Despite all the hysteria about the current inflationary pressures and the reversion of central bank policy committees to the New Keynesian norm – interest rates have to rise to kill of inflation otherwise it becomes a self-fulfilling process where wage demands are made in ‘expectation’ of more inflation and firms (passively in their view) have to pass on the higher unit costs, I remain of the view that this period is transitory. That doesnt win me any friends (other than my true friends). It also leads to another hysterical line of Twitter-type statements that the Modern Monetary Theory (MMT) have gone silent because they were wrong about fiscal deficits not causing inflation and are too ashamed to admit it. I haven’t gone silent. I have been continuous in my advocacy both privately and publicly. The rise in fiscal deficits during the pandemic and the central bank bond purchases have had little to do with this inflationary episode. Covid, sickness of workers, War, natural disasters (floods, fires) and uncompetitive cartels and energy marktes are the reason for the inflation (variously in different countries) and interest rate increases won’t do much at all to target changes in those driving factors. New ECB research (released August 3, 2022) in their Economic Bulletin (Issue 5, 2022) – Wage share dynamics and second-round effects on inflation after energy price surges in the 1970s and today – reinforces my assessment of the situation....Bill Mitchell – billy blog
Corporate profit greed is driving inflationary pressures
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Austra…
http://bilbo.economicoutlook.net/blog/?p=50232
Bill flatters themselves… this is what the monetarists are saying:
ReplyDeletehttps://twitter.com/steve_hanke/status/1554550100537462785?s=21&t=JNLTInojdD2-YaV_yuMCLg
“ Milton Friedman said it best: “Inflation is made in Washington because only Washington can create money.” The ONLY reason for our 9.1%/yr inflation rate is the Fed’s financing of Pres. Biden’s wild spending.”
So what they are saying is it’s not just the deficit spending (MMT), , it’s that the Fed was doing the QE at the same time….
So if the Fed didn’t “finance the wild spending!” then there wouldn’t be any of their figure of speech “inflation!”…deficit (MMT) or not…
So now as the Fed begins the QT, the “inflation!” should go away once the QT really gets going…
But yet all the monetarsts can talk about are policy interest rates,,,,
What about the “money printing!” by the Fed???? They never talk about it..,
Art Degree hypocrisy at work again? Art degree Paradox?
Hard to understand….
Here:
ReplyDeletehttps://twitter.com/macroalf/status/1555153561159344128?s=21&t=JNLTInojdD2-YaV_yuMCLg
“ The Bank of England now forecasts a recession lasting 5 quarters (!)
The same Bank of England just announced a 50 bps hike, promised more to come in Sep and most importantly it will embark in active QT bond sales”
Highlight here: “ most importantly it will embark in active QT”
It’s the QE/QT that is bullish/bearish to the monetarists…
They’re not talking about the deficit.., (deficit has come down ytd) … it’s the QE/QT…