The central banks don’t seem to be worrying about inflation

It’s Wednesday and I have been tied up most of the day with commitments. So we will have to be content today with a couple of snippets. The first about the on-going inflation mania and the way in which the ECB seems oblivious to it. The second about the gross incompetence of the Australia government, who has put the health of the nation at risk and forced state governments to invoke rolling lockdowns as only a small number of us are vaccinated and cases keep seeping out of a flawed quarantine system (the latter being the federal responsibility). And once the anger subsides from that little discussion, we have the usual Wednesday music offering to restore peace.

Inflation mania continues

The Bank of International Settlements is now whipping up the inflation narrative.

On June 29, 2021, the BIS released its – Annual Economic Report 2021 – and claimed that:

… the outlook for inflation is one of the big questions keeping financial markets on tenterhooks. Inflation has already increased in a number of EMEs: higher commodity and food prices alongside currency depreciations have given it a push. Moreover, the supply of many intermediate goods is failing to keep up with demand, generating bottlenecks. But the real question is whether the significant rise in inflation already seen in the United States – where it has recently substantially exceeded the target – will be temporary or longer-lasting.

The answer is that the recent rise in prices in the US will be temporary but the BIS thinks that the “plausible scenario” is that:

… inflation proves stronger than expected and financial market conditions tighten, and one in which the global recovery falters and the economy fails to recover.

So they are predicting that central banks will have to increase interest rates because household spending will suddenly go into reverse (saving rates will fall) and fiscal policy will push aggregate spending beyond sustainable rates of growth.

They admit that all the forces that bear on inflation at present are really in favour of “holding inflation down” but then they have to keep their faith by claiming that “non-linearities cannot be ruled out.”

That last claim is just a fancy way of saying they haven’t any reason to believe there will be a sustained outbreak of inflation but something might happen to generate it.

They also think that “even if any increase in inflation ultimately proves temporary, financial market participants could overreact, anticipating more sustained inflation.”

What might such an overreaction do?

Not much in fact.

The BIS think that it will push up government bond yields and make it more expensive for governments to fund spending (in their terms).

Of course, the financial markets can do what they want but the central banks are always able to thwart any negative consequences of these shifts in sentiment.

And the ECB, for example, clearly doesn’t seem to have bought the inflation danger narrative.

Despite all the inflation hawks claiming that the ECB will have to dramatically scale back its – Pandemic emergency purchase programme (PEPP) – and – its other – Asset purchases programmes – the latest data shows the ECB has actually started to ramp up its government bond purchases in recent months.

Here is the history of the PEPP which began in March 2020.

The ECB now holds 1,104,465 million euro worth of assets as a result of this program alone. Most of them are public sector securities.

So far from worrying about all the inflation mania, the ECB is steaming full speed ahead funding the 19 Member State deficits and keeping them solvent.

The objective – to ensure the eurozone doesn’t break up.

Reality: breaking the Treaty but then without this massive bond-buying program the common currency would be dead.

I think the lesson is not to listen to the political statements from peak bodies (such as the BIS) but to watch what the practitioners are doing.

Australian government incompetence – writ large

There are not many things are national government can do worse than endanger the health of the entire population.

Yet that is what the Australian federal government has done as a result of its flawed decision-making, doing favours for its mates, and
obviously worrying about the fiscal implications of some spending options.

First, Australia is now in lockdown again as a result of a new outbreak of Covid that originated in Sydney as a breach of quarantine.

It has spread quickly because the conservative State government in NSW refused to lockdown quickly enough.

It has been playing a game of chicken with the virus since March last year because it has been scoring political points against Labor state governments which have adopted the snap lockdown.

It has been sickening listening to the NSW Premier bang on about her gold standard approach and their world leading contact and trace system.

Well all their hubris caught up with them last week when the outbreak this laxity caused has worsened and spread to other states.

Sydney is now in lockdown again – so much for their gold standard system which the Premier claimed allowed them to ‘stay open’ when other states were closed for business.

Second, last year, several states begged the Commonwealth government to build dedicated quarantine facilities out of the capital cities to ensure that return travellers etc would not infect the whole community.

The Government claimed that the hotel quarantine system was foolproof – 99 per cent effectiveness.

