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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

 

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Wed, 11/02/2011 - 11:03 | 1836757 oceanview76
oceanview76's picture

billion or trillion?

Wed, 11/02/2011 - 11:06 | 1836781 oceanview76
oceanview76's picture

thanks for editting it, it makes sense now.

Wed, 11/02/2011 - 11:09 | 1836798 HoofHearted
HoofHearted's picture

Gold and silver and peanut butter.

Oh yeah...bitchez.

Wed, 11/02/2011 - 11:33 | 1836967 Mugatu
Mugatu's picture

Sanity Now!  Sanity Now!  Sanity Now!

Lloyd Braun - Seinfeld

Wed, 11/02/2011 - 12:22 | 1837216 Manthong
Manthong's picture

And to think, just a few years ago we thought deficits measured in the thousands of millions was excessive.

Now it ain't squat unless it's in the thousands of billions.

Wed, 11/02/2011 - 12:40 | 1837322 New American Re...
New American Revolution's picture

Quadrillion.

Wed, 11/02/2011 - 11:05 | 1836761 xtop23
xtop23's picture

QE is coming. Of that there is no doubt.

But not yet.

Wed, 11/02/2011 - 11:07 | 1836786 SheepDog-One
SheepDog-One's picture

Problem is, soon as they do that, then we've also got $6 gas. But I still dont see QE imminent, DOW up +200 all is well, they refuse to show any need for any QE bail.

Wed, 11/02/2011 - 11:12 | 1836825 Dr. Engali
Dr. Engali's picture

Everybody is trying to front run the fed and get in on the QE rally. Funny thing is when they do that the market doesn't allow the conditions for the fed to print. It sure is fun to watch though.

Wed, 11/02/2011 - 11:23 | 1836883 SixFeetFromTheHedge
SixFeetFromTheHedge's picture

Then again, you should also ask yourself: Will the fed interfere only when the US markets are low?

Knowing Bernanke, he likes to experiment with his financial wizardry. 

Sure, it does not make a lot of sense, but imagine IF he did announce QE3 today. I believe there is now only about a 500-1000 dow index points QE actually priced in so it might actually spur an unprecedented 2000 dow up rally. 

Any constructive criticism on this?

Wed, 11/02/2011 - 11:33 | 1836960 Dr. Engali
Dr. Engali's picture

I believe that there is more than 1000 points priced in. Probably closer to 2000 The market has probably priced in about a trillion dollars so far. I think he would be hard pressed to announce it after the huge rally we just came off of. That and the fact the market refuses to give any ground. MF Global could have gven him the cover, but again everybody trying to front run is killing that cover. Don't get me wrong I think he has to print , but he needs people to beg for it.

Wed, 11/02/2011 - 12:42 | 1837338 New American Re...
New American Revolution's picture

QEIII would result in a temporary pop, that would deflate soon after the little blue pill wore out.

Wed, 11/02/2011 - 11:21 | 1836867 xtop23
xtop23's picture

 What really would be the result of all that though Sheep? 

 Election turmoil and the installation of yet another batch of special interest status quo tools running on a platform of "change?"

 The American public is still far from reaching the flashover point.

 I seriously think theyre convinced they can get away with another round of purchases and are just waiting for the right cover.

 A large scale ( purely in the interest of the starving children we promise ) kinetic action would serve that purpose nicely.

 2 trillion sound about right Benny?

 

 

Wed, 11/02/2011 - 11:21 | 1836869 Cdad
Cdad's picture

I could care less what Ben's criminal bank says today...as this rally was built purely for advantageous equity distribution.  Everything is up...and the selling is so pronounced as to be stupid.  Were I the head of the SEC, I would be having a field day today.  Horse fixing everywhere, baby.

Once again, the nonmarket market proves that selling causes stocks to rise [at least temporarily], and buying causes stocks to fall.  Is it any wonder that Average Joe just keeps  on puking out equities?

Wed, 11/02/2011 - 12:25 | 1837237 MFL8240
MFL8240's picture

Strong dollar and no growth in Europe or Asia is reason enough for QE3.  They need to get the dollar in half to get a handle on this debt monster and increase our ability to export and slow imports.   One mans opinion.

Wed, 11/02/2011 - 11:04 | 1836768 Tsar Pointless
Tsar Pointless's picture

Sure, why not?

Everything has gone so swimmingly with our three other QE adventures.

Ooh, look-ey there! I just found a few pieces of ice on the deck of this ship! I can use them to cool down my drink, which has been getting warm whilst I dance the cool North Atlantic night away!

I love this band! May they play indefinitely!

Wed, 11/02/2011 - 11:06 | 1836769 hedgeless_horseman
hedgeless_horseman's picture

 

 

If your only tool is a Heidelberg printing press...

 

PS:  Is that Hubbert hiding in that chart?

Wed, 11/02/2011 - 11:08 | 1836792 maxw3st
maxw3st's picture

You would need a web fed press for this much printing. Even if it was all thousand dollar bills.

Wed, 11/02/2011 - 11:11 | 1836819 hedgeless_horseman
hedgeless_horseman's picture

 

 

They are way ahead of you...

