Thursday, October 28, 2021

Bill Mitchell — In the battle between government and the hedge fund gamblers – the government has all the cards

Given my inflation report yesterday, I have shifted my usual Wednesday light blog post day and music feature to today. The economic debate has moved in recent years from ‘when is the government going broke’ to ‘hyperinflation is approaching’. It amazes me how puerile the economic commentary is as journalists and economists seeking headlines trot out headlines about how bad something (insert: insolvency, inflation, whatever is the latest craze) is going to be and what needs to be done about it. Nothing much happens in the real world and they keep their jobs and begin the next mania. Replay. And so it goes. It seems though that within this fictional world, that masquerades as informed economic commentary, subtle changes are underway. Governments worked out that during the GFC, the only weapon they had that would save the system was fiscal policy. They also worked out that large-scale bond buying by their central banks complemented the effective use of fiscal policy and didn’t deliver all the maelstrom that the mainstream New Keynesian textbooks predicted. The pandemic has accentuated that. And now there is this sort of stand-off between the ‘markets’ that were given too much latitude in the pre-GFC period and governments. The market players, who have become accustomed to manipulating government policy to ratify their speculative bets, which delivered massive profits to the hedge funds and the like, are now confronting central banks and treasuries that actually have power and cannot be bullied into delivering such policy ratification. That is progress and interesting to observe....
Bill Mitchell – billy blog
In the battle between government and the hedge fund gamblers – the government has all the cards
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia

3 comments:

Matt Franko said...

“ Governments worked out that during the GFC, the only weapon they had that would save the system was fiscal policy. ”

This is a false statement… they could have done what they are doing now which is to increase the balances authorized in the RRP facility…

Matt Franko said...

Well wait maybe Bill’s statement is true if the only thing they thought to do was fiscal…

iow back at that time the RRP increase was not thought of…

But it has now been shown to be a policy option… and one that has been working so far…

Peter Pan said...

In the battle between capital and labour, capital has all the cards, including the one named "Government".