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Australia – quarterly inflation rate declining

Today (January 25, 2023), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the December-quarter 2022. It showed that the CPI rose 1.8 per cent in the quarter (down 0.1 point) and over the 12 months by 7.8 per cent (up 0.5 points). So, the annual inflation rate in Australia was higher in the December-quarter, but, the quarterly rate was lower, suggesting that the current episode is losing steam. The major sources of price increases are temporary – overshoots on pre-pandemic travel and holidays, anti-competitive cartel behaviour and the War in Ukraine. These influences are supplemented by shortages of building materials due to bushfires and food price inflation due to the major floods. The correct policy response should be to provide fiscal support for lower-income households to help them cope with the cost of living rises at present. Increasing interest rates again will not solve the problem that is already abating.

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Migrating to Mastodon and some additional announcements

Today, I have a few news and information items. First, I detail how to migrate to Mastodon so that you can continue to follow me as I escape Twitter. Second, I provide enrolment details for the next offering of our MMT edX MOOC. Third, I provide access details to my annual Helsinki public lecture which will take place tomorrow starting at 19:00 EAST.

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Military spending binge is working to keep economies growing

Its been around 9 months since the central banks of the world (bar Japan) started to push up interest rates. And still there are no firms signs that a recession is impending. There are some signs of a growth slowdown but that is not uniform across the globe. The US seems to be continuing to grow. While that suggests that monetary policy is less effective than the mainstream economists claim – which is no surprise to non-mainstream economists who have long understood that fiscal policy is the tool of choice for counter-stabilisation, there are other offsetting factors that are at play here. Governments around the world have seriously ramped up their fiscal outlays over 2022 on military procurements as the perceived threat from Russia and China has been magnified by military generals and their mates in the big US weapons corporations, who have taken the opportunity to get make massive extra profits. The power of the military-industrial complex (MIC) is long-standing and well understood. It explains why all the usual disaster scenarios that accompany increasing fiscal outlays by governments haven’t attracted much criticism. Too many elites benefit from the military binge. But the fiscal expenditure also helps to counteract any spending contraction by households who are negatively impacted by interest rate increases.

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The Australian labour market enters a slow decline – with employment and participation falling

The Australian Bureau of Statistics (ABS) released of the latest labour force data today (December 15, 2022) – Labour Force, Australia – for December 2022. My overall assessment is that the labour market started to enter a decline – albeit slowly in December 2022 with employment falling by 14,600 (-0.1 per cent) although full-time continued to grow but was outstripped by the decline in part-time employment. The participation rate fell 0.2 points, which meant the fall in the labour force reduced the rise in unemployment that occurred as a result of the employment decline. However, the underlying (‘What-if’) unemployment rate is closer to 5.4 per cent rather than the official rate of 3.5 per cent, which indicates the labour market still has slack. There are still 1,361.7 thousand Australian workers without work in one way or another (officially unemployed or underemployed).

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EU bonds will not become a ‘safe asset’ – Germany and Co won’t let that happen

It’s Wednesday and I have several items to discuss or provide information about today. Today, I discuss the future of the EU-bonds that were issued as part of two main emergency interventions in 2020 as policy makers feared the worse from the pandemic. The question is whether these assets can ever become ‘safe’ in the same way that Japanese government bonds or US treasury bonds are clearly ‘safe’. The answer is that they cannot and the reason goes to the heart of the problem besetting Europe – the fundamental monetary architecture is flawed in the most elemental way. I also provide some updates for MMTed and a great new book. And, of course, this week, I have to remember Jeff Beck in the music segment.

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The Eurozone fictions continue to propagate

There was a Financial Times article recently (January 8, 2023) – Monetary independence is overrated, and the euro is riding high – from Martin Sandbu which strained credibility and continues the long tradition of pro-Euro economists attempting to defend the indefensible – fixed exchange rate, common currency regimes. He claims that the Euro is a better system in the modern era for dealing with calamity than currency independence. However, as I explain below, none of his arguments provide the case for the superiority of the Eurozone against currency-issuing independence. Currency-issuing government can certainly introduce poor policy – often because the policy makers refuse to acknowledge their own capacity and think they have to act as if the nation doesn’t have its own currency. But the negative consequences that flow from testify to the poor quality of the polity rather than any disadvantages of the currency independence. The Euro Member States are being bailed out by the central bank and if that stopped the system would demonstrate the inherent dysfunction of its monetary architecture and nations would fail.

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The pandemic has caused fundamental shifts in worker behaviour

Jeff Beck has died! A masterful musician. Very sad. We move on. I read an interesting research paper recently – “The Great Retirement Boom”: The Pandemic-Era Surge in Retirements and Implications for Future Labor Force Participation – published in the US Federal Reserve Bank’s Finance and Economics Discussion Series (released November 2022), which illustrates how the pandemic is altering the behaviour of the US labour market. The lessons from the US are relevant everywhere as governments progressively ignore the reality that a dangerous virus is still in our midst and still causing havoc (deaths, long-term disability and more). For those who are continuing to claim the pandemic is some sort of conspiracy to control us or that Covid is less dangerous than influenza or that mask wearing is redundant and all the rest of the nonsense that seems to perpetrated by some on the Left who think they are for ‘freedom’ and those on the Right who just care about profits, this sort of research should presents a serious wake up call.

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US labour market continues to grow as more working age people find jobs

Well, happy 2023 to all my readers. We are back for another year – the 19th in this blog’s existence. All the observers have been waiting for a sign that the US interest rate hikes are slowing the US economy down, which is the mainstream logic that has been used to justify the regressive policy shift. The data, so far, suggests that the inflationary pressures are subsiding as a consequence of the factors other than the interest rate changes which seem to have done little other than redistribute income to the rich away from the poor. The latest labour market data release from the Bureau of Labor Statistics supports that view. Last Friday (January 6, 2022), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – December 2022 – which revealed on-going employment growth, rising participation and falling unemployment. These are good signs for American workers. Further, as inflation is subsiding the modest nominal wages growth is now providing real wages growth – another virtuous sign. The latest data is certainly not consistent with the Federal Reserve type narratives. But who should be surprised by that.

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My blog is on holidays until Monday, January 9, 2023

My blog is on holiday until Monday, January 7, 2023. I have lots of things to finish writing to meet deadlines and a lot of personal things to do (moving things, etc) which require travel and time. So I am using this week for that. Happy 2023 to all. I can’t say it is an optimistic outlook but hope springs eternal. To the obsessives declaring Modern Monetary Theory (MMT) is dead I urge sedatives. To those declaring Covid to be a conspiracy of big pharma, I hope you don’t catch it. To others, all the best.

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