully agree. Our wages aren't getting bigger, inflation is eating more and more of our wages so we have less to spend each year. How is that going to help the economy. The world is increasingly in recession so we can't export our way out. We need higher interest rates to encourage saving so that money can be invested in British business, assets bubbles will deflate and people can buy houses and associated goods again.

CLAPTON

brit1234 wrote: »

Fully agree. Our wages aren't getting bigger, inflation is eating more and more of our wages so we have less to spend each year. How is that going to help the economy. The world is increasingly in recession so we can't export our way out. We need higher interest rates to encourage saving so that money can be invested in British business, assets bubbles will deflate and people can buy houses and associated goods again.

amazing

interest rates are at an all time low because THERE IS NO EFFECTIVE DEMAND for money

if there was a lot of DEMAND for MONEY, interest rates would be high

grizzly1911

CLAPTON wrote: »

amazing

interest rates are at an all time low because THERE IS NO EFFECTIVE DEMAND for money

if there was a lot of DEMAND for MONEY, interest rates would be high

Plus the the government have swamped the market, recently, with the promise of very cheap cash.

coastline

looks like our savings ratio is the highest for 15 years..

http://www.economicshelp.org/blog/848/economics/savings-ratio-uk/

DecentLivingWage

Sadly, IPPR report coming out saying that productivity figures dont agree with Cons unemployment depiction - its falling fast. He ll have a job on his hands!

Radiantsoul

grizzly1911 wrote: »

Carney suggests targeting nominal GDP rather than Inflation as a way to recover lost ground as interest rates are close to zero?

I am not sure it would make much practical difference though. I guess you would be looking at 4-5% nominal growth, so inflation would be a bit higher at the current time. But I don't see a huge change in policy.

Presumably governments could change the current target instead.

Generali

brit1234 wrote: »

Fully agree. Our wages aren't getting bigger, inflation is eating more and more of our wages so we have less to spend each year. How is that going to help the economy. The world is increasingly in recession so we can't export our way out. We need higher interest rates to encourage saving so that money can be invested in British business, assets bubbles will deflate and people can buy houses and associated goods again.

The biggest problem with high inflation isn't really picked up by economists I don't think.

Most employed people get an annual pay rise or at least a pay review. When inflation is low it's not so obvious but in times of high inflation as we last saw under the Labour and Tory Governments of the period 1970-1992 the annual pay review is eagerly awaited.

The reason is that your wages go up once a year but prices go up day-by-day and month-by-month, they don't co-ordinate with your wages.

If inflation is running at 8% for example, perfectly consistent with a recession and nominal GDP rising by 5% a year, then by the time the 11th month in your calendar year comes you'll be having to make each £100 you were earning last year pay for £107 now. Given that for most of us most of our spending is fixed (housing and transport costs, utilities etc.) we have to kill discretionary spending just to maintain ourselves.

If you spend £2,000 on your household each month right now, could you make your income cover £2,280 in November 2013 with no pay rise? Many would struggle but that's the reality of living with moderately high inflation.

Graham_Devon

Just a thought, but isn't GDP easier to target?

As an extreme example, you could increase GDP simply by getting loads of people to dig some holes, and then paying them to fill them again.

An inflation target isn't as easy to manipulate?

abaxas

Inflation can be infinite. GDP has limits.

Why target something which ultimately you will fail.