But, of course, any breach is devastating and there have been many due to the inadequacy of the hotel system (they were not designed to be infection proof) and the refusal of the Federal government to invest appropriately in dedicated facilities.

Saying 99 per cent safeguard is good enough as our Prime Minister was often heard to claim is like saying 1 in every 100 plane flights will crash and that is good enough.

And, under our Constitution, quarantine arrangements are federal responsibilities and I cannot understand why the States, early in the crisis, agreed to manage this service on behalf of the federal government.

Anyway, it is a trainwreck and every time a case escapes out of quarantine, the rest of us go into lockdown.

Third, the lockdowns will continue indefinitely because the Federal government messed up the vaccination program.

It has been a total joke.

Hardly anyone in Australia is vaccinated fully because:

1. The Federal government put most of its eggs in the AZ basket and when they had the chance to diversify into Pfizer etc they demurred.

It means we relied on AZ.

2. Then AZ becomes problematic and many people refuse to accept it. The Government’s major health advisory body kept changing the age groups that should take AZ, progressively restricting the cohort to the over 60s.

Yet many in that cohort will not touch it.

3. The Government also then announces it will indemnify GPs who administer the AZ vaccine from damages claims if bad things happen to patients.

The message received by us just made the lack of take up worse.

4. Recognising the take-up was shockingly low, the Government then announced it had large Pfizer supplies coming in October.

Message: we all wait until then, which is what is happening.

5. In addition, instead of using the normal vaccination process (for flu, etc) – which means the Federal government buys the supply and distributes it to the States/Territories and their health systems then administer the vaccine, the Federal government this time decided to bypass the traditional distribution process and instead vest responsibility in private health companies, some of who provide generous donations to the Liberal Party (the majority party in the conservative government).

So public money goes into private hands and then goes into the Liberal Party. Nice earner.

Meanwhile, the system of distribution is a massive failure as was warned last year and the vaccination rates remain very low.

So the only two things the Federal government had to do with respect to the medical situation was build dedicated quarantine facilities and acquire a diversified vaccine portfolio (like other governments) and they have failed to do both.

Mass incompetence.

We will continue to have lockdowns because hardly any of us are vaccinated and the Feds won’t invest in proper quarantine facilities.

Where is the opposition Labor Party? Worrying about the debt build up as a result of the larger fiscal deficits generated in the fight against the recession.

Nice country we have here.

Music – Albatross

As regular readers will know, I think – Peter Green – was one of the best all-time guitarists.

He had everything – tone, soul, timing, speed when needed, vision and all the rest of the undefinable characteristics of greatness.

In November 1968, Fleetwood Mac released one of his instrumentals – Albatross – which was inspired apparently by Santo and Johnny’s song – Sleep Walk.

It was a magnificent piece.

And if you are lucky enough to have the original single then you will know that on the B-side was Danny Kirwan’s first contribution to the band – Jigsaw Puzzle Blues.

Well, a more recent version of the song Albatross was recorded by London-based reggae guitarist – John Kpiaye – and appeared on his 1997 album Red, Gold and Blues, which is one of my favourites.

John Kpiaye has played guitar with poet – Linton Kwesi Johnson – and appears on many reggae albums produced in the UK.

This version of Albatross is different but great nonetheless.

The whole album that is comes off is worth listening to, regularly.

That is enough for today!

(c) Copyright 2021 William Mitchell. All Rights Reserved.

This Post Has 18 Comments

  1. I’m sorry that AZ vaccine has attracted such negative press. I think about 20 million have received it in the UK and the NHS is not full of people with blood clots. I am surprised that someone like Bill with forensic analytic skills can’t see through what is clearly a smearing exercise.

  2. “Hardly anyone in Australia is vaccinated fully”.

    It makes no rational sense to be vaccinated against Covid in Australia.

    All the vaccines are first generation and have a higher mortality rate and injury rate than more mature vaccines. The 1 in 60,000 blood clot issue with AZ being a case in point although the myocarditis issues with the mRNA technologies and the longer term liver issues they may or may not cause is another.

    Just trying to get the vaccine fatality rate or the vaccine injury rate out of the authorities is near impossible and just as muddled as the infection fatality and injury rate from Covid itself. And informed decision is near impossible.

    When you weigh up that risk against the near zero risk of catching Covid in Australia it’s hardly surprising that people are refusing to take the risk with the vaccines. They’re not good enough at present relative to the alternative.

