IMF now claiming that Japan has to inflict austerity when the government’s current policy settings a maintaining stability

It was only a matter of time I suppose but the IMF is now focusing its nonsensical ‘growth friendly austerity’ mantra on Japan. In a recent interview, the former Portuguese Finance Minister now in charge of the IMF’s so-called ‘Fiscal Affairs Department’, Vitor Gaspar claimed that Japan is now in a precarious position and must start to impose austerity. Recall last week that I concluded that – The IMF has outlived its usefulness – by about 50 years (April 15, 2024). The current interventions from senior officials such as Gaspar only serve to reinforce that assessment. The problem is that they are still able to command a platform and a significant number of people in policy making circles actually believe what they say. It would be a much better world if the IMF and its toxic ideology and praxis just disappeared off the face of the Earth. Then we could send all the highly educated officials to thought reassignment camps to allow their considerable intellectual capacity to search for cures to cancer or whatever.

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Bank of Japan’s rate rise is not a sign of a radical policy shift

Yesterday, the Bank of Japan increased its policy target rate for the first time in 17 odd years and it set the noise level among the commentariat off the charts – ‘finally, they have bowed to the pressure from the financial markets’, ‘major tightening’, ‘scraps radical policy’, etc – all the hysteria. The reality is quite different as they moved the target from -0.1 per cent to 0 per cent – no major shift, just a modest variation after better than expected – Shuntō outcomes for workers, which may finally signal that the deflationary mindset among workers and firms is coming to an end. However, to think that the Bank of Japan has just radically changed its tune is naive and not consistent with the facts. After analysing the Japanese situation we have some nice music today – given it is Wednesday.

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Australia’s growth rate declines further and danger of recession increases on the back of the policy squeeze

Today (March 6, 2024), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, December 2023 – which shows that the Australian economy grew by just 0.2 per cent in the December-quarter 2023 and by 1.5 per cent over the 12 months (down from 2.1 per cent). If we extend the September result out over the year then GDP will grow by 0.8 per cent, well below the rate required to keep unemployment from rising. GDP per capita fell for the third consecutive quarter and was 1 per cent down over the year. This is a rough measure of how far material living standards have declined but if we factor the unequal distribution of income, which is getting worse, then the last 12 months have been very harsh for the bottom end of the distribution. Households cut back further on consumption expenditure growth. Moreover, there is now a very real possibility that Australia will enter recession in the coming year unless there is a change of policy direction. Both fiscal and monetary policy are squeezing household expenditure and the contribution of direct government spending, while positive, will not be sufficient to fill the expanding non-government spending gap. At the current growth rate, unemployment will rise. And that will be a deliberate act from our policy makers.

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Australia labour market – weakening under the brunt of poor policy, 10.7 per cent underutilisation rate

Today (February 15, 2024), the Australian Bureau of Statistics released the latest – Labour Force, Australia – for January 2024, which confirms a weakening in the labour market. The signs of a slowdown were appearing in late 2023 and the January figures probably confirm that trend, although the changing holiday behaviour makes it difficult to be definitive. We will know more next month when the holiday period effects wash out. Employment growth was unable to even keep pace with the underlying population growth, which is why unemployment rose with participation constant. The best indicators that the labour market is weakening are the fall in the employment-to-population rate since November 2023 (down 0.5 points) and the sharp decline over the last few months in hours worked. It also appears that the slowdown is impacting teenagers disproportionately. There are now 10.7 per cent of the available and willing working age population who are being wasted in one way or another – either unemployed or underemployed and that proportion is increasing. Australia is not near full employment despite the claims by the mainstream commentators and it is hard to characterise this as a ‘tight’ labour market.

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Lower British fiscal deficit gives the central government no more or no less capacity to net spend to reduce unemployment

It’s Wednesday and I am bound for London later today. We will see how that turns out having not travelled there since the beginning of the pandemic. I will take plenty of precautions to avoid Covid. But it will be good to catch up with friends in between several engagements, including my teaching responsibilities at the University of Helsinki, which I have been acquiting for the last few years via Zoom. Today, I reflect on the latest public finance data released by the British Office of National Statistics which shows the fiscal deficit is smaller than expected. Even progressive journalists have written this up as providing more scope for pre-election largesse to be provided. The fact that the fiscal balance is lower provides no more or no less scope for the government to net spend. The relevant questions that should be answered before such an assessment can be made are ignored by the journalists, including the fact that the unemployment rate is rising and the supply-driven inflation is falling fast. After some announcements of events in London and Europe, we have some violin music to end today’s post. There will be no blog post tomorrow as I will be in transit.

