Inflation is not exploding out of control and interest rate rises will not help

It is hard work being an economist. Especially when about 90 per cent of what one reads each day is fiction masquerading as truth. That wouldn’t be so bad because fiction is good when it is in the right place. But in this context, the fiction that comes out from economists and their lackeys in the financial media causes massive damage to innocent citizens who lose their jobs, have their pay aspirations stifled, enter poverty, lose their homes and commit suicide out of sheer hopelessness with the situations that are forced upon them. When you dig into some of the media coverage you realise that it is really just a self-serving promotion for speculators in financial and share markets and has very little foundation in a deeper understanding of economics. This so-called Op Ed piece in The Age (March 14, 2022) – No-win situation: The Fed is paying the price for dragging its feet – is representative of the nonsense that parades as economic commentary. It reflects a sad state of affairs.

The journalist has form. He regularly writes this sort of nonsense.

I last commented in this blog post – Another fictional characterisation of MMT finishes in total confusion (March , 2019) – when he decided that he was an expert on Modern Monetary Theory (MMT) but revealed he had only really read what I decided to name KLOP (Ken, Larry, Olivier and Paul) because of its rhyming qualities.

You won’t become an MMT reading KLOP.

But this journalist who is prominent in this newspaper, which is run by the former Australian Treasurer (Costello) and has shifted from being progressive to reactionary since Nine Entertainment took ownership.

Anyway, the substantive proposition of the article is this:

1. “The US Federal Reserve Board has been behind the curve for the past year as inflation rates exploded” – note use of the term “exploded”. As I see it, the US inflation rate has steadily risen in the face of historically rare supply constraints and only recently accelerated a bit in the wake of Putin’s ridiculous invasion of the Ukraine.

Some of the factors that pushed the most recent rise are already receding.

2. The use Federal Reserve has now decided that its previous view that “inflation would be “transitory” that it held throughout last year was misguided.”

In fact, that is not what the Chairman of the US Federal Reserve, Jerome Powell has admitted.

On November 30, 2021, the Chairman appeared before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate. Here is his – Coronavirus and CARES Act Statement. The full transcript is not yet available but you can watch the proceedings – HERE.

He was asked about the use of the term ‘transitory’.

He said:

We tend to use … [the word transitory] … to mean that it won’t leave a permanent mark in the form of higher inflation … I think it’s probably a good time to retire that word and try to explain more clearly what we mean … factors pushing inflation upward will linger well into next year.

Those factors relate to “supply chain issues” and now the Ukrainian invasion.

As I have noted previously – transitory – does not necessarily have a temporal dimension to it. It just means as long as the special circumstances prevail.

That is what the Federal Reserve Chairman was referring to rather than conceding that inflation was now institutionised and running out of control (‘exploding’).

3. Apparently, the Federal Reserve has realised interest rates and its bond-buying program has caused the inflation.

No explanation is given for how that causality occurs when it is clear that the price rises are being driven by supply side issues (workers not being able to produce things), abuse of market power and military conflict.

Does anyone really believe that rising interest rates in the West will force the Chinese government to reverse its decision on its latest widescale lockdown of 24 million people in the various cities in the wake of growing Covid infections.

These cities are part of the Chinese manufacturing/assembly strength and will further disrupt supply chain flow and cause further inflationary pressures.

What would a rise in US interest rates do to solve that problem?

4. Without a blink, the journalist then starts talking about oil price rises driving inflation, apparently oblivious to his previous few paragraphs where he imputes the inflation is being driven by excessive demand (spending), which needs to be curtailed by interest rate rises and a withdrawal of liquidity via the central bank bond-buying program.

This is a characteristic of this sort of media analysis.

The journalists have a grab-bag of dot points they seek to work into every article – inflation, deficits, bond-buying, oil, who won last week’s football game, etc

But at least we are acknowledging the impact of oil price rises – including those provoked most recently by Putin’s folly.

But while we are talking ‘transitory’, we are now into day 20 of the illegal invasion. And I just noticed that the price of WTI Crude (for example) just plunged 5.99 per cent and Brent Crude was heading back towards $US100 per barrel (dropping 6.44 per cent today already).

The Op Ed seems to think that the previous hikes will persist.

They are completely transitory – meaning they are not going to remain at these high levels indefinitely.

The task for governments is to ensure the wholesalers and the retailers pass on the fluctuations downwards as much as they push the prices up when crude oil rises in price.

5. Yes “The invasion has also sparked steep increases in the prices of other commodities, including agricultural commodities” which will have devastating impacts on poorer nations that depend, for example, on grain imports from the affected part of the world.

But those price rises are all supply driven and temporary.

The journalist again emphasises that the conflict has “also added to the severe disruptions to global supply chains that were only just starting to ease.”

Yes, so why hike interest rates? What model of the world will see higher rates cure these “severe disruptions”?

6. Then we get the next strategy in these sorts of articles – the scary number scenario:

The US inflation rate will inevitably have at least an “8” in front of it and perhaps even a “9” as the flow-on effects of the responses to the invasion and Russia’s countermeasures start to show up.

In the circumstances the Fed ought to be going hard. It should have gone hard much earlier. A 50 basis point rate rise (which many in the markets had expected until very recently) and an immediate start to running down the $US8.9 trillion ($12.2 trillion) of assets in its balance sheet and removing liquidity from the system would be a good, if belated start.

A central bank can only go “hard” by increasing interest rates or using other measures to make it impossible for credit to be created (more difficult than interest rate rises).

How pray tell will that do anything other than push up business costs, trigger further abuses of market power and further price rises to regain margin lost through the cost rises, and, ultimately, generate further unemployment and underemployment.

Meanwhile, the inflationary pressures will abate and the US and any other nation stupid enough to follow this advice will be left with a legacy of stagnation, mass unemployment and increased poverty etc.

Further, what are the implications of the Federal Reserve “running down” its bond purchases?

Most of the increase in its assets are in the form of government debt. Government buying its own debt.

So they offer the debt back to the secondary market at some discount? At the scale the journalist is thinking about that would cause substantial capital losses to existing bond holders in the non-government sector as the increased supply would force bond prices down.