    Unfortunately that puts the whole of Australasia in a Catch 22 position.

    It’s an easier decision here in the UK. Do I take the 1 in 16000 chance of dying from the endemic Covid or the 1 in 60000 chance of dying from the AZ vaccine. I chose the later and I’m fine.

  3. Dear Rod White (at 6:26 pm)

    I am not the slightest buying into the smear campaign against AZ or any of them. The fact is that someone can die from taking AZ. Most of us in Australia are not likely to catch Covid at present. So the odds are simply not in favour of anyone taking the small but positive risk of taking AZ. Simple as that.

    Best wishes

  4. I felt cheated out of a good time after having had AZ – apart from a sore arm for 4 days on both occasions – the palpable sense of missed opportunity during the two-hour hangover on the morning after the second jab, when I hadn’t even been out boozing the night before, was hard to bear.

    My partner, who is in the higher risk group for clots, didn’t even feel a thing; she even wondered if they’d actually jabbed her the first time.

    If Johnson hadn’t screwed up so recklessly by letting in the Delta variant from India, we would be in far better shape in the UK. As it is, by relying on vaccination alone to do the heavy lifting, we are now running the risk of further – potentially vaccine-evading – variants, as cases, if not hospitalisations and deaths, rise exponentially, especially amongst the lesser-vaccinated younger cohorts.

    We also have a new Ayn Rand worshipping Health Secretary, who thinks he is still Chancellor of the Exchequer, insisting that all restrictions will end in the Uk on 19 July regardless of data, and the economy must be prioritised over public health, as well as the madder libertarian fringes of the Tory Party suggesting that the announcement of daily UK Covid case figures should cease, because it creates an unneccessary sense of caution in the population, which may damage economic confidence! All of this whilst cases are now doubling every week.

    I wonder if Australia will actually be able to keep a lid on Delta, as there seem to be various new outbreaks popping up all around the country. Time will tell, but if it were me, Bill, neither of us being the youngest of bunnies and therefore at a much reduced risk of any blood clotting disorder – which is eminently treatable btw if caught early enough – I would be grabbing my couple of doses of AZ, if that’s all that was immediately on offer, as soon as I could, in spite of its rather less impressive effectiveness against Delta when compared to PFZ.

  5. The facts are that because such a tiny portion of the population has been vaccinated with no prospect of that greatly changing any time soon owing to the federal governments staggering incompetence, vulnerable Australians are at materially higher risk of serious illness or death from Covid than they are from the AZ vaccine.

    The emergence of much more infectious strains represents a game changer – this is not the same enemy we were facing last year. It is a fitter, faster and more dangerous foe. Whether we can get it under control in a mostly un-vaccinated population by lockdowns alone remains to be seen.

    I think the the quote attributed to Keynes is pertinent when considering the AZ vaccine here: “When the facts change I change my mind”.

  6. For the first time in history, the capitalist system was given the task to lead the fight against a deadly disease.
    Until the twentieth century, nobody knew how to fight those invisible enemies we call bacteria and viruses. If you had the bad luck of getting infected, you had a big chance of dying because of it.
    Then, back in the XX century, science gave us many tools to fight many, once deadly, diseases.
    And then came 2021.
    No way to produce ONE vaccine, like the polio vaccine was created many years ago. No!
    This time, we had to give that task to the market.
    So, the pharmaceutical business started to develop many different vacines: one for every brand.
    So, then came the selling of the vaccines and then came the trade war, to beat the competition, to sell more than your competitor and to try to get him out of business.
    Don’t all vaccines have secondary effects?
    All of them!
    So, why did the media only reported the secondary effets of the AZ vaccine?

  7. The PTB seem more afraid of inflation than covid, more concerned about private profit than public health, and that says it all about neoliberal capitalism. If this pandemic does not make us see the insanity and inhumanity of our current economic system, then what possibly could, short of environmental (and consequent social and economic) collapse? Right now, at this very moment, our species is at an evolutionary crossroads, one road called sink, the other, swim. MMT is there to guide our swimming should we choose to go in that direction, but it has little to do with the existential choice we’ve forced upon ourselves.

