Charting The Debt Splurge Insanity That Nominal GDP Targetting Would Translate To

Tyler Durden's picture

The chart below indicates that should the Fed launch on the latest harebrained idea proposed by Goldman, namely to target nominal GDP, it will most likely blow up everything, as the US economy is now about 14.7% below the trendline average, and assuming a catch up to the bubble years through 2016, would mean an 8.6% annualized increase in economic growth, about double where growth has been in the past. How this is possible absent the issuance of an incremental ~10% in annual debt each year (keep in mind we are dealing with Keynesians, where debt = growth) we don't know. Neither does the Fed. So if indeed the Fed wants to revert to trendline, it means that by 2016, US Debt will be greater by an additional $10 trillion over an on top of the $10 trillion increase already forecast by the GAO over the next decade, or, numerically, by 2021, the US would have about $35 trillion in debt, and most likely, well over that amount. Brilliant.

As Sean Corrigan annotates:

  • Were the Fed to adopt some of the currently-fashionable ideas about targeting nominal GDP, it might decide that, at almost 15% below trends, it has PLENTY of scope for yet more ill-advised activism.

Or, as we translate, "QE to the Moon"

Chart: Diapason Securities and Bloomberg