Reply To: Increasing credit with GDP


Although I’ve never heard that particular view before, it sounds similar to the monetarist view of Milton Friedman who argued that the money supply should be increased at the same rate as the normal rate of increase in real GDP. As you surmise, the reason for such a policy is to prevent price deflation at least and to generate stable prices at most. Friedman did fear Fed officials having discretionary policy and so he argued for an automatic increase in the money supply of between 3-4 percent per year.