Ben Davies (Part 1/2): on nominal GDP targeting

Episode 101: GoldMoney’s Alasdair Macleod talks to Ben Davies, co-founder and CEO of Hinde Capital. They discuss the idea of nominal GDP targeting as a monetary policy strategy for central banks.

Nominal GDP growth is the sum of real GDP growth plus the inflation rate. Ben Davies says that proponents of a nominal GDP targeting – so-called market monetarists – are gaining momentum in central banks and the media. They discuss how depressions are not caused by tight monetary conditions but rather by the preceding excessive expansion of credit. Davies points out that credit and debt are two sides of the same coin, which makes it impossible to clear one without the other.

Davies says that by driving down long term interest rates, central banks are trying to draw investors into equities in order to create a so-called wealth effect. However, he explains that debt levels are simply too high for this method to translate into sustained long-term growth. He foresees stagflation with low growth and excess liquidity.

This podcast was recorded on 20 February 2013.

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FinanceAndEconomics

Alasdair started his career as a stockbroker in 1970 on the London Stock Exchange. In those days, trainees learned everything: from making the tea, to corporate finance, to evaluating and dealing in equities and bonds. They learned rapidly through experience about things as diverse as mining shares and general economics. It was excellent training, and within nine years Alasdair had risen to become senior partner of his firm. Subsequently, Alasdair held positions at director level in investment management, and worked as a mutual fund manager. He also worked at a bank in Guernsey as an executive director. For most of his 40 years in the finance industry, Alasdair has been de-mystifying macro-economic events for his investing clients. The accumulation of this experience has convinced him that unsound monetary policies are the most destructive weapon governments use against the common man. Accordingly, his mission is to educate and inform the public in layman’s terms what governments do with money and how to protect themselves from the consequences.

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