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Australian national accounts – growth falls to 0.2 per cent in September – and only because of fiscal support measures

Today (December 6, 2023), the Australian Bureau of Statistics released the latest – Australian National Accounts: National Income, Expenditure and Product, September 2023 – which shows that the Australian economy grew by just 0.2 per cent in the September-quarter 2023 and by 2.1 per cent over the 12 months. If we extend the September result out over the year then GDP will grow by 0.8 per cent, well below the rate required to keep unemployment from rising. GDP per capita fell by 0.5 per cent and Real net national disposable income fell by 0.6 per cent – a measure of how far material living standards declined. Households cut back further on consumption expenditure growth while at the same time saving less relative to their disposable income in the face of rising interest rates and temporary inflationary pressures. Temporary fiscal policy measures (to ease cost-of-living pressures) were the difference between poor growth and no growth at all.

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Changes to RBA Act will further entrench the depoliticisation of economic policy and reduce democratic accountability

Today, I consider the latest development in the entrenchment of neoliberalism in the Australian policy sector, specifically, the latest decision by the Treasurer to excise his powers under Section 11 of the Reserve Bank Act 1959, which allowed the Treasurer to overrule RBA policy decisions if they considered them not to be in the national interest. This power was considered an essential aspect of a working democracy, where the elected member of parliament had responsibility for economic policy decisions that impacted on millions of people. The latest evolution will further see macroeconomic policy depoliticised and placed in the hands of a small cabal of mainstream economists who regularly advocate policies that serve special corporate interests and leave millions unemployed. I also provide a video from a TV show I appeared on in Tokyo the other day. Then some lovely guitar music. It’s Wednesday after all!

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Fiscal austerity does not on average reduce public debt ratios

The resurgence of economic orthodoxy is a great example of how declining schools of thought can maintain dominance in the narrative for extended periods of time if the vested interests are powerful enough. In the case of the economics profession, mainstream New Keynesian theory persists because it serves the interests of capital. Recently, the IMF urged the Australian government to engage in ‘fiscal consolidation’ in order to support further interest rate hikes by the RBA aimed at reducing inflation quickly. In general, the IMF is urging nations to engage in fiscal austerity in order to bring their public debt ratios down. The problem is that even their own research shows that these fiscal adjustments on average do not succeed. And, usually, they leave a damaged society where the lower income and disadvantaged cohorts are forced to endure the bulk of the negative effects.

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US inflation in retreat as housing policy is exposed as a failure

The US Bureau of Labor Statistics released the latest US inflation data last week (August 10, 2023) – Consumer Price Index Summary – which showed that overall monthly inflation to be 0.2 per cent and mostly driven by housing. And, once we understand how the housing component is calculated then there is every reason to believe that this major driver of the current inflation rate will weaken considerably in the coming months. The rent component in the CPI has been a strong influence on the overall inflation rate and that has been pushed up by the Federal Reserve rate hikes.

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The Bank of England ‘losses’ are meaningless and should never be used to justify fiscal austerity

We really get to see how absurd humanity can be when put in a neoliberal ideological straitjacket when we see serious discussion by serious and educated people about the government paying itself back for losses it makes by loaning itself currency that it issues as a monopolist. They conduct these conversations through the lens of complicated accounting structures that try to obscure what is actually going on and then invite political commentary from others that have no real idea of what is going on yet feel empowered or arrogant enough to offer all sorts of catastrophic scenarios about the consequences of what is essentially nothing at all. Once one sees through the nonsense it becomes clear that these ruses are just smokescreens for conservatives trying to cut fiscal spending and damage the prospects for those most in need of government support.

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US spending data not demonstrating effectiveness of monetary policy

I have been looking for signs that the concerted efforts by most central banks (bar the eminently more sensible Bank of Japan) to kill growth and force unemployment up have actually been effective. My prior, of course, is that the interest rates will not significantly reduce growth in the short run, but may if they go high enough start to impact on spending patterns of low income households. The next data that will help us associate the interest rate effects on spending by income quintile in the US comes out in September 2023, so I will watch out for that. The most recent national accounts data from the US, however, does not support the mainstream belief that monetary policy is the most effective tool for suppressing expenditure. Far from it.

