RBA tom foolery continues while spending continues unabated

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

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Learning while on the job …

For the past several months I have been learning Japanese. I am now working at Kyoto University under a JSPS International Fellowship and living near the main campus. Each morning I go running along the Kamo River, which runs north-south through the east side of the city. It is a marvellous resource for runners, walkers,…
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Degrowth, Deep adaptation and MMT – Part 3

This is the third part in a on-going series that I am writing about Deep Adaptation, Degrowth and related concepts, all of which are designed to provide some sort of pathway beyond the current mess that the world is in with respect to climate, inequality, poverty, excessive consumption, and excessive population growth. Today, I consider how Modern Monetary Theory (MMT) fits into the transition agenda and discuss the labour market dislocation that will accompany the transition to degrowth.

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The Weekend Quiz – October 1-2, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Musicians should be paid at least a socially inclusive minimum living wage

It’s Wednesday and I am now ensconced in Kyoto, Japan for the months ahead. I will report on various aspects of that experience as time passes. Today, I reflect on a debate that is going on in Australia about the situation facing live musicians. Should promoters be able to employ them for poverty wages including ‘nothing’ while still profiting or should they be forced to pay the musicians a living wage. You can guess where I sit in the debate.

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The Weekend Quiz – September 3-4, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The Weekend Quiz – August 20-21, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Germany is in deep trouble and requires a major shift in policy strategy

The latest news I read from Germany was that the Rhine is now so low on water that its importance as a commercial waterway for transporting raw materials and finished products is being significantly compromised. The water level in places is now well below that required for navigation by the barges. It is the second time in the space of a few years that inland shipping in Europe has been thwarted by this sort of problem. The War in Ukraine is also causing bottlenecks in the inland transport routes as grain transports are being diverted as a consequence of the Black Sea blockades. Sure enough there are rail transports still capable of shifting the cargo but this problem is one of many now hitting Germany, which is finding out that its economic growth strategy is deeply flawed. It was only a matter of time before the ‘chickens came home to roost’. It was obvious for years that the Post-unification strategy the German government took as it entered the common currency could not deliver sustainable and stable growth. The reliance on suppressing domestic expenditure and wages growth in order to game its Eurozone partners so they recorded large external deficits in order to buy German exports was problematic given that the German insistence on austerity across the Eurozone resulted in stagnation and weaker export markets. Further, Germany relied heavily on diesel engines to underpin the strength of their dominant motor vehicle industry and not only did they lie about the quality of the products, but they failed to foresee the shifting sentiment away from polluting diesel. And, of course, they relied on imported energy from Russia to feed this industrial strength and supply their consumer markets, which assumed that Russia would remain reliable. At present they are also being impacted by the supply disruptions in China, given they have shifted their external sector towards an increased reliance on China. Some of these problems will ease but the reality is that the German model that they took into the Eurozone is now unsustainable. They must abandon their export led growth obsession, increase their reliance on domestic demand and improve the circumstances for their workers while dealing with the increasingly evident climate emergency.

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The Weekend Quiz – August 6-7, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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Once again the so-called technocracy that is the Eurozone looks like a farce

So last week, the Bank of Japan remained the last bank standing, the rest in the advanced world have largely lost the plot by thinking that raising interest rates significantly will reduce the global inflationary pressures that are being driven by on-going supply disruptions arising from the pandemic, the noncompetitive behaviour of the OPEC oil cartel and the Russian assault on Ukraine. The most recent central bank to buckle is the ECB, which last week raised interest rates by 50 basis point, apparently to fight inflation. But the ECB did it with a twist. On the one hand, the rate hike was very mainstream and based on the same defective reasoning that engulfs mainstream macroeconomics. But on the other hand, they introduced a new version of their government bond-buying programs, which the mainstream would call ‘money printing’ and inflationary. So, contradiction reigns supreme in the Eurozone and that is because of the dysfunctional monetary architecture that the neoliberals put in place in the 1990s. The only way the common currency can survive is if the ECB continues to fund Member State deficits, even if they play the charade that they are doing something different. Hilarious.

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Trickle down. Remember that. The evidence base continue to reject the notion as a scam

Trickle down. Remember that? This was the idea that if we redirect real income towards capital by boosting profits via real wage suppression and/or corporate tax cuts, as if by magic, corporations will start investing the largesse in productive capital, which stimulates economic growth, and, the benefits ‘trickle down’ to the workers who made the initial sacrifices. The evidence base has never supported the idea yet it still resonates. I read two interesting articles yesterday, which are related even if at first blush they may not appear to be. The first reveals the shocking decline in productive investment by both private and public sectors and the long-term damage that that will have for our capacity to meet the climate challenge. The second shows that the arguments that cutting corporate taxes is good for economic growth is false.