And, who would buy the debt? Those who wanted to rearrange their wealth portfolio presumably. Note that portfolio is not currently being spent on goods and services but stored as a wealth stock.

So how much difference to total spending on price sensitive goods and services would such a asset sell-off actually have? Not much.

7. Then – par for the course sort of stuff – we get the out of control inflationary expectations argument:

The Fed, and other central banks, do face some invidious choices because much of the spiralling of inflation rates is already baked into corporate and consumer expectations.

Well, the data on inflationary expectations is nuanced at present.

For example, go to the New York Federal Reserve, which publishes its – Consumer expectations of inflation – on a monthly basis.

In February 2022, the ‘Median one-year ahead’ and the ‘Median three-year ahead’ expectations rose.

But they were reversing “some of January’s sharp declines.”

Two points:

(a) What happened in February? Putin invaded. Otherwise, the series were heading south!

(b) Note the ‘three-year ahead’ expectation is only 3.8 per cent – a much less scarier number than 8 per cent, for example.

So even with all these supply-side disruptions and the Putin folly, US consumers do not expect inflation to be running out of control in a few years hence.

They seem to understand what the word ‘transitory’ means?

8. After several paragraphs raving on about supply constraints and war etc, the journalist remembers he better rail against fiscal policy:

The fiscal splurges in response to the pandemic have left consumers awash with cash and given companies still struggling with malfunctioning supply chains a rare opportunity, which they are seizing, to raise prices even as continuing pandemic-related shortages of labour, particularly cheap labour, is creating wage inflation.

Note the word “splurges” – emotively trying to connect to the reader and invoke a sense of waste and profligacy.

Last time I looked the US unemployment rate was at 3.8 per cent down from the initial pandemic levels of nearly 15 per cent. Labour force participation is up and the usual disadvantaged minorities are enjoying better labour market conditions.

Further, the most recent BLS data, which I analysed in this blog post – US labour market improves but slack still remains with no wage pressures emerging (March 7, 2022) – showed that “Average hourly earnings for all employees on private nonfarm payrolls, at $31.58 in February, were little changed over the month”.

And, over the year to January 2022, real earnings are significantly lower. Workers are not catching up with the price level rises and can hardly be said to be pressuring inflation.

And, “Nonfarm business sector labor productivity increased 6.6 percent in the fourth quarter of 2021 … as output increased 9.1 percent and hours worked increased 2.4 percent … From the fourth quarter of 2020 to the fourth quarter of 2021, nonfarm business sector labor productivity increased 1.9 percent … Annual average productivity increased 1.9 percent from 2020 to 2021.”

So with real wages declining and productivity rising, unit costs are falling in the US.

The claim that wage inflation is driving general inflation in the US is not borne out by the facts.

Wages have risen in nominal term – that is ‘wage inflation’. But smart analysts make an assessment on what is happening to unit labour costs.

Productivity growth provides the ‘non inflationary’ space for nominal wages to rise – that is, without putting pressure on the price level for goods and services.

It is a pity that this journalist’s readership is so badly served.

9. We get to the nub of the intent finally:

The Fed now has to play catch up. The market expects and is pricing in at least six 25 basis points before the end of this year …

The US sharemarket is already down 12 per cent since the start of the year, including a four per cent fall this month.

The market has placed bets in forward contracts on the Federal Reserve pushing up rates. They will make big profits on these bets if the central bank ratifies them.

That is why they are pushing the narrative that rates ‘have to rise’.

“Pricing in” just means they have made the bets and carries no substance in economic terms.

Similarly, who cares about what happens in the sharemarket?

The unemployed in decaying neighbourhoods in American cities certainly don’t care if the wealth lose speculative bets on sharemarket trends.

10. Then the devil’s choice:

The Fed is going to have to choose between allowing inflation to rage out of control or risking a recession.

There is no such choice.

Inflation will moderate when the causal factors moderate.

A once-in-a-century (or whatever) pandemic is hardly usual faire. When (if) we get beyond the sickness and death caused by the virus, the supply issues will abate.

Putin’s war won’t go forever.

There is no suggestion inflation will ‘rage out of control’. It will remain at elevated levels for as long as the disruptions persist.

The last thing that any central bank should do now is deliberately create a recession.


Central banks need to be patient and make sure its messaging stays on track – supply disruptions, war, transitory.

Fortunately, many are showing that degree of cautiousness.

That is enough for today!

(c) Copyright 2022 William Mitchell. All Rights Reserved.

This Post Has 34 Comments

  1. “The Fed, and other central banks, do face some invidious choices…” Had to look up what ‘invidious’ means. Which, according to my dictionary, would mean in this context, choices ‘that give offense by discriminating unfairly’. And apparently the author, Stephen Bartholomeusz, is quite in favor of central banks discriminating unfairly. Maybe because he wrongly thinks that would somehow solve our supply chain issues. But it would not. And all we would be left with is the ‘discriminating unfairly’ parts of the policy.

  2. Bill, you referred to the war in Ukraine as “Putin’s ridiculous invasion of the Ukraine”, and “Putin’s folly”, and “Putin’s war”. I was getting worried that nobody left of center seems to understand that. So many commentaries on how the US does this all the time and that is wrong, but somehow that excuses Putin’s attack on Ukraine. Two wrongs don’t make a right.

    I’ve been quiet about it because I don’t understand why anyone who thinks of themself as a liberal, or as a supporter of workers or of human rights, or just left of center economically, would support anything about Russian policy under Putin. Let alone this invasion.

    At least among all the failures and mistakes and abuses of the Soviet Union there was an idealistic communal vision, even if it was nearly impossible to discern. There is nothing left of that with Putin’s Russia. I don’t get it.

  3. @Jerry Brown

    From the point of view of a great power like the US or Russia (much diminished from the days of the Soviet Union but still powerful), our notions of right and wrong don’t come into it – all that matters is what those powers perceive is or is not in their interests. The US justifies the slaughter of hundreds of thousands of civilians in places like Iraq with moral notions of removing brutal dictators and spreading freedom and democracy while Russia is often more blunt. Both are doing the exact same thing – protecting what they perceive to be in their interests.