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Monetary policy in the hands of the central banker sociopaths is advancing the class interests of the elites

Recently, I wrote about the conditions that dictate what impacts interest rate changes will have on aggregate spending and demand-driven inflation in direction, magnitude and temporality – see RBA governor’s ‘Qu’ils mangent de la brioche’ moments of disdain (June 8, 2023). It is highly likely in many cases, the decisions by central banks to increase interest rates, ostensibly to ‘fight inflation’ actually make inflation worse. More people are starting to understand that point even though central bankers appear to be still talking big about further interest rate rises. But the evidence is mounting against their position and ultimately that evidence is exposing the deep flaws in mainstream macroeconomics. I argue today that the problem is not only that the interest rate hikes can be inflationary but they are also facilitating a major reinforcement of the class divisions in our societies whereby the low income cohorts are transferring massive income benefits to the higher deciles. I also discuss cricket which recently has provided a demonstration of how the class divisions work. Then some music, given it is a Wednesday.

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Japan’s monetary policy experiment is working

Last week – RBA wants to destroy the livelihoods of 140,000 Australian workers – a shocking indictment of a failed state (June 22, 2023) – I wrote about the sense of being in a parallel universe when one reads official statements from the Bank of Japan and juxtaposes them against the stream of statements coming out of other central banks. The day after I wrote that post (June 23 2026), the Japanese e-Stat service (the portal for Japanese government statistics) released the latest – Monthly CPI data – which showed that the annual inflation rate fell by 0.2 points to 3.2 per cent in May, on the back of significant easing in electricity and gas prices, in part the result of government policy aimed at reducing energy prices rises in the domestic economy. Here is some more about the parallel universe. I conclude that the experiment underway between central banks is indicating that Japan’s zero interest rate regime (with fiscal expansion) is not an inflationary factor. It has not driven dangerous shifts in inflationary expectations for businesses or households. Further, the decision by the Bank of Japan not to hike rates has reduced the cost-of-living squeeze on mortgaged households that is being imposed by the (transitory) inflationary pressures. By way of contrast, other central banks have imposed extra burdens on those with debt and are engineering a massive redistribution of income from poor to rich into the bargain. As they continue with their blindness, they are risking recession and a major rise in unemployment, which will add to the pain the citizens are enduring.

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The climate emergency requires us to reset our understanding of fiscal capacity. It is already, probably, too late.

In Tuesday’s fiscal statement, the Australian government made a lot of noise about dealing with the climate emergency that the nation faces but in terms of hard fiscal outlays or initiatives it did very little, deferring action again, while ‘the place burns’. The Climate Council assessment was that the government “still seems to be on a warm-up lap when it comes to investing in climate action” (Source) and recommended the nation moves from a “slow job” to a “sprint”. I have previously written about the myopic nature of neoliberalism. There are countless examples of governments penny pinching and then having to outlay dollars to fix the problem they create by the austerity. The climate emergency is of another scale again though. And penny pinching now will cause immeasurable damage to humanity. Food security will be threatened. Urban environments will become unliveable. Pandemics will increase if we don’t stop clearing and if we release viruses stored in permafrost. And all the rest that awaits us. Now is the time to reset our understanding of fiscal capacity. It is already, probably, too late.

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A fiscal statement designed to increase unemployment and drive more jobless workers into poverty

Last night (May 9, 2023), the Australian government delivered the latest fiscal statement (aka ‘The Budget’), and, in doing so guaranteed that unemployment would rise. A deliberate act of sabotage of living standards for disadvantaged Australians. All the hype was about the miniscule fiscal surplus that was announced as if it is some sort of badge of honour that politicians aim for. If they went to the homes of the poor; if they visited the public hospital system that is still straining under Covid etc and years of fiscal neglect; if they examined the state of climate science; and if they just opened their eyes generally, they would see that a fiscal surplus is an indication at this stage in our history of deliberate neglect of the main challenges of the day. Sure enough, the Government handed out some dollops of cost-of-living relief to low-income families – a few pennies in the scheme of things. But while recording a surplus they still refused to lift the unemployment benefit recipients above the poverty line and ensured their would be more of the same forced to live in poverty. The priorities are all wrong and this is another neoliberal-lite effort from the Labor Party.

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The absurdity of the current monetary policy dominance exposed

We start to see the absurdity of the current reliance on monetary policy as a counter-stabilisation tool, when you read the calls from the Bank of England Monetary Policy Committee member talking about the risk of a ‘significant inflation undershoot’. In a detailed analysis of the current situation, the external MPC member noted that inflation was falling faster than expected because the supply constraints were reversing quickly. She also noted that the interest rate hikes had now reached a point where unemployment was certain to rise and lead to, in the face of the supply reversals, to deflation. And that would require faster and larger interest rate cuts. Here is an insider admitting that the Bank of England is more or less gone rogue and out-of-step with reality. Overshoot at the top of the hiking cycle, swinging to a massive undershoot at the bottom. Absurd.

