News Home
Home - Index -
News - Krisen 1992 - EMU - Cataclysm -
Wall Street Bubbles - Huspriser
Dollarn - Biggles - HSB - Löntagarfonder
- Skuldkrisen -
webtips -
Links - Contact
Nominal GDP levels are important to the Fed
Nominal GDP levels are important to the Fed
Bill Gross, january 2007
Nominal GDP levels are so important to the Fed in fact, that there are rather explicit although slowly changing levels of growth below which the Fed cannot allow them to sink for an extended period of time – lest recession rear its ugly head.
But it is nominal, not real GDP that reflects the return on a nation’s capital, and nominal GDP that points towards our ability to pay our bills. Since almost all yields reflect a real plus an inflationary component, it stands to reason that the ability to pay debts expressed in nominal terms should be viewed in a similar fashion when analysing growth. By so doing one can understand, for instance, why a deflationary environment can be so deadly to a modern-day, debt-ladened economy. It might be growing in real terms, but if nominal growth sinks below the zero line then the servicing of debts becomes onerous and can lead to liquidity traps that implode financial markets.