    Putin obviously does not perceive the invasion of Ukraine to be a folly – he sees it as a necessity in protecting Russia’s vital strategic interests.

    As Bill has demonstrated for many years in economics, if we begin an analysis with seriously flawed assumptions then the conclusions we reach will be similarly flawed. Applied to a military conflict involving parties armed to the teeth with nuclear weapons, this can be incredibly dangerous – misunderstanding the enemy’s actual motives can lead to a serious underestimation of how far they may be willing to go in order to protect their perceived vital interests.

    Putin’s motivation is not territorial conquest – it is fear.

    For decades the huge NATO military alliance – an organisation created for the specific purpose of going to war against Soviet Russia if the necessity ever arose – has advanced ever-eastward, around a thousand miles toward the Russian border and Moscow, growing ever-larger and more powerful as it has done so – the Russian border has not moved west (the strategic annexing of Crimea excepted). In terms of military assets it massively outnumbers and outguns Russia. Russia has spent the entire time telling us that it sees this as a serious threat to it’s security but the west has consistently ignored them – NATO it seems, has only forward gears, no neutral and definitely no reverse.

    Putin perceives that the US and it’s NATO allies have every intention of surrounding what we think of as Russia (European Russia), hemming them in between an enormous crescent of NATO firepower in the west and the Urals in the east – and based on NATO’s relentless eastward expansion policy in the face of Russian protests since the end of the Cold War, I find it difficult to disagree.

    Russia has often posed the question that if NATO’s opposite entity – the Warsaw Pact – was dissolved in 1991, why has NATO not only not also been dissolved but why does it keep expanding in the direction of Moscow? What purpose does it now serve………if not to simply keep on expanding the size of the US military footprint? Remember that NATO is not an economic club, it is a MILITARY MACHINE.

    Over the years Russia has asked to join NATO and has been rejected. It has stated clearly since 2008 that it will not tolerate such an arm of US military power right on it’s border and has been ignored. What conclusion would you draw? Let’s talk realpolitik – when a smallish country enters into a massive military alliance run by a giant……….who do you think really decides that small countries military policy from then on? Ukraine joining NATO simply means that the country becomes an extension of US military power right on Russia’s doorstep.

    None of this means that we should simply excuse the carnage and destruction now being inflicted in Ukraine by Russia – but it does mean that we should understand that if it were not for the drive by the US and NATO leaders to see just how big they could make the NATO footprint in Europe before doing so triggered conflict…..the current situation would likely not have occurred.

  4. Support, No. Understand, Yes. I’ve heard it said that this Russian action has the support of the great majority of elites. For the same reason that got JFK assassinated.

  5. You can replace fiction with farce.
    And farce is in a crescendo.
    Tragic farce and getting worse, by the hour.
    The EU hasn’t done a simgle move to negociate the end of the war between two other european countries (with the noble exception of Macron, that turned out to be insuficient).
    Neither they did to avert the war when it was in the making.
    Instead, they decided to parrot the word “sanctions”, while smilling at the cameras.
    This is all about grabbing wealth and Ukraine is beeing used as a pawn in the game between the US/EU and Russia/China.
    A bloodbath is going to happen in europe.

  6. Leftwinghillbillyprospector

    “For decades the huge NATO military alliance – an organisation created for the specific purpose of going to war against Soviet Russia if the necessity ever arose – has advanced ever-eastward,”

    NATO could not have done this without the support of the mass of peoples in the buffer states. These peoples have turned away from Russian towards Europe. They have spurned Russian corruption, oppression and interference in their affairs. While NATO does seek to influence the governments in the buffer states, it has never held a gun to the head of these peoples – the Russians have.

    “Russia has often posed the question that if NATO’s opposite entity – the Warsaw Pact – was dissolved in 1991, why has NATO not only not also been dissolved but why does it keep expanding in the direction of Moscow? ”

    The reason is that Russia has the largest nuclear arsenal on the planet and has no intention of decommissioning these weapons – just as NATO won’t decommission its nuclear arsenal.

    “Remember that NATO is not an economic club, it is a MILITARY MACHINE. ”

    Yes it is.

    However, many speak as if it is only Russia that has legitimate strategic interests in Europe or at least has primacy over those of NATO and the fact that Russia has the largest nuclear arsenal on the planet need not be of concern. The truth is that the strategic stalemate in Europe has ensured that Russia has nothing to fear militarily from NATO. When has a NATO state attacked Russia in the last 75 years, since the end of WWII? (In fact it has been the Soviets/Russia that have invaded European states.) Why did not NATO invade Russia at its (probably never to be repeated) weakest moment in the early 1990s? Why did NATO degrade and dismantle its conventional forces after the collapse of the Soviet Union? These facts do not support the notion that NATO is a military threat to Russia. Yet the Russians persist in attempting to dominate the buffer states, arguing that NATO is a strategic threat. This is pure Russian propaganda, paranoia and expansionism.

  7. @Jerry Brown

    Both you and Bill should pay more attention to the wider context in Ukraine.

    The war in Ukraine started over 8 years ago, not a couple of weeks ago. It began with a coup d’etat in Kiev conducted by US Neocon State Dept. officials in collaboration with neo-nazis who murdered 100s of their own citizens in the process. These are *facts*.

    As in the 2008 Georgia debacle, Ukraine was egged on in its baiting of Russia, & continued shelling of Eastern Ukraine’s Donbass, removal of Russian language in schools & much else.
    For its part, US Neocons – same ones involved in PNAC that invaded Iraq on zero legitimate basis – are now trying to bring about regime change in Russia itself. No doubt as payback for Russia’s engagement in Syria – actually stabilising & ending war there – much against US plans to wreck the country into a Libya 2.0 violent civil war mess.

    Ukraine’s neo-nazis are small in electoral terms but in reality control the country via its militias, integrated into, & now controlling its military and police forces. It is extremely dangerous to challenge them, & has been since. Zelensky was backed by oligarch Kolomoisky who funded far militias Azov, Aidar & others.

