It was the last day of the 12th Path to Full Employment Conference/17th National Unemployment Conference in Newcastle, which I host. The papers were interesting all day and I will report on some of them another day. But overnight, the big news was that the US Senate has finally succeeded in forcing the US Federal Reserve Bank to release details of more than 21,000 transactions it made as a reaction to the rapidly escalating global financial crisis. The lending rose to $US3.3 trillion at its peak and dwarfs the volumes involved in QE1 and QE2 amounts. This is relevant to a debate in the banking literature about the separation of monetary policy functions (setting interest rates) and the broader monetary interventions we have been witnessing in this crisis, which bear close similarity to fiscal policy functions. The question is which macroeconomic policy functions should be accountable to the ballot box. My view is all of them!

Yesterday, parachute gangs from the ECB and the IMF were being dropped into various EMU nations whose only problem is that they are members of an unworkable monetary system and happened to get hit by a major demand shock. Today the IMF cavalry are apparently heading to Dublin for a “short, focused consultation”. Conclusion: Ireland is being invaded by hostile forces. I also read rumours overnight that Germans are refusing Euro notes not printed in the Bundesland. It is probably an outright lie of a similar quality to the many being spread by the deficit terrorists seeking to regain their “credibility” (an impossible mission) any way they can. In this context I get many E-mails from people each week telling me that I do not understand that the latest decision by the US Federal Reserve Bank “to flood the world with printed money” is putting it on the brink of insolvency! I also read that in a Bloomberg Business Week feature article today. And people believe this stuff. It is as much a lie as the fallacious stories recently about the US President’s Asian travel costs which the right-wing in the US (Beck, Limbaugh, Savage etc) perpetuated without scrutiny (see this analysis to see how this lie began). Anyway, rest easy … the US Federal Reserve cannot go broke!

I am sick of reading or hearing how brilliant such and such economist is and how they should be regarded as oracles because of this “brilliance”. In all these cases, the reality is usually that these characters have left a trail of destruction as a result of applying their brilliant minds. The terminology is always invoked by financial commentators and the like to elicit some authority in the ideas of the person. Apparently, if someone is deemed brilliant we should take heed of their words and judgements. How could we ever question them? In this neo-liberal era, many such “brilliant” minds have been placed in positions of authority and their influence has shaped the lives of millions of people. The financial and then economic crisis has shown categorically that their mainstream macroeconomic insights are not knowledge at all but religious beliefs that bear no relation to real world monetary systems. But still these characters strut the policy stages – shameless – and, in doing so, continue to destroy the prospects for many. It would be good it they were truly brilliant and could see the destructive consequences of their religious zealotry. Oh to be truly brilliant.

When I saw the headline on this article – Time to plan for post-Keynesian era – in the Financial Times yesterday (June 7, 2010) I wondered which Keynesian era we were talking about. It was written by Jeffrey Sachs who is well-known for his anti-stimulus viewpoints. The upshot of his argument, however, is that he recommends deficit reduction strategies because the bond markets will get upset otherwise. At the same time he advocates medium-term investments in green technology and education which I support but which will not be consistent with deficit reductions.

I have been writing a fiction novel lately in my spare time (which is when I don’t sleep)! It is about the usual themes – individual struggle, tragedy and perhaps realisation. I haven’t yet conceived how it is going to end yet but it will either be very grim or full of splendour. Black and White I am! The interesting part of the exercise is trying to define one’s style separately from one’s academic style. I read a biography of Jack Kerouac recently and it talked about how he obsessed about trying to develop a unique style but kept falling back to be like one or another of the great authors of the day. It was only once he typed a lot that he started to find his own distinct identity as a writer. For me, the blog helps develop alternative ways of writing outside the terse cloistered world of technical economics. Anyway, I didn’t write much fiction today (yet) but I sure did read a lot of it.

A number of readers have asked me to clarify what I mean when I say that the central bank can control the yield curve at all maturities. This came up again when Marshall Auerback commented that the 1961 Operation Twist exercise in the US provides a model for central bank policy options. In 1961, the US Federal Reserve attempted to flatten the yield curve to bring down long-term rates for an economy that was mired in recession, yet at the same time, push short-term rates up to deal with a balance of payments crisis. The fixed exchange rate system meant they were losing gold reserves and desired to stop that drain. It is an interesting story though as to what happened and whether it has implications for the present. As you will see, the fact is that the central bank can control the yield curve and eliminate the influence of the bond markets if it chooses. The only reason it doesn’t do this is ideological.

I am going to start a public campaign to help our friends in the financial markets. I would like all caring citizens to start donating comics and other light material and send it to the business houses so that the workers can actually read something productive during there time in the offices rather than the usual stuff that circulates. Unfortunately the usual so-called analysis spreads out into the wider research world – which means I read it too. Today we consider a classic case of manipulation to make a case. A denial of the empirical reality, a spurious claim to an historical relationship, and an assertion of an authority – the “bond markets” – that ultimately doesn’t exist. Classic propaganda but some lessons to learn as well.

Today I have been working in the Australia’s national capital Canberra. I have been discussing the work I am doing to develop a new geography for Australia based around the concept of functional economic regions with the Australian Bureau of Statistics which is currently seeking to revise their own geography along similar lines. You can find out about this work if you are interested via the CoffEE Functional Regions homepage. It will provide you with quite a different perspective on my other research interests beyond macroeconomics. Anyway, on the plane I was reading some monetary analysis and recalling a blog from the weekend by our favourite (not!) macroeconomics textbook writer. I started humming Take the power back to myself as I considered the damage this sort of textbook is doing to the minds of our students and the future policy makers.

Today I continue my theme from yesterday which focused on how retired politicians and bureaucrats in the US are massing using resources from rich conservative interests to undermine the capacity of the US government to fulfill its legitimate responsibility to increase employment and raise living standards. In today’s blog I reflect on an excellent US PBS Frontline program which looks back at the days when the neo-liberals led by Alan Greenspan and his gang were ruling the world. The current crisis that has undermined the employment and income prospects for millions around the world is directly attributable to their ideological zealotry. The unfortunate thing is that the gang members are either still in power or reinventing themselves as credible commentators. It doesn’t augur well.

Today’s meeting in Almaty will be discussing how the CAREC countries, that I are working with at present via the Asian Development Bank, can best achieve regional cooperation and integration. The region is very interesting and I will report more fully when things are more clear. But the challenges these countries face are exacerbated by the grip that market liberalism has on them. This is especially to be understood in the context of the Soviet heritage of most of these countries. There is a curious mix of past and present which makes market liberalism even more dangerous. So what? Well, I have been asked by many readers about Latvia, another former Soviet satelite. The deep crisis that economy is enduring is a good example of how market liberalism has failed. Yet, depressingly, the solutions proposed involve more of the same. Modern monetary theory (MMT) clearly offers an alternative and much more productive alternative recovery path.

Australia’s central bank governor is now appearing in the world press as something of a hero for putting interest rates up recently in defiance of world trends. Today he is featured in many finance home pages for his statement that the RBA cannot afford to be timid in putting rates up in the current months. This has raised expectations that we are in a race to get the target rate up towards their so-called neutral rate sometime soon. So almost rock star status for our central bank governor. Pity, the whole paradigm he is representing is destructive and helped get us into this mess in the first place. This blog explains why inflation targeting per se is not the issue. The problem is that fiscal policy becomes subjugated to the monetary policy dominance. This passivity manifests as the obsessive pursuit of budget surpluses which allegedly support the inflation-first stance. But this policy strategy is extremely damaging in real terms and will provoke another debt-bust cycle sometime in the future.