Posts about monetary policy

Special pleading from Japan’s fossil fuel financing megabanks reaches new heights

In our new book – Modern Monetary Theory: Bill and Warren’s Excellent Adventure – which will be launched in the UK next Wednesday, we devote a chapter to what we refer to as the Japanese irony. This relates to the fact that while the conduct of policy in Japan is justified in mainstream terms, the more extreme policy settings that emerge produce outcomes that expose the deficiencies of the mainstream theories. At present, we are observing more examples of this. The latest matter of interest in Japan (from my watch) is the pressure the three megabanks are putting on the Bank of Japan policy makers to push up bond yields and interest rates. There is no reason based in financial stability concerns or community well-being for the Bank of Japan to agree to their demands. They just amount to special pleading from Japan’s fossil fuel financing megabanks for more corporate welfare to boost their profits.

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Central bankers live in a parallel universe

It’s Wednesday, which means a few (sometimes unrelated) items are discussed or analysed. Today, we see that real wages in 16 of the 35 OECD countries are still below the pre-pandemic levels, which tells us among other things that the inflationary pressures were not wage induced. Further, a speech yesterday by the Federal Reserve boss demonstrated quite clearly how central bankers fudged the whole rate hike narrative. And after all that, some music from the 1960s.

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Bank of Japan is making losses on its balance sheet – so what?

Sometimes when I am reading some story or analysis about the economy I sense a sort of glazing over effect – I just read the words as they appear on the paper and it is not until after I have read the entirety that I sort of have to pinch myself and realise that this is an attempt at serious journalism. The realisation that I have just read the most extraordinary nonsense that one could devise to present to readers then sinks in. I then wonder how a journalist could be so stupid as to actually construct and article in that way and seek so-called ‘expert’ commentary from an array of highly paid economists and bankers to support the nonsense. Who are they trying to fool? Well almost everyone is the answer. Why does this sort of journalism continue other than the lurid headlines sell products and that is what journalism has really become? I don’t accept that all these characters are part of a massive conspiracy to deceive the rest of us. Obviously, some of the players know clearly that they are manipulating the truth to advance their own agendas – like when bank economists continually claim interest rates have to rise (which they know will just boost the profits of the companies they work for). But the better way of thinking about this mass deception is that we have all been captured by the fictional world created by economists, who themselves are mostly trapped by the Groupthink that is impressed on them during their university days. Whatever the explanation, it still amazes me how stupid we all are for accepting this nonsense as serious commentary.

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The European Union has been designed and run to maintain the corporate interests of the elites – no surprises there

After the Far Right National Rally (RN) took the prizes in the recent European Parliament elections and seriously dented the electoral appeal of Emmanual Macron’s grouping, the French President decided to follow the British script and dissolved the French Parliament and called a snap election, the first round of which will take place on June 30, 2024 and the second round a week later. Far right parties also did well in Germany, Italy and Austria, but all the talk of a sharp swing to the right in Europe was overstated, given that in other nations, the Right vote was not as strong. The deals to give the European Commission presidency to VDL for another term were then in full sway. And within days we started to observe some strange behaviour in the bond markets with the 10-year bond spreads against the German bund rising sharply with accompanying warning bells from the mainstream politicians – some even venturing to claim in France’s case that it would experience a ‘Truss moment’ if Macron was not returned to office, despite his government floundering due to its poor policy making. None of this should come as a surprise. The European Union is the most advanced example of neoliberalism, given that the ideology is built into its legal structures and the institutions are required to enforce it. There are countless examples, of the main institutions – the Commission and the ECB – acting individually and together to drive political outcomes that they deem to be desirable from the perspective of maintaining the status quo. All the angst in the last few weeks about interference in the upcoming French election is really surprising given the track record of these bodies. The whole system has been designed and run to maintain the corporate interests of the elites. Pure and simple. The current situation is no exception.