    It’s hard to see how Russia had any other choice but to act on such hostile behaviour on its own borders in a country which is half ethnic Russian or Russian speaking. If this was US own borders, Ukraine would be reduced to rubble already.

    If we compare civilian casualties in Ukraine to those inflicted in US/NATO adventures, it’s obvious Russia is being far more careful to avoid them than they ever have. And let’s not even mention the ongoing slaughter in US/Saudi bombing of Yemen, magically escaping any western media mention at all, let alone 24/7 propaganda hysteria?

    This is not mere ‘whataboutism’. If we keep failing to examine the causes of these conflicts, just as Georgia, Libya & Syria followed Iraq, then they will keep happening, and the total media propaganda control that elects politicians that create them will continue.

    It’s also worth saying that this is the exact same media propaganda control that is now deliberately excluding the economics *facts* & mainstream fraud that MMT is revealing.

    I wonder Bill? Are you finally beginning to realise that media propaganda control is *the* impediment to sanity & integrity in politics?

    And that it was *the* primary cause of UK Labour losing GE2019, *not* their Brexit policy, which media would have trashed whatever they had chosen as the *party of opposition* with no control over the process already under way?

  8. “Remember that NATO is not an economic club, it is a MILITARY MACHINE. ”

    Simply not true and many people have been asleep as it has morphed into what it has today. It is quite clearly both. Even says so it in its charters and is written through them like a stick of Blackpool rock.

    The devil is in the detail. When they get pushed into debt in order to buy The military hardware and remodel their economies on neoliberal terms. As they are told this is the easiest way to pay back the loan.

    The IMF will issue a loan to one of its member countries, but there are conditions.

    First the country has to submit a letter of intent, specifying its economic plan to recover and repay the IMF loan. The executive board then agree with the country the terms and conditions.

    Over the years the IMF have been able to classify the types of loans countries need depending on the reasons the money is needed. For example low-income countries may borrow on relatively generous terms through one of the:

    Extended Credit Facility (ECF) – Financing under the ECF currently carries a zero interest rate, with a grace period of 5 and a half years, and a final maturity of 10 years.

    the Standby Credit Facility (SCF) – Financing under the SCF currently carries a zero interest rate, with a grace period of 4 years, and a final maturity of 8 years.

    Exogenous Shock Facility (ESF) – ESF loans carry a zero annual interest rate until 2011, with repayments made twice a year, beginning at 5 and a half years and ending 10 years after the the loan was issued. The Fund reviews the level of interest rates for all concessional facilities every two years.

    Then there are other loans for more established countries that come under one of the following categories:

    Stand-By Arrangements (SBA) – The length of a SBA is typically 12-24 months, and repayment is due within 3-5 years of disbursement. The majority of Fund assistance to middle-income countries is provided through SBAs.

    Extended Fund Facility (EFF) – Arrangements under the EFF are longer than SBAs usually 3 years. Repayment is due within 4-10 years from the date of disbursement.

    Flexible Credit Line (FCL) – The FCL is for crisis prevention or response purposes. The length of the FCL is one or two years (with an interim review of continued qualification after one year) and the repayment period the same as for the SBA but unlike SBA, this loan is available in a single up-front disbursement rather than phased.

    Precautionary Credit Line (PCL) – The PCL can only be used for crisis prevention and countries with a good track record of recovery. It can have the length of between one and two years.

    Anybody who has been a follower of MMT for any considerable time knows EXACTLY what that means. I shouldn’t even have to spell it out.

    When the IMF loan can’t be repaid think of the excessive debt procedure that runs through the EU treaties and then you will understand and see clearly why it is all linked. Why the current economic paradigm is set up specifically on globalist, neoliberal terms and plays a central role to support US geopolitical foreign policy.

    In order to get the IMF loan in the first place even before they can’t pay it back there are strings attached. Think of an EU convergence program and the point by point list they have to adhere to as they converge to
    join the EU. Look under the heading of ” structural reforms”, deficit reduction, severe austerity.

    NATO membership now ensures you are trapped by Orwellian group think. In the exact same way you are trapped by EU membership. This is what it means when countries turn West which so conveniently ignored by the West good- Russia bad crowd.

    As we have seen clearly over many years. The West then use them as they see fit as their geopolitical toys.

    Why both China and Russia now offer loans with no strings attached. The belt and road initiative is a great example of that. Both China and Russia has known for a long time what both EU and NATO membership actually means.

    In the Ukraine case if you read the Jacobin article that’s what accelerated the political conflict. Russia countered the IMF loan with a loan of his own with no strings attached. Straight out of the belt and road initiative play book. Russia knew clearly what the IMF loan meant for Ukraine. So did every MMT’r on the planet.

    Most of which would have ended up as profits in the military industrial complex and FIRE sectors in the West. When Ukraine can’t repay the loan the asset stripping begins in earnest. See Greece for details.

  9. Over a decade this blog has been going.

    It is incredible that it even needs to be explained how NATO stole the economic clothes of the EU after trying them elsewhere first.

    As if NATO is this lovely, cuddly and fluffy defender against Russia and China. The MMT lens shows clearly it is an aggressive “real resource” extractor that steals a states real resources. That swoops in just like the EU and all that is left is scar tissue after it has finished. They use the IMF to do it.

    It shouldn’t even need to be explained on here. By now after 10 years it should be common knowledge.

  10. Henry Rech
    Ukrainians were “convinced” to join nato in 2014, when the legit government of Ukraine was toppled down in the streets, with bosnian-styled cruelty, with snippers shooting down everything that moved in Maidan square.
    Then, we found out that the whole thing was awash with cia money.
    After, we found out that a comediant was elected president of Ukraine, with 5 bilion dollars, from the same piggy bank.
    So, back then, Biden was Obama’s vice.
    Now, he’s President.
    But, Trump didn’t start any war.
    You might laugh, but he deserved the nobel peace prize, far better than Obama.

  11. Mike Hall,

    ” These are *facts*.”

    These aren’t facts – they are all disputed. The fog of war. It’s very difficult to know what to believe. While the Americans were in Ukraine pushing for regime change, the Russians were there in equal force protecting and managing Yanukovych. In the end, the majority of Ukrainians supported the anti-Russian political groups.

    “….Russia’s engagement in Syria – actually stabilising & ending war there….”

    For sure, by absolutely flattening the place and killing who knows how many people.

    “Zelensky was backed by oligarch Kolomoisky who funded far militias Azov, Aidar & others.”

    Very odd. The right wing militias are anti-Russian. Yet Zelenskiy did better electorally in 2019 in Russian speaking eastern Ukraine. Something doesn’t make sense.

    “It’s hard to see how Russia had any other choice but to act on such hostile behaviour…”

    What hostile behaviour? Did Ukraine invade/attack Russia?

    “…in a country which is half ethnic Russian or Russian speaking….”

    In the 2014 parliamentary elections, the only region to not deliver a majority to the non pro-Russian parties, was the very far east of Ukraine. Despite half of Ukraine being “ethnic Russian or Russian speaking” they voted en masse for anti-Russian parties.

  12. Multilateral Loans, IMF By Country

    If NATO expansion doesn’t trap you with their conditions to get the loan and what happens after you can’t pay it back. Then EU expansion will with the stability and growth pact and excessive debt proceedure. The 2 pack and 6 pack.

    2021 European Semester: National Reform Programmes and Stability/Convergence Programmes

    Government spending is the devil. Please walk this way into my office while I provide you with a loan instead. Now you have turned West your economy will become what we like to call the ” Skye bridge” economic model. Welcome to the land of ” structural reforms”

    Our IMF branch is situated in the basement of the Pentagon. They will sort you out with all the military equipment you will ever need just give them a call. For a 20% discount we will through in some far right wing fanatics that will help to destabilise your country so you can push the reforms you need through.

    Our Wall street branch will also help with the effort. You need an attack on your currency they’ll make sure the foreign debt will never be repaid.

  13. Paulo R,

    “Ukrainians were “convinced” to join nato in 2014, when the legit government of Ukraine was toppled down in the streets, with bosnian-styled cruelty, with snippers shooting down everything that moved in Maidan square.”

    Ukrainians may have been “convinced” as you say but THEY did choose. When in their ballots boxes, casting their ballots, they chose. And the protestors in the streets were decidedly anti-Yanukovych. Yanukovych had to eventually flee the protests.

    As for the snipers, it is not clear who put them there. There is claim and counter claim.

    “Then, we found out that the whole thing was awash with cia money.”

    It was US money versus Russian money.

  14. Anybody who understands the MMT lens. Should be familiar with the economic and political patterns.

    As the EU has shown you can’t divide the two. They are joined at the hip. So you have to analyse both just like you do with the EU to find the picture that gets anywhere near close to the truth.

    ” In the 2014 parliamentary elections, the only region to not deliver a majority to the non pro-Russian parties, was the very far east of Ukraine. Despite half of Ukraine being “ethnic Russian or Russian speaking” they voted en masse for anti-Russian parties. ”

    Then the voters kicked them out again an masse. Once they realised what turning West actually meant – MMT 101.

    But in true authoritarian dictator fashion it was forced on the Ukranian people anyway.

    The Maidan Revolution remains a messy event that isn’t easy to categorize but is far from what Western audiences have been led to believe. It’s a story of liberal, pro-Western protesters, driven by legitimate grievances but largely drawn from only one-half of a polarized country, entering a temporary marriage of convenience with the far right to carry out an insurrection against a corrupt, authoritarian president. The tragedy is that it served largely to empower literal neo-Nazis while enacting only the goals of the Western powers that opportunistically lent their support – among which was the geopolitical equivalent of a predatory payday loan.

    The same far right that had led the charge in toppling Yanukovych, including Parubiy, found themselves with plum roles in the interim government that followed, while the winner of the 2014 snap presidential election – Ukraine’s seventh-richest man, Petro Poroshenko – had a history of corruption. His interior minister soon incorporated the Azov Regiment, a neo-Nazi militia, into Ukraine’s National Guard, with the country now a Mecca for far-right extremists around the world, who come to learn and get training from Azov – including, ironically, Russian white supremacists who were hounded from their country by Putin.

    One of such NATO bases has just been obliterated by a Russian missile strike on the Polish border. 3 others have been completely destroyed. Nobody even asked why so many NATO bases are in Ukraine when they haven’t even joined yet. The Hypocrisy knot tightens.

    Despite far-right parties ultimately losing seats in Parliament, ultranationalist movements successfully shifted the country’s politics to the extreme right, with Poroshenko and other centrists backing measures to marginalize the speaking of Russian and glorify Nazi collaborators. Even so, far-right candidates have entered Parliament on non-far-right tickets, and extremists like former Azov commander Andriy Biletsky have taken high-ranking law enforcement positions. While far-right vigilantism spread through the country, Poroshenko himself granted citizenship to a Belarusian neo-Nazi and engaged in some borderline anti-Semitism of his own.

    With Yanukovych out, the interim government and Washington’s handpicked prime minister signed the EU deal whose rejection had started it all, solidifying Ukraine’s move to the West, and ushering in the brutal austerity measures demanded by the IMF. Over the years, Yanukovych’s successor signed off on a round of privatisation, raised the pension age, and slashed gas subsidies, urged on by then vice president Joe Biden.

    To anybody who understands the MMT lens it should all sound very familiar.

    Putin clearly recognised it. Offered the Ukrainians the same loan without any strings attached straight out of the belt and road initiative playbook.

    In stepped the comedian who ran on a peace ticket Ran on the Minsk agreement. Told Ukraine everybody would be respected, represented in parliament and both the East and Western Ukraine would get a veto against either joining Russia or NATO. Ukraine would become an independent state that would trade with the West and Russia. All sensible Ukrainians liked that idea and voted accordingly.

    It was all a joke the comedian’s famous one liner.

    He done a complete 180 increased the Nazis power across the country and immediately started to build up troops on the borders of eastern Ukraine. Banned the Russian language in schools and bombed them over an 8 year period until 14,000 of them lay dead. Closed down 3 Russian speaking TV channels in true Orwellian fashion. Refused to sign the Minsk agreement that would have fulfilled the promises he made during the election campaign.

    Here we are living through the consequences.

    All of which is now to be completely ignored as it is very inconvenient. Never said a word when the 14,000 in Eastern Ukraine were slaughtered or the fact in bed with neo nazis. Live in complete denial. Obviously in some people’s minds the right kind of deaths are accepted whole heartedly as collateral damage. Standing side by side with the neo nazis is perfectly okay on this occasion.

    Cry like a river when after poking the bear it fought back. Convinced themselves it is all ” lefty” propaganda.That can be found anywhere on any social media and mainstream platform before 2019.

    Would rather believe Putin just woke up one morning in 2022 and decided to invade Ukraine and March through the whole of Europe.

    There is no point in the future to ever again condemn the EU for its actions. If you agree with what NATO is doing in Ukraine. You can’t have it both ways. You have to recognise the neoliberal economic similarities.

  15. Henry,
    can I have some of that US money. I’m in Europe and for mere $50M the US can put a nuke in my back garden.
    It’s a good job that the Mexicans don’t want to be paid in Roubles.

  16. Derek Henry
    I can’t compete with you on history issues.
    I just want to say this: a legitimate government should rule or be toppled by democratic means.
    Democracies should have ways to throw out bad governments.
    That’s what parliaments and segregation of powers are for: legislative, executive, judicial powers exist to counterbalance each other.
    If that counterbalance is biased, then we have a problem.
    And many coutries have biased democracies, some bigger than others.
    I remember that, back in 2010, after the infamous Deauville beach walk, in which Merkel and Sarkozy started the so-called euro crisis, Portugal was spiralling spreads on it’s debt, that was growing by the hour, as the government was forced by the EU to bail-out the credits of foreign banks.
    And so, te bad government was thrown out (by democratic means) – only to be replaced by a far worst right-wing coalition.
    And, for 4 years, we had to drop holiday pay, christmas bonus, forget about 4 holidays, and pay a tax on income and more, much more.
    And then, in 2015, we had elections and the troika-stooges were thrown out (and receding it’s vote share in every election hence).

  17. One question: since everything is privatized in russia, all gas and oil industries sell stocks and the government has been doing the neoliberal agenda to benefit the financial capital etc, how did this begin, the conflicts between usa and russia?

  18. Rafael Issacs
    What we eat, what we dress, what we drive, what we build, our houses, our streets, our cities, our countries, all are made of things we take out from the ground.
    Whether it’s mineral ore, liquid oil, natural gas, coal, whatever, all is transformed by industrial processes to make what we own.
    As an example, nitrogen is an essential fertilizer to our food, and it synthetized from natural gas, so some say we even “eat oil”.
    The question is: who grabs that wealth?
    Remember what happened in Iraq.
    Western oil companies are there now, drilling the oil that was once owned by Iraquis.
    The question with Russia is exactly the same.
    Ieltsin did open the Russian markets to US companies to explore the fabulous Russian natural resources.
    And then came Putin, who is not a communist, but has other plans.
    You could ask: is Putin distributing Russian wealth in an equitable way?
    Not likely.

  19. Well, I asked why so many of you seem willing to overlook the many ethical flaws of Putin’s Russia. And I get lectures on realpolitik, and excuses for the Russian invasion, and diatribes about how NATO is really the cause of the suffering and death that Russia is inflicting on Ukraine. No explanations of the apparent ethical and political contradictions involved in supporting Russia in this case. I still don’t understand it, but please don’t continue with these convoluted attempts to justify this invasion or provide excuses for Russian actions- they don’t answer my question.

    I could understand an honest explanation along the lines of “I believe the US and NATO are the most evil and most powerful force in the world. And therefore, I am willing to support a government that is doing things I would consider highly unethical if my own government did them. But because those actions are potentially disruptive to the US and NATO, I am willing to overlook the fact that people are killed and that a country has been invaded. Because the enemy of my enemy needs to usually be supported regardless of my moral qualms.”

  20. Derek, Paulo,

    Finally, a semblance of balance from you, even if it is only a smidge.

    While NATO might be a front for the neoliberal western order, it is supported by the mass of peoples in the buffer states. These peoples want the prosperity and freedoms of the west rather than the oppression and corruption of the Russians. If they choose anti-Russian rightist regimes, that’s their business.

    Putin and his kleptocratic cronies are no better than their western equivalents. They are just as rapacious. And if you oppose them you are likely to receive an invitation to a novichok party delivered by special messenger. If you oppose them in Russia you are subject to draconian laws and state sanctioned abuse.

    And the nonsense about the NATO military threat is just Russian propaganda. A cover for their kleptocratic activities. There is no credible military threat. The fact that there has been no direct NATO military response to Russia’s invasion of the Ukraine attests to that. Europe and Russia both bristle with nuclear and conventional weapons. It’s a stalemate but a stalemate now disturbed by Putin’s nuclear sabre rattling.

  21. This is pure Russian propaganda, paranoia and expansionism.

    The paranoia is well-founded.

    If you want to understand how we got to this place you need to go back to the Truman presidency where instilling fear of total destruction of the USSR was policy.

    It continued under Eisenhower and Kennedy.

    As recounted in “The Untold History of the United States” by Oliver Stone and Peter Kuznik:

    “In late May, Szilard, Nobel Prize-winning chemist Harold Urey, and astronomer Walter Bartkey attempted to see Truman to caution against using the bomb.

    They were routed to Spartanburg, South Carolina, to speak with Byrnes* whose response appalled Szilard: “Mr Byrnes did not argue that argue that it was necessary to use the bomb against the cities of Japan in order to win the war. He knew at the time, as the rest of the government knew, that Japan was essentially defeated.

    At that time Mr Brynes was much concerned about the spreading of Russian influence in Europe; [insisting] that our possessing and demonstrating the bomb would make Russia more manageable in Europe.

    Groves also admitted that in his mind the Soviet Union had always been the enemy: “There was never from about two weeks from the time I took charge of this Project any illusion on my part that Russia was our enemy, and the Project was conducted on that basis.

    Groves shocked Joseph Rotblat when he said over dinner in March 1944 , “You realize of course that the main purpose of this Project is to subdue the Russians”.

    Byrnes’s and Groves’s statements shed crucial light on Byrnes’s April 13 remark to Truman that the atomic bomb “might well put us in a position to dictate our own terms at the end of the war”.

    It’s often said that the US should’ve just demonstrated the bomb first…well, they did…for the benefit of Russia, and that fear is spliced into the DNA of Russian leadership.

  22. “The paranoia is well-founded.”

    When was the last time Russia was invaded by a NATO state?

    Why did not NATO invade Russia at its weakest moment in the early 1990s?

    Why did NATO decommission its conventional forces when the Soviet Union collapsed?

    If Russia is afraid, Europe has equal reason to be afraid.

  23. @Jerry Brown

    Please re-read my argument – I am not attempting to give excuses, I am outlining what I see as a REASON. There is a difference.

    We could deny that the US-NATO leadership bear any responsibility here but that would simply be a denial of reality. I contend that they bear most of the responsibility, the brutality of Russia’s actions notwithstanding.

    When a major military power tells you again and again that it feels seriously threatened by your actions growing ever-closer to their homeland – what is the motivation for continuing to pursue those actions? How difficult would it have been for the leadership to have simply said to themselves, “well, we would never tolerate them doing to us what we’re doing to them – for the sake of peace, let’s just accept their fears as legitimate and leave a one nation-wide buffer between us and them”?

    But clearly, NATO is run by hawks who simply don’t think this way.

    I suspect that the attitude of the US-NATO has now sown the seeds of a major geopolitical turning point. Respectfully to Bill, I think he is underestimating the significance and scope of what is now beginning to unfold and that as an economist it’s probably only a matter of time before he will have a huge new topic to write about – the rise of a new Eurasian economic (and military) bloc founded by Russia and China.

  24. Thanks Bill for the economic commentary and I also hope that Putin’s folly and inhumanity will be transitory, though transitory could continue for quite some time.

    @Henry Rech Thank you for trying to bring some understanding to the Russian military invasion of Ukraine beyond the ‘Russia threatened by NATO and Ukraine controlled by neo-nazis’ line.

    Difficult to know where to start with some of the other stuff written. @Leftwinghillbillyprospector comes up with the false equivalence of ‘the Warsaw Pact was dissolved, why hasn’t NATO?’ We should know that the Warsaw Pact was dissolved in 1991 because the (people of) 6 Eastern Bloc countries controlled by the USSR decided on another future, and the USSR itself broke up. But Russia, always the controlling force of the USSR (and Warsaw Pact) made little move to disarm. You can argue it has some historical justification given Napoleonic and Nazi invasion, even that it is being economically isolated by EU expansion (though its oligarchs were doing very well at integration and making the EU dependent on its main export), but the idea that it fears that its nearer neighbours, Ukraine and the Baltic States could be coerced by NATO into first strike military invasion of a nuclear-armed Russia is preposterous. While NATO has gained members, it is Russia that hasn’t been satisfied with keeping within the boundaries set at the collapse of the Soviet Union, hence its invasion and war in Georgia, Chechnya and then Ukraine.
    @Mike Hall ‘Ukraine’s neo-nazis…in reality control the country ….now controlling its military and police forces. It’s hard to see how Russia had any other choice’. Ukraine has clearly had a rocky and rather corrupt post-independence history (as has Russia of course) and significant neo-nazi presence, and yes this shouldn’t be brushed under the carpet, but please stop whatever you are smoking. A rather better understanding, not making light of the neo-nazi situation in Ukraine, and the Maidan events can be found on Novara Media here
    As for the justification for Putin’s invasion that Ukraine is ‘a country that is half ethnic Russian or Russian speaking’ – I would expect this kind of economy with the truth to come straight from Putin’s representative. I really expect better research from you.

  25. @Derek Henry

    My point was to emphasize the nature and purpose of NATO and why the Russians have taken such a dim view.

    When was the last time a trade arrangement included the agreement that you would take your country to war if a trading partner were attacked? What trade agreement allows for trading partners to deploy armies and weapons along the fence line of those outside the agreement?

    I don’t dispute the economic dimension but it is secondary to the simple fact: Russia views the non-stop expansion of NATO toward it’s borders first and foremost as a military-strategic threat – everything else comes second to that.

    Ukraine’s north-eastern border is a stone’s throw from Moscow. What do you think Russia believes NATO would intend to do there – wave western consumer goods at them over the border to make them jealous? Why do you think they annexed Crimea once the prospect of Ukraine joining NATO appeared to loom ever larger – it has nothing to do with seaside holidays in about the warmest place close to Russia and everything to do with the fact that it would have in one stroke deprived them of the home base of their Black Sea naval fleet at Sebastopol and simultaneously replaced it with a NATO armada not far from Russia’s coastline.

    I appreciate the point you are making (and I foresee western arms manufacturers doing handsomely out of this) but I think you have overlooked the point I am making: NATO is a MILITARY alliance that Russia has always felt threatened by and that by marching it ever closer to Russia’s border, refusing to let Russia join it and refusing to give a guarantee that more countries on Russia’s border will not become members and give US-led military forces the privilege to operate there – NATO has finally sparked a military conflict in Eastern Europe.

  26. Lefty @9:49- Okay, but I read your argument as Putin’s fears outweigh the rights of Ukrainians to life and self-determination. Which is an argument I reject and would expect almost anyone who supported things like human rights would reject also. You gave me a REASON as you say. I asked how that reason squares with ethical principle. If you want to explain how it is ethical, according to you, that a major power is justified in attacking neighboring countries, that do not themselves pose an obvious threat, whenever it ‘feels’ threatened- well that is what I am asking. Make that argument. Explain how it is acceptable.