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Former Bank of Japan governor challenges the current monetary policy consensus

In the latest IMF Finance and Development journal (March 2023), there is an interesting article by the former governor of the Bank of Japan, Masaaki Shirakawa – It’s time to rethink the foundation and framework of monetary policy. It goes to the heart of the complete confusion that is now being demonstrated by central bank policy makers. With their ‘one trick pony’ interest rate attacks on inflation, not only have they been inconsequential in dealing with that target (the so-called price stability responsibility), but, in failing there, they have undermined the achievement of the other central bank target (financial stability) and probably worsened the chances of sustaining the third target (full employment). Sounds like a mess – and it is. We are witnessing what happens when Groupthink finally takes over an academic discipline and the policy making space. Blind, unidirectional policies, based on a failed framework, steadily undermining all the major goals – that is where we are right now. And not unsurprisingly, those who have previously preached the doctrine are now crossing the line and joining with those who predicted this mess. And, as usual, the renegade position is somehow recast as we knew it all along’ when, of course, they didn’t. When you get to that stage, we need music – and given it is Wednesday, I oblige at the end of this post.

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Bank of Japan has not shifted direction on monetary policy

The hysteria surrounding the decision by the Bank of Japan (released December 19, 2022) to make a minor adjustment to its yield curve control ceiling on Japanese government 10-year bonds has been predictable but uninformed and full of vested interest agendas. You know the type of agenda that investment bankers engage in where they consistently pump out their media statements, which are soaked up by the financial media as if they are knowledge that needs repeating, that claim interest rates have to rise to deal with some inflation emergency or something. The media doesn’t tell the public who absorb this stuff that the actual agenda is that bankers want higher interest rates because they make more profit and that the reason the media statements give is largely fiction. So we are seeing more of that in the last few days. My understanding of the decision is that it does not signal a fundamental change in monetary policy in Japan. It is a minor shift to tweak the interface between the government bond market and the corporate bond market in order to maintain financial stability – the most important role of a central bank. All those characters that are claiming the hedge funds have won and the Bank of Japan is now conceding power to them with interest rate hikes to come are not reading the room. They are just pushing their self-interest in vain. No interest rates went up and my reading of the statement and what I know informally via contacts is that the Bank is committed to its current policy position because it considers, as I do, the inflationary pressures to be transitory and doesn’t want to respond to an ephemeral problem by creating a more entrenched problem of real economy recession and rising unemployment.

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US inflation has peaked and monetary policy had nothing much to do with it

It’s Wednesday, and I have two things to write about briefly before exposing readers to some more music. First, the evidential base for my ‘this inflationary period is transitory’ narrative gains more weight. The latest CPI data from the US Bureau of Labor Statistics shows that inflation has peaked in the US and falling rapidly in the goods sector, which started this episode off. The second topic relates to measuring progress in the development and spread of new ideas. It is often difficult to know how far a new framework has penetrated the broader debate. But sometimes things happen that remind me of how far we have to go in changing the framing and language surrounding fiscal capacity and the related topics, that Modern Monetary Theory (MMT) has brought to the fore. We finish with some calming guitar playing.

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Australia’s latest fiscal statement from the government – a gutless document really

I don’t really want to write this post today given the hysteria that has appeared in the media over the last week. But it is an important event so I better. Working in Kyoto for the last month has given me a sort of sense of dislocation from the day to day macroeconomic debate in Australia. I still read all the information and study the data but being somewhat distant from it – and not watching any current affairs or listening to the radio – provides for calm. Anyway, last night (October 25, 2022), the new Federal Treasurer released the annual ‘fiscal statement’ (aka ‘The Budget’), after telling the nation since he was elected that the sky was about to fall in because the previous government had left a ‘trillion dollars worth of debt’. The new Labor government is so intent on looking ‘responsible’ and the exemplars of ‘sound finance’ that the population has been subjected to a daily briefing from the Treasurer and the Finance Minister that amounts to little more than nauseating lies. And last night’s fiscal statement? A joke really. It neither does what the Treasurer claims nor does it deal with the numerous policy challenges that face the nation in any significant way. The fiscal statement essentially fails to meet the challenges that are before us and will worsen over the next few years. A gutless document really.

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