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Australia’s monthly inflation rate falls yet the media scream for more rate hikes

Today (June 26, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for May 2024, which showed that the annual inflation rate rose 4.1 per cent, which is higher than most predicted. And now the media are beating up the story that the RBA will have to hike interest rates some more. Well if we understand the underlying movements in the components that have delivered this result, the last thing one would do is hike interest rates. If we look at the All Groups CPI excluding volatile items (which are items that fluctuate up and down regularly due to natural disasters, sudden events like OPEC price hikes, etc) then the annual inflation rate was lower at 4 per cent relative to 4.1 per cent in April. Further, the monthly rate in May revealed a lower inflation rate than the April figure, so there is no hint that we are about to see an acceleration in the overall inflation situation. Much of today’s result relates to base issues in 2023. The annualised rate over the last 12 months is 0.98 per cent – which is below the lower band of the RBA’s inflation targetting range. The general conclusion is that the global factors that drove the inflationary pressures are abating and that the outlook for inflation is for it to fall rather than accelerate. There is certainly no case that can be legitimately made for further rate hikes, although the RBA will be keen to threaten them and maintain its position at the centre of the debate, because it seems to thrive on attention.

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RBA denial about profiteering demonstrated they are just part of the ideological machinery supporting neoliberalism

In April 2023, the then governor of the Reserve Bank of Australia gave a speech to the National Press Club in Sydney – Monetary Policy, Demand and Supply = the day after the RBA decided to end (for a month) its rate hikes after hiking the previous 10 meetings of the RBA Board, the body that determines monetary policy settings. The inflation rate had been falling for some months by this time yet the RBA was still hanging on to its narratives that the rate hikes were necessary to “combat the highest rate of inflation experienced in Australia in more than 30 years”, despite, for example, the Bank of Japan holding rates constant and experiencing a more rapid decline in its inflation rate as the supply constraints abated. The RBA had vehemently claimed that wage pressures were mounting, which had to be curtailed and denied categorically that there was any profit gouging or margin push involved in the inflationary pressures. There was no evidence at the time to support their claims about wages and nominal wages growth has remained moderate since. However, there was ample evidence, both in Australia and across the globe that corporations were taking advantage of the supply constraints to push their profit margins out. A recent report released by Oxfam Australia report (June 19, 2024) – Cashing in on Crisis – demonstrates that profit and price gouging was instrumental in creating and sustaining the inflationary pressures. The RBA was in denial all along and demonstrated that they are essentially just part of the ideological machinery supporting neoliberalism and the extraction of greater profits at the expense of workers.

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British Labour Party once again tripping over their nonsensical fiscal rules

Regular readers will know that I am not enamoured with the British Labour Party leadership and its obsession with its so-called fiscal rule, which is really just a continuation of the rule that the Tory’s were supposedly running with. How can a self-styled progressive party (so-called) that is about to take over a nation that has been shattered by 14 years of the worst Tory rule that one can imagine, and which will require billions of pounds to be spent to even put a dent in the degradation in infrastructure, services, not to mention addressing the forward-looking challenges (health, climate, etc), claim that a fiscal rule that is biased towards austerity be appropriate? It beggars belief. By continuing with such rules, the Labour Party is ensuring that it will either fail to make much headway in redressing the damage and placing Britain in a better position to deal with the carbon challenges or will fail to meet the fiscal rules or both. It is recipe for not much. Pity the British people who have already endured the consequences of supporting, first Blair’s Labour, then the long hard years of the bumbling and incompetent Tories. In today’s post I want to highlight one aspect of the fiscal rule absurdity, and actually say that Nigel Farage is right about one thing, although not for the right reasons. Read on – a story of corporate welfare and fiscal fictions unfolds.

