Yesterday’s data from the Australian Bureau of Statistics (October 28, 2020) – Consumer Price Index, Australia – for the September-quarter 2020, illustrates what a lot of people do not fully grasp. Inflation can be driven by administrative decisions and can be curtailed or restrained by varying those decisions. No tax rises or cuts to government spending are needed. The data also reflect on the reasons that predictions from mainstream (New Keynesian) economic models fail dramatically. Mainstream economists claim that monetary policy (adjusting of interest rates) is an effective way to manage the economic cycle. They claim that central banks can effectively manipulate total spending by adjusting the cost of borrowing to increase output and push up the inflation rate. The empirical experience does not accord with those assertions. Central bankers around the world have been demonstrating how weak monetary policy is in trying to stimulate demand. They have been massively building up their balance sheets through QE to push their inflation rates up without much success. Further, it has been claimed that a sustained period of low interest rates would be inflationary. Well, again the empirical evidence doesn’t support that claim. The Reserve Bank of Australia has now purchased more than $50 billion worth of federal government bonds and a smaller amount of state and territory government debt. And yet inflation is well below the lower bound of the RBA’s inflation targetting range. The most reliable measure of inflationary expectations are flat and below the RBA’s target policy range....
Inflation is not necessarily due to excessive spending
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
20 comments:
“The other point to note is that inflation has not surged in Australia, despite the Reserve Bank of Australia purchasing $A52,250 million worth of federal government bonds in secondary markets and $A11,098 million worth of state/territory government debt.
In other words, the central bank has been significantly funding government spending at both federal and state levels.
No inflationary pressures evident.
Which accords with the historical record where central banks in Europe, the UK, Japan, the US have been engaged in large-scale bond purchases and inflation is benign, and, in Japan’s case, has been for 30 years.”
But regulatory conditions were modified May 15th here:
https://www.federalreserve.gov/newsevents/pressreleases/bcreg20200515a.htm
“ the interim final rule permits depository institutions to choose to exclude U.S. Treasury securities and deposits at Federal Reserve Banks from the calculation of the supplementary leverage ratio. The agencies are providing this temporary exclusion to enable depository institutions to expand their balance sheets as appropriate to serve as financial intermediaries and serve their customers..”
New conditions.... just like 1971... it’s a regulatory modification...
Could create future conditions of instability of prices that econo-morons in our top positions then think is their figure of speech “inflation!”....
How to tell between econo-morons and those who know what they're doing?
New conditions, price instability, inflation... just what the ruling class may order.
They make predictive statements that are accurate.... and if they are not accurate, they don’t keep saying the same thing..
What is the predictive statement in the May 15th modification?
No more payment/credit system crashes and shutdowns... till April 1, 2021.....
They also went to zero % Reserve Asset ratio.... that’s another one you have to recognize and take into account...
No more loss of control of the policy overnight interest rate... until further notice...,
Look at the dope in the comments to the last one..,, dude In Australia is talking about “ANOTHER GFC!” when Australia never had a first one due to this (now suspended) regulation....
You linked to a press release. It contains a rationale for the modification. That's it. The general public is left to assume that these measures were properly conceived, or advisable.
There is a place for comments, presumably by experts.
More like the sound of crickets.
Yeah and the press release was made at 5:45 pm ON A FRIDAY which is what you do when you don’t want anyone to read it....and in the middle of a pandemic chaos...
Anyone capable of applying 8th grade algebra who would look into this would soon figure out why the GFC happened...
So they always try to bury these regulatory modification announcements...
MMT is big on applying the 1971 reg mod related to gold ... but not many others ... if any....
Well, you are big on applying Humphrey-Hawkins... and Bill is big on reviving the full employment social contract that was abandoned decades ago.
Humphrey Hawkins is from the 70s....
Look here is what may happen... easily...
We have all of this QE going.., then we come out of covid Non govt dis saves and increases non govt consumption like banshees.., and some price instability manifests on the upside... the economorons are going to somehow in their deranged minds come up with their figurative “inflation!” and then the monetarists are gonna say “see we told you so!”
And MMT will not be able to counter that thesis because all they have is the correlation not the causation....
Monetarists will have the correlation too....
All Bill can say here is that “it didn’t happen!” But he doesn’t exhibit knowledge of why it didn’t happen....because they are not keeping up to date on regulatory modifications...
Here 1978:
https://en.wikipedia.org/wiki/Humphrey–Hawkins_Full_Employment_Act
Art degree morons thrn jerking off for now over 40 years...
Regulations can be changed has been and will be. Bill knows that.
I'd like to see Bill weigh in on this modification.
A primary tenet of MMT is that modern munnie is primarily a product of a legal system. PERIOD
When the men behind the curtain are changing the rules, that is where your focus should be.
Reminder on inflation
Comment on Bill Mitchell on ‘Inflation is not necessarily due to excessive spending’
The most elementary macroeconomic price formula states P=ρ W/R. ρ>1 represents private/public deficit-spending/money-creation and this implies that a period deficit produces a ONE-OFF price hike and NOT inflation.
In order to get inflation going, the wage increases have to be constantly above the productivity increases. In fact, the exact opposite happened.#1 The price formula tells one that in this case, deflation will result.
The crucial point is that the quantity of money is NOT among the price determinants. The price formula implicitly refutes the commonplace quantity theory.#2
Egmont Kakarot-Handtke
#1 Chart, Twitter, Economic Policy Institute
https://twitter.com/EconomicPolicy/status/1322247959753428992
#2 More details
https://axecorg.blogspot.com/2020/09/links-on-inflation.html
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