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The Weekend Quiz – July 16-17, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The RBA has lost the plot – monetary policy is now incomprehensible in Australia

It’s Wednesday and I have some comments to make about yesterday’s RBA decision (July 5, 2022) to continue increasing its interest rate – this time by 50 points – the third increase in as many months. If the rhetoric is accurate it will not the last rise by any means. In its – Statement by Philip Lowe, Governor: Monetary Policy Decision – the RBA noted that global factors were driving “much of the increase in inflation in Australia” but there were some domestic influences – like “strong demand, a tight labour market and capacity constraints” and “floods are also affecting some prices”. It is hard to make sense of their reasoning as I have explained in the past. Most of the factors ‘driving inflation’ will not be sensitive to increase borrowing costs. The banks are laughing because while they have increased borrowing rates immediately, deposit rates remain low – result: massive gains in profits to an already profit-bloated sector. But the curious part of the RBA’s stance is that they are defending themselves from the obvious criticism that they are going to drive the economy into the ground and cause a rise in unemployment by claiming that “many households have built up large financial buffers and are benefiting from stronger income growth” – so the increased mortgage and other credit costs will be absorbed by those savings (wealth destruction) allowing households to continue spending. You should be able to see the logic gap – if “strong demand” is driving inflation and that needs to come off for inflation to fall but the buildup of savings will protect demand – go figure. Monetary policy is in total chaos and being driven by ideology. And to calm down after that we have some great music as is the norm on a Wednesday.

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Unaccountable central bankers once again out of controls

On August 27, 2020, the US Federal Reserve Chairman, Jerome Powell made a path breaking speech – New Economic Challenges and the Fed’s Monetary Policy Review. On the same day, the Federal Reserve Bank released a statement – Federal Open Market Committee announces approval of updates to its Statement on Longer-Run Goals and Monetary Policy Strategy. I analysed that shift in this blog post – US Federal Reserve statement signals a new phase in the paradigm shift in macroeconomics (August 31, 2020). It appeared at the time, that a major shift in the way central banking policy was to be conducted in the future was underway. A Reuters’ report (August 28, 2020) – With new monetary policy approach, Fed lays Phillips curve to rest – reported that “One of the fundamental theories of modern economics may have finally been put to rest”. At the time, I didn’t place enough emphasis on the ‘may’ and now realise that nothing really has changed after a few years of teetering on the precipice of change. The old guard is back and threatening the livelihoods of workers in their usual way.

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New Keynesian inflation model is unfit for purpose

It’s Wednesday – a day for a few short comments and then relaxing to music. Today I consider some statements from the Bank of International Settlements, which suggest that the mainstream inflation approach, based on the New Keynesian Phillips curve is subjected to “serious practical shortcomings”. In other words, it is unfit for purpose, which means you should not be surprised that central banks are hiking rates to stifle a transient supply-side inflation burst. Quackery leads to quackery. I also consider some recent evidence that supply disruptions are easing. And, then, we learn that that the British Labour Party no longer things workers should strike. And if that has driven you mad, then we restore calm with some great music from Jiro Inagaki.

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The Weekend Quiz – June 4-5, 2022 – answers and discussion

Here are the answers with discussion for this Weekend’s Quiz. The information provided should help you work out why you missed a question or three! If you haven’t already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of Modern Monetary Theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

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The new Australian treasurer’s comprehension of his brief is dire

I wrote last week in this blog post – We have a new federal government – finally some decency will hopefully return (May 23, 2022) – that Australia had finally rid itself of the disastrous conservative government that had violated our nation for the last 9 or so years. It was a moment to celebrate, given that we could not have fallen much further in the eyes of the world and that our society was falling apart from the neglect and inaction of that government and the favours it did for the cronies in business that supported it. But I stress the temporality of ‘a moment’. The new Ministers were sworn in yesterday and have hit the road running with all sorts of press conferences and statements. Some of the things I am hearing sound like an improvement. But the statements from the new Treasurer suggest that nothing much has been learned from the GFC, the pandemic and the period in between. And unless he changes his tack, we won’t see anything ambitious achieved in the next 3 years.

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US inflation is moderating while a massive fiscal contraction is underway – recession looming

Yesterday (May 11, 2022), the US Bureau of Labor Statistics released the latest – Consumer Price Index Summary – April 2022 – which showed the monthly increase in the CPI to be 0.3 per cent, the lowest monthly increase since August 2021 and, as it happens, just about right on the average monthly growth rate from January 1947 and April 2022. The result suggests a tapering of price pressures. The Energy component fell by 2.7 per cent in April after spiking at 11 per cent in March. Further, the growth in food prices fell for the third consecutive month. All of this has nothing to do with the recent interest rises imposed on the economy by the US Federal Reserve. They were already in train and confirm the transitory nature of this period of price instability. The US Treasury Department also published its most recent fiscal statistics yesterday – Monthly Treasury Statement – for April 2022, which reports a staggering $US533,794 fiscal shift between April 2021 and April 2022 – the fiscal drag embodied in that shift is massive and calls into question the conduct of the US Federal Reserve – why did they think they needed to push the economy towards recession? Fiscal policy is already working in that direction!

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Back to school for me …

For the foreseeable future I am spending the time I would normally use to write a blog post each Tuesday, studying the Japanese language. I will be taking up a position to work in Kyoto from October this year for some time and so I have to improve my language skills. So – 日本語を勉強している学校に戻ってきました.
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The Covid trade-off between health and the economy did not exist

With yesterday’s detail CPI analysis, I am transferring the news/music blog post that normally appears on a Wednesday to today. This morning, I read the newly published report from the UK-based – Institute for Public Policy Research – Health and prosperity: Introducing the Commission on Health and Prosperity (released April 27, 2022) – which provides a sobering (to say the least) evidence base for how the pandemic has impacted on Britain’s health system and labour market. As more evidence comes out from the experience of the last 2.4 years, I wonder when those who demanded nations learn to live with the virus – by basically denying its existence – will reflect on the folly of their laissez-faire positions.

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