5% Nominal GDP Growth

From Bill Gross at PIMCO today –

http://www.pimco.com/LeftNav/Featured+Market+Commentary/IO/2009/Investment+Outlook+August+2009+Gross+Investment+Potion.htm

“Reflating nominal GDP by inflating asset prices is the fundamental, yet infrequently acknowledged, goal of policymakers. If they can do that, then employment and economic stability may ultimately follow.”

Does that sound familiar? First Greenspan admits it and now Gross.

“…nominal GDP has not only sunk below 5%, but turned at least temporarily negative. If allowed to continue – and this is my critical point – a portion of the U.S. production capacity and labor market will have to be permanently laid off. Nominal GDP has to grow close to 5% in order for the economy’s long-term balance to be maintained.”

Gross discusses how the entire Debt/Leverage-based Economy is built on the assumption of a 5% Nominal GDP growth rate. We are now below that level and the only way to get the consumer spending again is to pump the GDP up with credit. The best way to do that now is to use Government borrowing. Unfortunately (for Gross), that is proving to be politically impossible, so we will just have to live with the consequences of lower growth.

Nonsense. The Fed can print money without a vote being cast by either the Public or an elected official. Therefore, the Fed will keep pumping up credit via leverage of the TARP at the NY Fed and will keep printing money via Quantitative Easing to get back to the magical level of +5% Nominal GDP growth. That means inflation and a falling US Dollar.