Doll expects U.S. real GDP to stay below 3 percent and
nominal GDP to stay below 5 percent for the 10th year in a row.
Through his blog, he popularized the idea of targeting
the Nominal GDP, an idea which was later endorsed by the Federal Reserve.
It has the world's second - largest economy by
nominal GDP, the world's fastest - growing consumer market, and it is the largest exporter of goods and the second largest importer of goods in the world.
So over the whole period the «devastating blow» amounts to a shortfall in
nominal GDP of 1.37 % in 2030.
Well, compared to cumulative
nominal GDP over 2013 - 2030, which, using the Minister's figuring, will amount to $ 46.1 trillion.
Scott Sumner: Nudge the Fed to a rules based,
nominal GDP based approach.
Here's the question: what do you think
nominal GDP growth will be on average forever?
At lower rates of
nominal GDP growth, the security will have a finite value that declines rapidly with lower
nominal GDP growth.
This has gotten too long, but one thing that I will try over the next few days is estimate
Nominal GDP growth rates for nations in the «ring of fire,» and their Government's financing rates.
0.2 % / yr average growth of
nominal GDP?!
That is, aggregate dividends can be determined arithmetically by
nominal GDP, corporate earnings as a percent of
nominal GDP, and the average dividend payout ratio.
Aggregate Dividends = (
Nominal GDP) x (Corporate Earnings as % of GDP) x (Average Dividend Payout Ratio)
Nominal GDP might expand a little faster than that, perhaps at around 3.5 % or 4 % per year, assuming 1.5 % to 2.0 % real growth and a similar level of inflation.
And, dividends may also provide a modest potential hedge against changes in
nominal GDP growth, should the economy decelerate unexpectedly.
In turn, this implies that corporate earnings, from which dividends are paid out, will likely grow more slowly than
nominal GDP.
«If you instead deflate
the nominal GDP growth of 3.0 percent with the 4.3 percent increase in the gross domestic purchases deflator, then growth was -1.2 percent,» he wrote on his blog.
Perhaps 5 % of the US has truly prepared for retirement, given the faulty assumption that portfolios can grow much faster than
nominal GDP growth plus 2 %.
For roughly three decades, U.S. non-financial corporate debt as a percentage of U.S.
nominal GDP and the high yield default rate moved in tandem.
In 1991,
the nominal GDP growth rate hit a low of 2.9 %.
Sum of retained mortgage portfolio and mortgage backed securities outstanding for Fannie and Freddie (from OFHEO 2008 Report to Congress) divided by (1) total 1 - to 4 - family home mortgage debt outstanding (from Census for 1971 - 2003 and FRB for 2004 - 2007) and (2) annual
nominal GDP.
Since they deduct imports in the calculation of
nominal GDP, they have to do a similar deduction in the corresponding deflator.
Maybe we will get some who say it never has to be balanced, or that we just have to get deficit growth below
nominal GDP growth, or that we can do an external default that sabotages the rest of the world, while we get our house in order.
To equate the two at the current level of the 5 - year note,
nominal GDP would need to fall a full percentage point.
As Jim Bianco has done, we can compare the year - over-year change in
nominal GDP with the 5 - year Treasury yield, which have historically tended to move together over time.
Historically,
nominal GDP growth, corporate revenues, and even cyclically - adjusted earnings (filtering out short - run variations in profit margins) have grown at about 6 % annually over time.
As spending and prices rise,
nominal GDP goes up, so the debt - to - GDP ratio can remain stable.
Over the last 100 years,
nominal GDP growth has averaged 6 %.
All the while it was paying interest and growing sales at rates above
nominal GDP growth.
The war effort massively boosted
nominal GDP.
The 6 %
nominal GDP growth is made up of 3 % inflation + 2 % productivity gains + 1 % population growth.
Alternatively, the Fed could wait for
nominal GDP to double and «catch up» to the present level of base money, which would take about 14 years, assuming 5 %
nominal GDP growth.
As of last week, the U.S. monetary base stands at a record 18 cents per dollar of
nominal GDP.
I believe that the conventional view that government bonds should be «risk free» and tied to
nominal GDP is at risk of changing.
In stodgy old Britain,
nominal GDP growth has averaged just 4.9 %, but investment returns have been 6.1 % per annum, more than nine percentage points ahead of booming China.
Since the recovery began in the middle of 2010,
nominal GDP growth has averaged 3.9 percent in a range between 3.3 percent and 4.7 percent.
So for virtually every rate increase since Harry S. Truman was in the White House,
nominal GDP was growing 4.5 percent or faster, with 112 occurring when it was above 5.5 percent.
«Since 1948, the Fed has increased its benchmark on 118 occasions against a quarterly backdrop in which the average growth in
nominal GDP was an average 8.6 percent, Deutsche Bank's strategists wrote in a report published Wednesday.
In their eyes, the risk is that if the Fed still raises rates when
nominal GDP is so weak the central bank may come to regret it.
But asset allocators need to be more humble in their assumptions for financial planning and not assume that they can earn more than 2 % over the 10 - year Treasury, or over expected growth in
nominal GDP.
Velocity is equal to
nominal GDP divided by the monetary base, so
As I noted this past January in Sixteen Cents: Pushing the Unstable Limits of Monetary Policy, a collapse in short - term yields to nearly zero is a predictable outcome of QE2, based on the very robust historical relationship between short - term interest rates and the amount of cash and bank reserves (monetary base) that people are willing to hold per dollar of
nominal GDP:
In post-war data, the lower bound for liquidity preference has been roughly 5 cents of base money holdings for every dollar of
nominal GDP.
With
nominal GDP at about $ 15 trillion, the U.S. economy will then have to hold well over 17 cents of base money per dollar of GDP.
For example, given a current monetary base of $ 2,000 (billion) and
nominal GDP of about $ 14,900 (billion), the expected 3 - month Treasury bill yield here would be roughly exp (4.27 - 45.5 * 2000 / 14900) = 0.1592, which is about right (presently, the Treasury bill yield is 0.16 %).
Notice that
nominal GDP is just real GDP («Y») times the GDP price index («P»).
[Geeks Note: The interest rate estimates here are based on the inverse of the liquidity preference function, which explains 96 % of the historical variation in money holdings as a fraction of
nominal GDP.
«In terms of liquidity preference, a completion of QE2 requires liquidity preference to increase to 16 cents per dollar of
nominal GDP - easily the highest level in history.
Nominal GDP may be recovering, but about 10 % of that still represents deficit spending.
At a 10 - year Treasury yield of 1.7 %, interest on reserves of 0.25 %, and a monetary base now at about 18 cents per dollar of
nominal GDP (see Run, Don't Walk), further purchases of long - term Treasury securities by the Fed would produce net losses for the Fed in any scenario where yields rise more than about 20 basis points a year, or the Fed ever has to unwind any portion of its already massive positions.
Though «liquidity preference» is often used to describe the broad demand for money, we will define liquidity preference more specifically here as the amount of base money demanded per dollar of
nominal GDP.