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The delusional RBA has everyone convinced that they are the reason inflation is falling

It’s Wednesday and as usual I present commentary on a range of topics that are of interest to me. They don’t have to be connected in any particular way. Today, RBA interest rate decisions, COVID and some great music. Yesterday, the Reserve Bank of Australia (RBA) held their target interest rate constant. In their media release (June 18, 2024) – Statement by the Reserve Bank Board: Monetary Policy Decision – the RBA claimed that “higher interest rates have been working to bring aggregate demand and supply closer towards balance”. The journalists duly digested the propaganda from the RBA and throughout yesterday repeated the claim relentlessly – that the RBA had done a great job in ‘getting inflation down’ and now was attempting to ‘navigate’ a sort of knife edge between effective inflation control and the increasing probability of recession. It was an amazing demonstration of being fed the narrative from the authorities, and then, pumping it out as broadly as possible through the mainstream media channels to the rest of us idiots who were meant to just take it as gospel. Not one journalist that I heard on radio, TV or read questioned that narrative. The emphasis was on the ‘poor RBA governor’ who had a difficult job protecting us from inflation and recession. Well, my position is that the decline in inflation since the December-quarter 2022 has had little to do with the 11 interest-rate hikes since May 2022 and more to do with factors changing that are not sensitive to domestic interest rate variations. Further, the impact of two consecutive years of fiscal austerity (the Federal government has recorded two fiscal years of surpluses now) has mostly been the reason that GDP growth is approaching zero and will turn negative in the coming quarters at the current policy settings.

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Senior mainstream economist now admits central banks are not as independent as many believe

The UK Guardian published quite an odd article the other day (May 30, 2024) by Mr GFC Spreadsheet Fudge Man Kenneth Rogoff – Why policymakers are more likely to risk high inflation during periods of economic uncertainty – which essentially claims that economic policy has been conducted for several years by institutions that do not meet the essential requirements that are specified by the mainstream New Keynesian macroeconomic approach, upon which the institutions have claimed justification. If that makes sense. He now claims that the eulogised principle of ‘central bank independence’, which is a mainstay of the New Keynesian justification that macroeconomic counter stabilisation policy should be left to monetary authorities and that fiscal policy should play a supporting but passive role, no longer exists as policy makers have had to come to terms with multiple crises. Of course from an Modern Monetary Theory (MMT) perspective such independence never existed and was just a ploy to allow the governments to depoliticise economic policy making and thus distance themselves, politically, from the fall out of unpopular policy interventions. If it wasn’t the IMF to blame, then it was the ‘independent’ central bank for austerity and interest rate hikes and all the rest of it. Now we have a senior Harvard professor admitting it was a ruse and bemoaning the fact.

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The fiscal lunancy reaches peak levels this time of year

In the last week, as the Federal government comes towards next Tuesday’s annual fiscal statement (aka ‘The Budget’ although we don’t use that terminology around here, do we?) and the State Government’s are progressively delivering their own Budget Statements (they being financially constrained) we have witnessed the absurdity of the system of public finances that pretends the Federal government is a big household and that somehow monetary policy is the most effective way to deal with an inflation that is sourced in supply side constraints. Earlier this week, the Victorian government released a fairly shocking fiscal statement, which cut expenditure programs in many key areas such as health care (while the pandemic is still killing many people), public education, essential public infrastructure maintenance and upgrades, and more. Why? Because it built up a rather large stock of debt during the early years of the pandemic and is now in political jeopardy because the state debt is being weaponised by the conservatives who claim the government is going broke. Similar austerity agendas are being pursued by other state and territory governments although Victoria leads the way because it provided more pandemic support to offset the damage that the extensive restrictions caused. Meanwhile, the federal government is boasting that it is heading towards its second consecutive surplus, as unemployment rises, hours of work fall, and the planet requires massive investment to attenuate climate change. The madness compounds when we realise that around 85 per cent of all state and federal debt that was issued between March 2020 and July 2022 was purchased by the Reserve Bank of Australia – that is, effectively, by the federal government itself. If citizens really understood the implications of that they would never agree to the swingeing cutbacks in public expenditure and the user pays tax hikes etc, that have been justified by an appeal to the debt build up. Its just madness.

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