  8. Inflation: here in Canada the Bank of Canada is downplaying inflation worries. I find it odd that some actors in financial markets are making a big deal of inflation when the central banks are not and are stating good reasons not to be worried. Are the private actors up to no good as usual with some short-term profit motivation or are they just displaying their usual incompetence?
    With regards to Covid it is unfortunate that Australia is making a hash of it now. From where I sit here in Canada the Australian situation has looked pretty good, at least from March 2020 until very recently. Our official death toll is 26,000 but the Royal Society of Canada, an organization made up of top Canadian researchers from different disciplines, has calculated the true number to be around 57,000.
    The health authorities have done a reasonably good job at getting vaccines into people but the issue of side-effects remains (my wife and I have had two Moderna doses each with no problems). The massive vaccination effort and the early arrival of summer have driven down the Covid numbers dramatically.
    In Canada overall the Covid issue has been a mish-mash of Big Pharma profiteering and the colonial nature of our economy (no vaccine producers), pretty good financial support for individuals and businesses by the federal government, good and bad public health measures, poor to appalling conditions for the frail elderly in many many residences, and lax quarantine enforcement by the federal government. The situation is quite different in each province. It’s hard to get a true understanding of what’s happened overall.

  9. I am grateful for having had the vaccine. I guess I’m high risk being 76 but vaccines are like any other medication in carrying risks. Read the leaflet that comes with any drug and you are immediately put in the position of having to balance risk and benefit. Like a lot of people my age I am on regular medication but that’s how it is. Keep taking the pills and live with the odd side effect or dig your heels in and suffer. This might be the way that things are going to be for all of us in the future. I don’t subscribe to Johnson’s view of the world but, hey, climate change is coming so life might get even worse.

  10. A plan to keep covid out by entry ban and strict quarantine together with delaying vaccination, seemed to be NZ policy, but they seem to have concluded that they’d better get vaccine ordered (and use) or always be at the back of the queue. Trouble seems to me to be that unless the entry ban/quarantine continues to work well, which Australia is finding hard, a more virulent variant will get in and do more damage in an unvaccinated popn. than a largely vaccinated popn. even if vaccine efficacy is nowhere near 100%. China seems to have decided on a get vaccinated strategy although, with its huge popn and nationalistic use of its own developed least effective vaccine, we better all hope it can keep a virulent variant out. Meanwhile the UK, which had a chance to get ahead with vaccination, seems to have blown it once again with its minimal quarantine and reliance on the bound to fail, leave it up to people to decide what ‘essential travel’ means and self-policed self-isolation. Sorry to say it’s like giving the people the possibility of a better future by pulling out of the EU and then continuing to shaft them with neo-liberal economics.

  11. It’s not just financial markets trying to ramp up inflation fears in Canada, the media here are accomplices as well, including the national broadcaster.

    A few weeks ago, they were positing that small businesses were planning on raising prices, and that would drive inflation. While this is a possibility, many small businesses have already packed it in, while others have been closed down for much of the past year, and restarting will mean they have operating costs on top of fixed costs to cover with what little money and credit remains, I see no evidence of such inflation actually occurring locally as things open up again.

    The fact that so few people globally speaking, have been fully vaccinated means there will be opportunity for the virus to continue evolving for years to come. It’s difficult to say whether it will become more benign or more malignant as time goes on, but it is cause for concern for some time to come.
    One of the few wise words to come out of our premier Doug Ford’s mouth, was a criticism of the federal governments laxity when it comes to restricting travel, and enforcing quarantine, was “the virus didn’t swim here by itself”.

    From what I understand about the Delta plus variant, the public health measures we’re used to being effective, aren’t anymore, so future lock downs, should things get out of hand, will be more draconian.

    This pandemic should be a lesson to all about the shortcomings of letting neoliberals belief in fantasy guide government decision making.

  12. @j.christensen
    Agreed, one of the few sensible things to come out of D. Ford’s mouth. At the start of 2020 the federal government refused to stop travel into the country from China, the apparent original source of Covid, because that would have been “racist” – extreme identity politics at work costing the lives of thousands of people. Later the government failed to enforce its own quarantine rules allowing new strains of Covid to enter and spread and kill.
    Re the Doug Ford government: it has rewarded incompetence and abuse of the elderly by making it impossible to sue negligent residence owners responsible for hundreds, if not thousands, of deaths. It has also given permits for new residences to some of the worst abusers. It would be a barely believable parody of government rule if it weren’t true. Sadly reports I read from other countries are not very different. It seems overt corruption has become acceptable in many places.

