GoldMoney’s Alasdair Macleod has released an interview with Ben Davies of Hinde Capital. They discuss the idea of nominal GDP targeting as a monetary policy strategy for central banks.
Nominal GDP growth is the sum of real GDP growth plus the inflation rate. Davies says that proponents of a nominal GDP targeting — so-called market monetarists — are gaining momentum in central banks and the media. They discuss how depressions are not caused by tight monetary conditions but rather by the preceding excessive expansion of credit. Davies points out that credit and debt are two sides of the same coin, which makes it impossible to clear one without the other.
Davies says that by driving down long term interest rates, central banks are trying to draw investors into equities in order to create a so-called wealth effect. However, he explains that debt levels are simply too high for this method to translate into sustained long-term growth. He foresees stagflation with low growth and excess liquidity.
Davies’ full interview is below: