It's Wednesday and there are a few topics that caught my attention this week as…
Inflation up in Australia but the drivers are weakening
It’s Wednesday and I am still not up to full blog speed after a week doing other things. But I am getting there. Today we consider the latest inflation data from Australia, some fun in the Guardian newspaper and some nonsense about debt ceilings in the US. Then a visit to Paris.
Monthly inflation data published by the Australian Bureau of Statistics today
Today (January 11, 2022), the ABS published its – Monthly Consumer Price Index Indicator – for November 2022.
Remember, this monthly edition is a new innovation at the ABS and doesn’t include all the relevant information that appears in the standard quarterly CPI release.
It is also some 6 weeks behind in relevance.
The data shows that:
1. “The monthly CPI indicator rose 7.3% in the twelve months to November” up from 6.9 per cent in October and back to the September 2022 level.
Should we be worried?
When one digs deeper we see a major jump in Automotive fuel in November 2022 – up from 11.8 per cent to 16.6 per cent annualised.
But hasn’t oil and petrol prices fallen around the world?
Answer: yes.
So what gives?
The answer is that the Federal government has abandoned its 22 cents excise cut that the previous government introduced.
That explains most of the rise in petrol prices.
So, nothing to do with the state of the fiscal deficit or aggregate spending.
Purely an administrative decision, which often drive price movements independent of the state of the economy and are often ignored by commentators who are intent on somehow blaming excessive deficits etc.
Further, housing (new dwellings) has been driving the CPI previously and there was a major fall in the price rise for that component in November.
I can testify personally that constraints on new building are declining as more materials become available.
Food remains a major factor and the ABS note that:
Over the twelve months to November price rises were seen across all food categories. These rises reflect a range of price pressures including supply chain issues and increased input costs …
Fruit and vegetables rose 9.5% in the year to November. This subgroup continues to be impacted by flooding, heavy rainfall and hail in key growing areas, alongside high transport and fertiliser costs.
There are terrible floods in Australia at present which are driving shortages.
Further, the OPEC price gouging is feeding through the supply chain by elevating transport costs.
The same impact is being felt by travel costs.
All of these factors are transitory and independent (largely) from the state of demand.
There is absolutely no justification in this data for further interest rate rises, even though the RBA will continue to hike rates – because it can.
UK Guardian telling the truth
I liked the Editorial in the UK Guardian (January 2, 2023) – The Guardian view on excessive unemployment: the creation of unnecessary suffering – which supported my view that:
… the current bout of inflation is transitory …
Which means there is no justification for central banks trying as hard as they can to create recessions and mass unemployment.
One comment said that by (me and the UK Guardian):
Referring to Japan and its Central Bank as an example to follow is extremely bold. Japan looks increasingly like Titanic before it hit the iceberg
Not bold at all.
Ground in reality and experience.
Mainstreamers have been predicting that Japan would hit the iceberg for around 3 decades. As each prediction fails a new one (the same) follows it, only to meet its own failure.
Japan has issues for sure but they do not relate to public finances or central bank policy.
I suggest these commentators go live there for a while and seek an understanding of what it happening.
Anyway, the sort of commentary was then followed by accustations that I am a “bastard” – FYI: In my office drawer, I have a birth certificate which attributes my birth to two married adults now deceased.
But this commentator had a plan for me:
… ought to be abandoned upon a fertile desert island …
Doesn’t sound too bad actually as long as there is some surf and running tracks.
Another commentator who signed off “I’m no economist” had previously concluded based on some economic facts that “Suggesting we follow the Bank of Japan’s lead is bananas, bonkers and plain insane”.
The commentator is definitely no economist and I would suggest he go an live in Japan and see how bonkers the place is – the first-class education, health and transport system, the very low unemployment, the housing availability, and more.
I decided not to continue reading.
Other commentators were from what I see complementary about my work – thank you.
Ridiculous commentary on the debt ceiling
Some journalists are more ridiculous than others as they strive for the headline that will signal impending doom and capture readers’ dollars.
This article – The US may now be closer than ever to defaulting on its debts (January 9, 2022) – is in that tradition and the writer is a serial offender.
The headline is meant to terrify.
The US (may) is closer to running out of money.
That would be a terrifying prospect, except if you think about it for a second and understand the reality the prospect becomes ludicrous.
We are approaching the perennial ‘debt ceiling’ pantomime that makes American policy makers look very stupid indeed as they strut around making all sorts of speeches and threats about turning off the tap and that sort of stuff.
Even progressives get roped into the charade and start Tweeting profusely about minting a trillion dollar coin, which in my view is equally ridiculous.