Heidelberg: Mainstream 80, Web-fed Rotary Printer.

 

To redesign Heidelberg's current line of mix-matched products into an integrated system of printing presses that would reflect the high quality of the brand, and the press technology itself and specifically, appeal to the American market.

http://www.designworksusa.com/design/industrytravel/heidelberg/index.html

Wed, 11/02/2011 - 11:10 | 1836777 slaughterer
slaughterer's picture

And where would inflation trend if the Fed targeted nominal GDP? 

Wed, 11/02/2011 - 11:10 | 1836814 LawsofPhysics
LawsofPhysics's picture

The harder question would be, where wouldn't inflation trend.

Wed, 11/02/2011 - 11:06 | 1836783 Dr. Engali
Dr. Engali's picture

Wonder what the short interest is and how many weak shorts are getting squeezed out today?

Wed, 11/02/2011 - 11:10 | 1836809 xtop23
xtop23's picture

 Screw that. I took a small hit on TMV yesterday but that is going to skyrocket here at some point.

Wed, 11/02/2011 - 11:08 | 1836799 SheepDog-One
SheepDog-One's picture

Why even bother with all this? Why doesnt the FED just announce today that all is well, theyve fixed everything, and peg the DOW to its previous record high 14,300 today? 

Wed, 11/02/2011 - 11:18 | 1836854 Tsar Pointless
Tsar Pointless's picture

I'll up the ante.

How about making it illegal for the stock markets to ever go down, after first pinning it to the 2007 S&P and Dow highs, and the early-2000s NASDAQ high?

And, to boot, the markets must advance no less than 2% each trading day, with trading to be expanded to all seven days of the week.

Sounds like a good plan to me!

Wed, 11/02/2011 - 11:21 | 1836866 SheepDog-One
SheepDog-One's picture

Sure why not...who would do anything about it?

Wed, 11/02/2011 - 11:09 | 1836805 Sudden Debt
Sudden Debt's picture

35 trillion by 2021 would make perfect sense!!

THE DEBT CEILING IS RAISED DURING EVERY WORLD WAR!!!

Wed, 11/02/2011 - 11:12 | 1836826 Gene8696
Gene8696's picture

Today's research..
http://gun-deals.com/ammo

Wed, 11/02/2011 - 11:17 | 1836851 youngman
youngman's picture

ammoman.com is better.....

Wed, 11/02/2011 - 11:13 | 1836822 AldoHux_IV
AldoHux_IV's picture

QE has done nothing to help the real economy-- the first 2 (or 4 depending upon how you define it) didn't work-- insanity at its finest.

Correction: it's worked in the greatest wealth transfer in history so I guess it does work.

Wed, 11/02/2011 - 11:12 | 1836827 SheepDog-One
SheepDog-One's picture

$35 trillion in debt, and still people think this is FED actions to fix things...ignoring theres Timmay and Ben in a crane swinging the wrecking ball at the structure every day.

Wed, 11/02/2011 - 11:16 | 1836830 vegas
vegas's picture

Bueller? - Bueller? - Bueller?

anyone?  - anyone? - anyone?

Er, I think the answer is Gold

Wed, 11/02/2011 - 11:15 | 1836841 maxw3st
maxw3st's picture

Does anyone make a market in linen futures? I'm also wondering if the ECB has 10 billion set aside to cover all the Euro shorts open at the moment.

Wed, 11/02/2011 - 11:17 | 1836847 RobotTrader
RobotTrader's picture

More debt?  No problem.

Just check out the chart of TIP.

U.S. Bonds:  Hands down one of the greatest investments of the last 35 years.

Nothing else has had an uninterrupted bull move for that long.

Wed, 11/02/2011 - 11:31 | 1836951 Everybodys All ...
Everybodys All American's picture

That price is a result from the fear of others failing as it is our strength.

Wed, 11/02/2011 - 11:18 | 1836856 dcb
dcb's picture

I believe this is being set up, christina romer wrote in the ny times business section this weekend about something like this. There was so much wrong with the information she presented and of course there was no space to comment. The absolute lies that come out of these people's mouths. i.e there can be no inflation if unemployment is high or there is an output gap. where do they come up with this crap and why doesn't the press challenge them when statements like this are made. it happens all the time.

Wed, 11/02/2011 - 11:20 | 1836862 youngman
youngman's picture

They...TPTB will have to increase the debt by this amount...look at Social Security..Medicare...Medicaid....its all there in black and white...that is if the SUPER committiee does not CUT anything....they will cut...but in years 2050 or past...so prepare accordingly

Wed, 11/02/2011 - 11:23 | 1836878 apberusdisvet
apberusdisvet's picture

 

While I appreciate the wonderful sarcasm here on ZH, I'm surprised that the constant exclamations relating to the decision insanity and cluelessness of the FED and other PEs is not recognized for what it truly is: 

PURPOSEFUL

I find it difficult NOT to see the planned and incremental destruction, not only of our sovereign wealth, but more importantly, the Constitution and the Rule of Law.

 

 

Wed, 11/02/2011 - 11:28 | 1836924 Tsar Pointless
Tsar Pointless's picture

I am in the camp of those who believe you can mock their decisions while at the same time understanding it's all being done on purpose.

