Target(s) for Money Expenditures (again.)
The revised figures for money expenditures in the second quarter of 2010 as measured by Final Sales of Domestic Product was $14.5 trillion. The level consistent with the growth path of the Great Moderation is 16.5 trillion. The gap continues to grow, having reach 13 percent. In order to return the growth path of the Great Moderation by the second quarter of 2011, which will be $17.4 trillion, money expenditures would need to grow 20 percent over the year. The targeted growth rate would then be 5 percent in the future.
I favor some opportunistic disinflation from the Great Recession, shifting to a new, 3 percent target growth path for money expenditures, starting at the end of the Great Moderation, which I take to be the third quarter of 2008. The target for the second quarter 2010 would be $15.8 trillion, so the current value is 8.8 percent below target. The target for second quarter 2011 will be $16.3 trillion, so returning to target would require 13.4 percent growth in money expenditures over the next year. (That includes the already completed part of the year.) Of course, the targeted growth path of money expenditures would afterwards grow at 3 percent into the indefinite future.