  27. Just the idea that the Russian nation that has around 6000 nuclear warheads can have a reasonable fear for its own existence because their neighbor would rather be associated with Europe or NATO is hard to understand. I’m pretty sure you understand there are plenty of US submarines with hundreds of missiles with multiple nuclear warheads that pose a far greater existential threat at any time to Russia than any threat Ukraine might possibly pose. The ‘fear’ that Ukraine might join a forward creeping NATO and therefore increasingly threaten Russian existence is pretty much ridiculous given the status quo.

    The realpolitik ‘reasons’ you cite, even if I was interested in them, do not stand up when faced with reality.

  28. Dear All

    No more political commentary on NATO or the war etc.

    Unless it is relation to specific MMT topics.

    Thanks for all the interesting commentary to date but this blog is about MMT.

    best wishes

  29. The ECB seems to be treading cautiously with interest rates. Unfortunately they have announced the end of the asset purchase programme, which means that Governments will be under increased pressure to reduce deficits. 10-year yield in Spanish bonds have already gone up to 1.34% and I expect them to rise even further, meaning more money for the banks and investors from the government and less money for policies that really matter.

  30. Wow that went off-topic a long way! Interesting nonetheless.

    Anyway, I’m so glad Bill has had a crack at Kouk and Stephen Bartholomeusz. I can’t figure out if they don’t understand MMT, are “averting their eyes” from sin, or are wilfully mis-representing it. Whatever it is, I’m really sick of their shtick. They’re not the only ones, there’s a whole string of supposedly “lefty” economists at thinktanks vomiting neoliberal pizza into the urinal.

    I really do think they are starting to piss on their chips though.

    SB’s disconnection from reality is becoming ever more obvious with statements like “fiscal splurges in response to the pandemic have left consumers awash with cash”. Are you awash with cash? I’m not awash with cash. This line is about as classy as John Howard telling us we’ve “never had it so good”, then proceeding to lose both his government and his seat.

    If only there was an ejector seat for newspaper columnists as well. Not that the potential replacements are much better, in the media or the parliament.

    As for Kouk, I recall he made some crazy bet on twitter that he would swim naked across lake Burley Griffin if something something. I could dig it up when he is inevitably wrong next year, except I don’t actually want to *see* that happen!

    Sorry if all that was a bit visual, I think this is what happens when a designer studies economics.

  31. Thankfully Putin and the Russian government’s finance heirarchy do not understand MMT as their military could have been much better funded with rubles and therefore could have been much more formidable than it currently is. Unfortunately Ukraine’s leadership is much the same with too much reliance on foreign loans. Ukraine’s fairly comprehensive armaments industry could also have been much better utilised so that there was less dependency on foreign supplies.

    The EU are also neoliberal idiots and similarly all members could easily have maintained at least 2% of GDP military spending over the past decade and especially since Putin’s invasion of Crimea, Donetsk and Luhansk.

    Germany in particular neglected defence spending and is left with second rate capabilities and failed to properly plan for the replacement of important capabilities in time such as the replacement of the Panavia Tornado which now will need to be replaced using US F35 aircraft rather than a European equivalent.

    The US with it’s ever expanding federal debt and both Trump and Biden willing to ignore the deficit to implement favoured programs such as tax cuts for the rich and higher defence spending for Trump and the pandemic stimulus, the Build Back Better version of the GND plus even higher defence spending for Biden, shows that the US is much closer to operating at their fiscal capacity. Japan and China however lead the way and for whatever reason operate their economies near to the extent that an understanding of MMT would allow.

  32. Bill,
    I receive Larry Summers emails. This one titled “The stock market liked the Fed’s plan to raise interest rates. It’s wrong.” I replied to him with this learned from you ” Unit labor costs are declining, even though nominal labor costs are rising, because labor productivity is increasing. Please address that in your analysis.” He replied with this ” We will see for how long.”.

    Interesting that he did not dispute your logic calling into question his logic.

  33. According to Scott Ritter:
    “when ronald reagan found out about abel archer 83 he went pale ronald reagan mr evil empire went pale”
    “29:22 it’s able archer 83 there’s a nato
    29:25 exercise
    29:26 it almost brought about the end of the
    29:28 world
    29:29 because nato was was testing their
    29:31 nuclear command and control
    29:34 and the russians looked at that and said
    29:36 we don’t think this is a test we think
    29:37 this is the real thing
    29:39 and so as the as nato started issuing
    29:42 launch codes
    29:43 for training purposes the russians went
    29:46 full alert
    29:47 and all it would have taken was a bird
    29:49 to hiccup
    29:51 and the missiles would have flown and
    29:52 the world would have ended and abel
    29:54 archer when ronald reagan found out
    29:55 about abel archer 83 he went pale
    29:59 ronald reagan mr evil empire
    30:01 went pale and that’s when he said we
    30:03 have to change this calculus
    30:06 so do we really want to recreate a
    30:08 situation so that an american president
    30:10 goes pale to before we disarm or should
    30:13 we have already invented that wheel
    30:16 and just say we don’t need these weapons
    30:19 well that’s the situation in the world
    30:20 today it’s a very dangerous situation”

  34. What ‘democracy’?

    “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens
    Martin Gilens and Benjamin I. Page
    Each of four theoretical traditions in the study of American politics-which can be characterized as theories of Majoritarian Electoral Democracy, Economic-Elite Domination, and two types of interest-group pluralism, Majoritarian Pluralism and Biased Pluralism-offers different predictions about which sets of actors have how much influence over public policy: average citizens; economic elites; and organized interest groups, mass-based or business-oriented. A great deal of empirical research speaks to the policy influence of one or another set of actors, but until recently it has not been possible to test these contrasting theoretical predictions against each other within a single statistical model. We report on an effort to do so, using a unique data set that includes measures of the key variables for 1,779 policy issues. Multivariate analysis indicates that economic elites and organized groups representing business interests have substantial independent impacts on U.S. government policy, while average citizens and mass-based interest groups have little or no independent influence. The results provide substantial support for theories of Economic-Elite Domination and for theories of Biased Pluralism, but not for theories of Majoritarian Electoral Democracy or Majoritarian Pluralism. “

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