Its been around 9 months since the central banks of the world (bar Japan) started to push up interest rates. This reflected a return to the dominant mainstream view that fiscal policy should aim to support monetary policy in its fight against inflation and thus be biased towards surpluses, while central banks manipulated interest rates to deal with any inflationary pressures. The central banks would somehow form a ‘future-looking’ view that inflation was about to spring up and they would push rates up to curb the pressures. The corollary was that full employment would be achieved through price stability because the market would bring the unemployment rate to a level consistent with stable inflation. So full employment became defined in terms of inflation rather than sufficient jobs to meet the desires of the workforce. This is the so-called NAIRU consensus that has dominated the academy and policy makers since the 1970s. During the pandemic, it was abandoned and there was hope, particularly after statements made by the US Federal Reserve that this approach had unnecessarily resulted in elevated levels of unemployment for decades, that central bankers would target low unemployment as well as price stability. Progressive economists, of course, rejected the whole deal, noting that monetary policy shifts created uncertain distributional outcomes (creditors gain, debtors lose when rates rise) and also rising interest rates add to business costs which provoke further price rises. Anyway, after a short respite from this pernicious NAIRU logic, we are back to square one with central banks pushing up rates. The Bank of Japan is now standing, again, in the wilderness, resisting this logic and demonstrating how government should deal with the sort of pressures being felt around the globe. And who isn’t happy? The grandstanding financial markets who thought they could make a quick buck but have come up against an ideology that rejects their claim to dominance. That is a happy story....Bill Mitchell – billy blog
Bank of Japan continues to show who has the power
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at University of Newcastle, NSW, Australia
5 comments:
“central banks of the world started to push up interest rates”
It was the Biden people not central banks..,
Central banks were all saying “transitory “ due to Covid policies…
If Trump gets back in there on day one he will direct them to put rates back to zero like Obama had for 8 years…
Kishida is LDP…. that’s the GOP of Japan…
Conservative govts want the ZIRP…. Erdogon in Turkey… etc…
“If Trump gets back in there on day one he will direct them to put rates back to zero like Obama had for 8 years…”
That won’t help if supply side issues are not addressed. Shortages drive price inflation even when interest rates are raised. Today’s shortages are caused by fallout from the pandemic hoax, plus the economic war on Russia and its allies. And also because large companies in the West focus on being "woke," rather than producing anything.
Anyway Trump has no chance, since Democrats have been rigging all important elections since 2020. Democrats get away with this because no one wants to talk about it. Hence there are no consequences. Likewise crime is exploding in large Democrat-controlled cities because criminals face no consequences.
“Whenever you hear or read some investment banker claiming that interest rates have to rise to deal with inflation, you can conclude that the financial institutions they work for have speculative trades that will benefit from rising interest rates.” ~ Bill Mitchell
Yes. Financiers have been paying economists to push the flawed “NAIRU consensus” since 1975.
In discussing inflation, the flawed NAIRU narrative ignores the role of shortages, and only considers interest rates and employment levels. This false and pernicious narrative claims that inflation arises because too many people are employed, and because interest rates are too low.
It is true that inflation arises from “too many dollars chasing too few goods and services,” but the NAIRU narrative ignores the “too few goods and services” part.
Therefore we are now suffering from inflation even though the Fed keeps raising interest rates, and even though Western companies are laying off workers, and Western economies are sinking into recession.
As Mitchell says, this idiocy happens because financial institutions have speculative trades that will benefit from rising interest rates.
The West is dying because financial speculators are sucking the West dry; sapping Western economies of energy and production. This causes mass despair among liberals and young people, which manifests as “woke” depravities, LGBTQ supremacy, runaway crime, and the war on heterosexual whites.
Financialization has doomed Western economies and societies (in their current form) to inevitable extinction. The roots of this go far back, but the real explosion started about 1975, right when the USA changed from a net exporter to a net importer.
Don’t mistake the figure of speech “financialization!” for US soft power policy initiatives..,
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