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The Bank of Japan is light years ahead in sophistication relative to the West

Given yesterday’s detailed monetary policy analysis, I am using today to present an array of news items and some brief analytical thoughts on central bank monetary policy. The latter is based on a very interesting speech that the governor of the Bank of Japan gave in Nagoya earlier this week. The juxtaposition with the way the Western central banks are behaving at present is stunning. There is also some self promotion and some announcements. Then we get to listen to Ron Carter. A good day really.

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RBA monetary policy decision represents a terminally broken policy model in Australia

Yesterday (November 7, 2023), the Reserve Bank of Australia raised its policy rate target for the 12th time since May 2022 by 0.25 points to 4.35 per cent. It was an unnecessary increase, just like the eleven increases that preceded it. And, from my perspective it represents a broken policy model. The RBA policies are transferring income and wealth from poor to rich at rates not seen before in this country. They are pretending that the inflationary episode is demand-driven (excessive spending) whereas the data shows that it remains a supply-side phenomenon and the major drivers will not fall as a result of interest rate increases. In fact, one of the major drivers – rents – are rising because of the interest rate rises – RBA is thus causing inflation. The RBA is systematically wiping out wealth at the bottom end and transferring to the top end. The cheer squad for these rate hikes are the wealthy shareholders of the major banks who are recording record profits. A broken model indeed.

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US labour market slower but relative to what?

In last month’s US labour market briefing – US labour market – stability abounds although, worryingly, real wage gains have evaporated (October 9, 2023) – I noted that while there was no major slowdown signalled, the real wage gains made in previous months had evaporated. I wasn’t sure whether that was a sign that a tipping point had been reached or was near. Last Friday (November 3, 2023), the US Bureau of Labor Statistics (BLS) released their latest labour market data – Employment Situation Summary – October 2023 – which showed payroll employment rising by just 150,000, a significant dip in the previous month’s increase. The unemployment rate also continued to creep up to 3.9 per cent (from 3.8 per cent). While some might interpret this as a weakening trend, the question should be asked about the appropriate benchmark that we should be using. One could easily conclude that the aggregates are returning to pre-pandemic levels after all the pandemic noise. The alternative view is that there is a slowdown occurring. We will have to wait another month or so to distinguish between these two conjectures. After a few months of real wage gains, we are now observing nominal wages growth trailing the moderating inflation rate.

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Latest IMF report on Australia is food for uncritical and lazy journalists but garbage nonetheless

The IMF regularly conduct ‘missions’ to member countries, where a group of highly paid economists trot out to a capital city somewhere, hole up in some luxury hotel, and have a few meetings with Treasury officials and the like and then shoot through after the short visit back to whence they came and produce their report. On October 31, 2023, the IMF published – Australia: Staff Concluding Statement of the 2023 Article IV Mission – which attracted a lot of mainstream press attention in Australia. The message that the public received was summarised in this article – International Monetary Fund says Australia needs higher interest rates. The article carried no qualifications or reflection on the methodology. The journalists who have a high profile in the mainstream national media sanctioned without question the IMFs conclusions. That is what goes for information in these times. It is an assault on our collective intelligence really.

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Bank of Japan shifts ground – just a little but there is no sign of a major adjustment any time soon

It’s Wednesday and I use this space to write about any number of issues or items that have attracted my interest and which I consider do not require a detailed analysis. The issues discussed may be totally unrelated. Today, I provide my response to yesterday’s decision by the Bank of Japan to vary its Yield Curve Control (YCC) policy, which some commentators are frothing about. The change was very minor and is not a sign that the expansionary position of the Bank is shifting significantly. I also discuss the culture of denial in the US State Department and then rock out to come classic swamp.

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US national accounts data – no sign that interest rates are working the way economists think they work

On October 26, 2023, the US Bureau of Economic Analysis published the latest US National Accounts figures – Gross Domestic Product, Third Quarter 2023 (Advance Estimate) – which showed that “Real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023”. The June-quarter 2023 growth rate was 2.1 per cent. There was broad-based growth in all the expenditure components, including those that would be most sensitive to interest rate rises. My prior, of course, is that the interest rates would not significantly reduce growth in the short run, whereas mainstream New Keynesian theory considers interest rate rises to be an effective tool in moderating total spending, and, in turn, reducing inflation. The reality does not support the mainstream proposition. Consecutive national accounts releases from the US, however, have shown that aggregate expenditure is resilient in the face of the interest rate increases.

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