Not insanity, not cluelessness, not unintended. It's all intended and purposeful.

Some of us have entered the "acceptance" stage of grief. That's all.

Wed, 11/02/2011 - 11:23 | 1836887 Tense INDIAN
Tense INDIAN's picture

I dont think we should be complaining now ....why didnt anyone complain in 1970 ....or may be much earlier when FIAT currency came ...the Central banks had been printing a little bit less then ..now they are printing more proportion wise......we are living inside a fantasy BOX where natural rules dont apply ....and inside that BOX where we are players , i wont call QE or intervntion by FED  manipulation...this is all  fair in this game.

Wed, 11/02/2011 - 11:24 | 1836893 slewie the pi-rat
slewie the pi-rat's picture

to the moon...alice!

Wed, 11/02/2011 - 11:57 | 1837110 the grateful un...
the grateful unemployed's picture

what they have acknowledged is that GDP and inflation are MONETARY effects, if you have a printing press you can target either one, or both. how is anyone going to take this seriously? the problem of course is that the correlation isn't always 1:1, and inflation in the absence of economic growth is stagflation, and a lack of inflation in terms of economic growth is deflation, but you can dial up the appropriate interest rate formula and poof!! hey even a monkey could do this

Wed, 11/02/2011 - 12:18 | 1837200 web bot
web bot's picture

You know...

Reading ZH lately is like knowing you're dying from a terminal illness. You know something is very, very wrong... but at times there is a sense of normalcy... even if only for an instance. I hope than when it is my turn to go to the great exchange in the sky, that God takes me quick.

I've posted this several times over the last several weeks... and I'll do it again.

I spoke to a woman an Aboriginal woman a couple of weeks ago. She has a spiritual elder, an 80 year old Native woman who lives in the bush without running water, who has visions when she fasts and does sweat lodges. In 2004, she said that she had a vision and in it, she saw a great wall of water washing over a part of the world where Asian people lived. and there would be a great loss of life. Three (3) days later, the 2004 Tsunami struck, killing over 250,000 people.

This is what she told my friend about 3 weeks ago - and I'm paraphrasing:

In the month of November, the financial world is going to end. It will not be the end of the world, but it will be the end of how most people live their lives.

I am Aboriginal and I kid you not, when a shaman speaks, they are right. Also, web bot linguistic analysis (I'm NOT associated with them) is also saying that a collapse is coming shortly along with something between Israel and Iran.

Some of you are asking what Euro contagion (Greece) means for PMs. My read... also backed by web bot analysis says to expect silver swings +/- $20 a day... and when this happens, know that collapse is close.

I am personally expecting the following:

* Euro collapse

* world piles into USD

* collapse and contagion effects (along with collapse in derivatives market) starts to bring down US financial system... then the melt down is on. Money starts to leave the US and into... you guessed it... PMs and commodities as the only store of reliable value. Within a couple of weeks, hyperinflation.

I hope I'm wrong.

 

Wed, 11/02/2011 - 12:31 | 1837261 dexter_morgan
dexter_morgan's picture

fascinating

Wed, 11/02/2011 - 12:59 | 1837433 topcallingtroll
topcallingtroll's picture

You go ahead with your primitive superstitions and invest based on sweat lodges and dreams. Let us know how it turns out. Tell us in advance your shaman inspired portfolio so we can evaluate your returns.

If it works I will dance naked, covered in mud, use drugs, hang out at sweat lodges, and become a believer.

Its a great way to party, but I suspect it aint the best way to run a portfolio.

Wed, 11/02/2011 - 15:34 | 1838235 web bot
web bot's picture

Obviously there's a crack in the sewer pipe... you showed up.

Wed, 11/02/2011 - 12:32 | 1837271 lolmao500
lolmao500's picture

I wish they would do it.

Wed, 11/02/2011 - 12:52 | 1837398 topcallingtroll
topcallingtroll's picture

I have mixed feelings.
I would personally benefit from nominal GDP targeting since it would keep the healthcare bubble going a bit longer.

4 percent stealth inflation per year turns that 35 trillion of future debt into 17 trillion by nineteen years from today in today's dollars.

This would be the simplest way through the mess with the least disruption, then once liabilities are manageable and sustainable again we become economically disciplined and virtuous.

Or as St Augustine said "Lord make me chaste, just not now."

Wed, 11/02/2011 - 13:02 | 1837450 Dr. Nancy
Dr. Nancy's picture

 

All that's happening is predictable, as there are 7 stages that any major economy goes through. Those who know how it works profit & massive wealth is transferred to them. You can see what one millionaire has to say about the 7 stages countries go through & how you can profit like the ultra-rich during these tough times.

His free video

"How To Create Incredible Wealth in Today's Economic Crisis"

is at:

http://theelevationgroup.net/presentation/register.php?a_aid=160667&a_bi...

Hope this info helps everyone as much as it has me.

Dr. Nancy

 

Wed, 11/02/2011 - 17:46 | 1838807 KandiRaverHipster
KandiRaverHipster's picture

stfulolz the idea of a primary dealer promoting nominal GDP targets using government money to reach the target

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