The US government has never defaulted and the debt limit has been in place since 1917.
But there is a curious disjuncture in the US system where the President and the Congress may not represent the same political influences, in part a consequence of the Presidential election/mid-term election cycle.
Often the Congress is taken over by the rival political force to the President as a statement of what Americans think of the first two years of that President’s performance.
That is the case now, when the Republicans won a majority in the House of Representatives and effectively matched the Democrats in the Senate (although 3 independents hold the balance in that chamber).
The question then is whether pressure to leverage the debt ceiling for spending cuts and/or tax increases (usually the former) are just legitimate expressions of the will of the people voiced through their majority representatives.
The tension arises because the ‘will’ was expressed for the President two years before the ‘will’ expressed for the Congress, and it is that dislocation that feeds this pantomime usually.
A curious aspect of the commentary around this issue is that pundits always claim that “A failure to lift the ceiling and a default on US government debt would be catastrophic”.
Apparently the corrupt rating agencies are predicting a major collapse in GDP, a 6 point or so rise in the unemployment rate and a massive drop in wealth should the ceiling remain at its current level.
However, they never question the economic damage that the spending cuts would create.
Further, the article cited above talks about “carnage in the US bond market and plunging the US dollar into meltdown”.
Come in central bank.
Its charter is to maintain financial stability and if there was a likelihood of such ‘carnage’ or ‘catastrophe’ that would undermine the financial system then the Federal Reserve would have to act.
What could it do?
Simply write off all the debt that it currently holds.
This time last week, the bank owned 5,457,751 million worth of US Treasury Securities.
Writing that off would render the current debt ceiling irrelevant.
Whatever the Federal Reserve might do, it is legally required to deal with financial instability and has all the currency power to do almost anything.
The recent shenanigans in the House in trying to elect a speaker tells the world how crazy these characters are.
But, the debt ceiling will be raised – as sure as day follows night or vice versa.
Music – A trip to Paris
This is what I have been listening to while working this morning.
Here is some post minimalist music to soothe the soul.
It is the very short (1:15) track – From the Rue Vilin – by one of my favourite Post Minimalist composers, Max Richter, which came out of his – Songs From Before – album in 2006.
This is a very beautiful piece.
As is the case with most post minimalist pieces, and Max Richter’s playing in general, it appears to be relatively simple in construction. But try playing it on piano – it is a deceptively difficult composition to get the timing just right.
Try to match the sounds of the composition with the actual street in the 20ème in Paris, which inspired the music.
Here is a short video about the street and how it has been used in films over the years.
It is one of my favourite areas in Paris with the Belleville Park at the top. But don’t be mislead by these old films. Most of the buildings are gone and have been replaced with modern apartment blocks and the soul of the place is gone.
That is enough for today!
(c) Copyright 2023 William Mitchell. All Rights Reserved.
“Mainstreamers have been predicting that Japan would hit the iceberg for around 3 decades.”
There’s also another neoliberal shibboleth that Japan destroys – agglomeration. The idea that if you shove the population together in ever smaller housing units it will unleash a wave of service sector innovation and productivity.
The reality is Greater Tokyo which has 30% of the Japanese population and more turn up every time there is a pull back. Yet nothing out of the ordinary has happened, other than a continual decline in the Japanese population.
The Megacity hasn’t done what those pushing the idea say they do and perhaps it is time to try the opposite – spreading people out.
Neil, the Japanese government is trying to do just that by offering financial incentives to move out of the city: https://www.theguardian.com/world/2023/jan/03/million-yen-per-child-to-leave-tokyo-japans-offer-to-families
Jimmy Dore was right all along with ( force the vote ) see his Twitter timeline for details. After being attacked by so called progressives for months after coming up with the idea.
The question then is whether pressure to leverage when voting for a speaker. The squad, the so called radical left lol. Could have won major concessions on the policy issues they ran on and how they got elected like Medicare for all. The Republicans just showed them how it is done.
Instead, they voted through Pelosi and now the war mongering corporate, wall street supporting Hakeem Jeffries, as the speaker for the Democrats. Who hates the Squad and who has declared he wants to destroy the them. Who AOC publicly stated when she came to office, her main mission was to get rid of Jeffries as soon as she could. Who then with the Squad voted for him without any pressure to leverage any policy concessions at all.
A pantomime of con artists.
Glenn Greenwald has created a nightly left wing media outlet called system update which is excellent viewing and exposes the so called radical left for what they are during the whole affair.
I’m no economist either.
