Posts about monetary policy

A circular system of nonsense – conventional media reporting on the monetary system

There were two headlines on Australia’s national broadcaster, the ABC’s news site this morning that tell us that there has been little progress made in helping people better understand the way the monetary system operates and the capacities of the currency-issuing government within it. Both articles merely rehearsed the standard mainstream fictions, which makes them dangerous, in that they perpetuate the system that has held the world back from addressing its major challenges. By creating false ‘challenges’ and false ‘probabilities of crisis’, these stories delay action that is necessary to deal with the real problems of climate change, inequality, degradation of public infrastructure and services, the health crisis, etc
The other problem is that these ‘analysis’ columns pretend to be balanced with is a ruse to bestow legitimacy or authority on themselves. ‘Experts’, who are wheeled out to ratify the fiction, are just part of the Groupthink. It is a circular system of nonsense. Very disappointing.

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Banks gouging super profits, yield curve inversion – nothing good is out there

It’s Wednesday and we have some snippets that really just make way for the music feature. Today, I consider the recent inversion of the US yield curve, which is typically a sign that recession is around the corner. We also learn that while most people are being hit with rising prices and flat wages, the banks are recording record net interest income as a result of their non-competitive, cartel like behaviour. And we wonder how more silly can the Swedish central bank prize in economics become. And then, after all that, we have the music feature to rescue the day.

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British currency gyrations are about weak government not fiscal deficits

The British government has descended into high farce. It is rather embarassing to watch adults behave in the way they have conducted themselves in the last longtime. I also note that the usual suspects are out in force claiming (spuriously) that the economic turmoil that has beset Britain demonstrates categorically that Modern Monetary Theory (MMT) is deeply flawed and the real world is now teaching us that we should be discarded into the dustbin of history – or rather disgrace. These characters, which include so-called progressives think that hard core fiscal rules, like the British Labour Party took into the last election would have saved the day for Britain. I guess they are now mates with the IMF, who in their latest fiscal monitor – Fiscal Monitor – overnight (published October 12, 2022) – called for fiscal restraint. Also, central bankers who met in Washington over the last few days decided they had become the elected and accountable government making gratuitous threats that if fiscal policy wasn’t turned to austerity, they would punish citizens with further interest rate hikes. It is actually hard to find anything of sense in the current economic debate. It is despairing really.

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Zero trading in 10-year Japanese government bonds signals Bank of Japan supremacy

On July 21, 2022, the Bank of Japan issued this – Statement on Monetary Policy – which outlined that it would continue to use its capacities to implement ‘Yield curve control’, whereby the “Bank will apply a negative interest rate of minus 0.1 percent to the Policy-Rate Balances in current accounts held by financial institutions at the Bank” and “will purchase a necessary amount of Japanese government bonds (JGBs) without setting an upper limit so that 10-year JGB yields will remain at around zero percent”. Further, the Statement noted that “the Bank will offer to purchase 10-year JGBs at 0.25 percent every business day through fixed-rate purchase operations, unless it is highly likely that no bids will be submitted”. The only dissenter on an 8 to 1 vote, wanted even more easing of monetary policy! The BOJ has been implementing its yield curve control since March 2021. In the light of global trends in central banking, the Bank of Japan’s decisions are a standout and show how a sophisticated understanding of the monetary economy coupled with a desire by the Government to improve the lives of ordinary citizens expose the fictions of mainstream economics, which dominates policy making elsewhere.

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Bank of England announces end to propping up corporate greed – sort of!

It’s Wednesday and overnight there has been a Twitter storm, which like most of these Tweet Crazes, is about nothing at all and only serves to embarrass the Tweeters, not that they are aware of the humiliation. I refer to the statements made overnight by the Bank of England boss who reiterated press releases the day before in saying the Bank would not continue to prop up pension funds who had mismanaged their assets. The Twitterati seemingly didn’t really get the point. And while we are on central banking, the former IMF chief economist Olivier Blanchard was interviewed in the last few days (I won’t link to it) claiming in relation to the US economy that “the path to avoiding a recession is narrow because the economy is still overheating”. He then concluded that the Federal Reserve Bank “is no longer behind the curve but still has work to do to deal with stubborn underlying inflation pressures”. He thought the Federal Reserve’s funds rate (its policy rate) would go higher than 5 per cent. Planet Not Earth. To keep us on the straight and narrow after those contributions to public discourse, we end today with some piano music. Always a good idea to stay calm and reflective.

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Two diametrically-opposed approaches to dealing with inflation – stupidity versus the Japanese way

Well things are going to get messier with the decision yesterday by the OPEC+ cartel to significantly reduce the oil supply and push up prices. On the one hand, when OPEC was first formed and pushed prices up, while there was significant disruption to oil-dependent nations, the substitution that followed (home oil heating abandoned, larger cars replaced by smaller cars, etc) was ultimately beneficial. So given that we need less cars on roads and less kms travelled by cars, one might consider the move to be fine. But given the way the central banks and treasury departments around the world are behaving at present, the short term impacts of the OPEC+ decision will be very damaging. How citizens endure whatever extra inflationary pressures that might emerge will depend on the fiscal and monetary policy responses. We have two diametrically opposed models: the one that most nations are following (hikes and austerity) versus the Japanese approach. I explain the difference below and predict that the latter will deliver much better outcomes for the people.

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RBA tom foolery continues while spending continues unabated

It’s Wednesday where I examine in short a few items that came to my attention in the last week and then retreat into the music segment. Yesterday, the Reserve Bank of Australia raised interest rates for the sixth time since May 2022. This time the increase was 0.25 per cent and the current cash rate target is 2.6 per cent. The below-expected increment has been hailed as the first central bank to ‘turn’. It tells me the RBA is now scared it has gone too far in its ridiculous show of power. It is also obvious that spending is not really responding yet to the RBA move which means that they have no real idea of what the impact of their shift in rates has been. That is the problem with relying on monetary policy as a counter-stabilising tool – it works (if at all) with long lags and by the time you see any impact it might be too late.

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Central banks can operate with negative equity forever

The global press is full of stories lately about how central banks are taking big losses and risking solvency and then analysing the dire consequences of government bailouts of the said banks. All preposterous nonsense of course. It would be like daily news stories about the threat of ships falling off the edge of the earth. But then we know better than that. But in the economic commentariat there are plenty of flat earthers for sure. Some day, humanity (if it survives) will look back on this period and wonder how their predecessors could have been so ignorant of basic logic and facts. What a stupid bunch those 2022 humans really were.

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Dangerous anachronisms continue – and I am not talking about the British royalty

It’s Wednesday and as usual I just present some short snippets that have attracted my attention this week and other things that distract me from economics. Today, we don’t talk about the British royalty at all – the events this week were from another world really. But what is not from another world is the continual nonsense being spoken and written about this inflationary period and how central banks and treasuries have to tighten up to ‘beat it’. Talk about anachronism. And once we have discussed those things, I offer some soothing music to reduce the state of angst.

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Central bank priorities are not the priorities of working people

I remember a conversation I had when I was picked up hitch hiking to Melbourne from where I was living down the coast. It was during the 1970s inflationary period, which had morphed into stagflation as a result of deliberate government policy to create unemployment and discipline the wage-price spiral. The driver was a manual worker and during a conversation about the state of the economy (I was studying economics at the time) he said “the government should care about employment because at least then everyone has a job even if prices are rising”. That conversation stuck with me because it summed up what research shows in more sophisticated ways – the costs of inflation are minimal when compared to the devastating costs of unemployment. At present, our policy makers are unwilling to recognise that reality because it is not them that bear the costs.

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