  13. “From what I understand about the Delta plus variant, the public health measures we’re used to being effective, aren’t anymore, so future lock downs, should things get out of hand, will be more draconian.”

    We haven’t had a lockdown yet – where people are prevented from leaving their homes for any reason. They are a measure of last resort, draconian, desperate but crudely effective. We are not there – yet.

    What is astonishing to me is the lack of basic problem solving methodology throughout. The measures used to eliminate transmission – reducing activity, contacts and interactions – work. New infections fall when they are adhered to – but critically, they are not eliminated altogether. Why? Identify the weaknesses and address them. The measures and restrictions used to date have far too many ‘exemptions’ that create significant risk. Not just international travel either.

    People are told to stay at home, but order items from Amazon and expect next day delivery then wonder why new cases still continue to be seeded across the country. Hospitals and shops remained open during the first response last March – both were vectors for infection. All movement and activity should cease except utilities, communications and the response support teams – volunteers and army – and the entire focus of the population and establishment should be on a two-month strategy to eliminate transmission and isolating all cases until they resolve.

    It’s not a part-time project where other things take precedence. It’s survival, nothing less.

  14. @Mark Russell re: ‘We haven’t had a lockdown yet’. I’m not sure where you’re speaking from Mark (could be most places). Certainly in the UK, more so in Spain, our first lockdown was almost but not quite – it was a joyful time for cycling and wildlife. Each subsequent ‘lockdown’ has been more of choice with more people choosing to be unrestrained. But there is an example of actual lockdown that worked, with local community organisation/policing: China. It’s also the country that’s been able to deliver normal daily unrestricted life to its people (discounting xinjiang, Tibet) since May 2020.

  15. The vaccine does seem to be working in the uk ,in the sense that the link between infections and
    hospitalisations and deaths have been cut as the most vulnerable have been largely vaccinated.
    As well as a cost risk assessment for yourself you have to do one for the other.
    There is no end to lockdowns and quarantine without mass vaccination unless you want your
    hospitals overrun with covid patients.

  16. @PatrickB

    Agreed. I’m in the UK and the first suspension of activity was indeed hopeful. People were genuinely frightened and complied rigorously with the guidance. The roads were deserted and birdsong exquisitely beautiful. It worked too – despite the late implementation and multiple seeding events in Jan/Feb – within a couple of months, transmission and new cases had dropped significantly.

    But not to zero. It only took one case to start this, so why we didn’t identify the areas where infections persisted and addressed those weaknesses before relaxing any guidance NPIs is beyond me.

    Infections persisted where people interacted – hospitals being the primary transmission vector. The NHS infection control measures were substandard before Covid – and to introduce a deadly contagion into that environment, risking other patients and staff, was madness. I appreciate the natural human response to save every life – but this is warfare with a new invisible foe and we really have to think differently if we are to prevail.

    As much as possible, we have to cease all activity, movement and personal contact for two months – everything except utilities, comms and community support. The latter organised by the army preferably, who have the strategic and operational capability. Mandatory testing, weekly food parcels, secure borders – isolate all cases until resolution – and the UK could attain the same status as NZ and other island nations.

    But now? We have a fatigued government and their wealthy supporters, who have never known what it takes to survive in the real world, hellbent on regaining their privileged lifestyle, whatever the cost in lives, health and livelihoods for the rest of us.

    The pandemic should have heralded an epiphany for mankind – a metanoia conversion and enlightenment – but instead we’re heading for another Dark Ages just at the moment of greatest environmental peril.

    I’m so glad I am old.

  17. I had my first AZ jab the other day.

    The vaccinatIon centre had two queues, one for the pre-booked Pfizer recipients and one for walk-in AZ recipients. I felt rather stupid as I was the only one in the walk-in AZ queue – there must have been 200 – 300 in the Pfizer queue.

    Inside there were approximately 50 booths, about three of them were dedicated to the AZ jab. Obviously, virtually nobody is taking the AZ jab.

    The Federal government has behaved appalling in the crisis. It is now saying that the under 40s should go for the AZ jab hoping the new outbreak in Sydney will frighten people into taking the risk.

    Morrison and Berejiklian should be ashamed of themselves.

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