Nevertheless, I can tell when someboby is lying to me, even when that somebody says he’s an economist and purports some hoax about macro economics as beeing the truth.
Often, “Punditry” is nothing but “ideology” and the “pundits” become charlatans.
When policy is beeing run by charlatans, democracy becomes kakistocracy.
By the way, that is happening in the EU and the UK (read Perry Anderson https://newleftreview.org/issues/ii125/articles/perry-anderson-ukania-perpetua?utm_source=substack&utm_medium=email)
Likewise, I can tell when somebody is beeing honest – thank you, Bill!
Interesting that rent is one of the big drivers of inflation. I wonder if property “investors” are recovering their increased mortgage payments by jacking up the rent?
I did try to look for this feedback doom-loop in MARTIN (the RBA’s macro model), but that thing is such a dogs breakfast I couldn’t find it. I’m quite sure if it was there, they would minimise the effect with “sticky prices” or some bullshit assumption about equilibrium in the rental market. MARTIN needs to rent a flat in Canberra to get a grip on reality. If your choice is pay more rent, or be out on the bones of your arse, that is not a free market.
I’m here to challenge Bill on the “mint the coin” issue.
Bill is plainly correct that there has never been a default by the US and that the ceiling always gets raised. However, the brinkmanship charade that goes on around the deadline is an anxiety inducing (pumped up by MSM as a battle between the Dems and GOP; as if a TV reality show where the opponents play along to sustain the game) distraction for many of the ignorant via a reverse Lucy van Pelt, Charlie Brown and the football, plays into the continuance of ongoing misunderstandings of money and what is revealed as possible when it’s generally known that the economy isn’t about money but about resources and political choices on spending to activate those resources.
As I see it, economics = politics = economics and, so far, the attempts at effecting political change through education about money/MMT/macroeconomics moves the needle far too slowly while politicians we elect destroy lives, maintain and applaud bullshit jobs and cook our environment. In the immediately recent Ep 207 of Macro n Cheese, Rohan Grey nails the problem as
“When I’m trying to force political change on a political operative, I’m trying to get them to do something I want them to do. Maybe I can educate them, but maybe I can’t. And I still need to get it done. That’s power. I don’t actually have the time to wait to educate everybody on the terms that they might feel comfortable with.”
and I’m right on board with that. Rohan’s purpose seems to be to use the coin to demonstrate the political stupidity of having an irrelevant Congressional imposed debt ceiling limit for non-repayable debt that is only debt for accounting purposes. Just minting the coin and displaying it to the public well in advance of putting it to use appeals to my sense of fun. To do so might even convince the Federal Reserve to write off debt as Bill proposes. Who knows?
Whatever it takes to reveal the realities of money to the people would be good.
I agree, Fred. Bill – is your objection to the coin that it perhaps perpetuates the delusion of debt issuance to fund deficits? I’m sympathetic to that point, but I agree with Rohan Grey’s thinking: the coin rather shows how ludicrous the debt ceiling is and arguably demonstrates monetary sovereignty via a novel channel. Kelton puts it well (and acknowledges the gimmick point): ” “It’s a variation on a theme that many of us have been writing about for a long time,” Kelton said. “If you boil things down to who issues the currency, you can do it via the bank, or you can have the government do it. This goes way back in the academic literature. … Now it’s being referred to as the magic coin and a gimmick, and certainly it has that aspect to it – but this law basically says the U.S. currency can come from the U.S. government. That’s really all the coin is. It doesn’t do anything terribly scary from my perspective.”
About the ‘coin’ thing, why don’t we just say that the outstanding government debt is just money that is left in the ‘private sector’. If we were to take those debts out, the economy might be affected by it, say, slow growth.
Further, as far as I am aware, the ‘debt’ that is left in the private sector comes in the form of ‘government deposits’ in the central bank system. If anyone withdraws them and take them home in your pockets from your local banks, they come in the forms of banknotes and/or coins, otherwise it remains a reserves at the central bank and/or reflected in the banking system.
So the point is that using a ‘trillion dollars coin’ as an example may get people confused about how central banks say the FED operates its balance sheet (Assets = Reserves + Banknotes/coins + Government transferred/deposits, in its simplest form).
I don’t agree, Vorapot, that the coin would confuse people on the normal operation of government spending and reserve accounting. Rather, the coin is simply reserve accounting taken to an extreme. The coin is effectively a wad of reserves issued to buy TSY bonds issued to ‘offset’ the deficit. Just a novel way of monetising the deficit. MMTers know this is a pointless accounting exercise with anachronistic roots in the gold standard that, as Bill says, merely provides corporate welfare to banks and investors.