In view of my inflation report yesterday, I have moved the usual Wednesday light blog release day and music function to today. In recent years, the economic debate has shifted from “when the government will go bankrupt” to “hyperinflation is coming”. What surprises me is how naive the economic review is, because journalists and economists seeking headlines to report something on the headlines (insert: bankruptcy, inflation, whatever the latest craze) will become How bad it is and what measures need to be taken. Nothing happened in the real world, they kept their jobs and started the next frenzy. Replay. That’s all. Although in this fictitious world, disguised as an informed economic commentary, subtle changes seem to be taking place. Governments have calculated that during the global financial crisis, the only weapon they have that can save the system is fiscal policy. They also found that the central bank’s large-scale bond purchases supplemented the effective use of fiscal policy and did not bring about all the vortices as predicted by mainstream neo-Keynesian textbooks. The pandemic has exacerbated this. Now, there is a confrontation between the “market” that gave too much freedom before the global financial crisis and the government. Market participants have become accustomed to manipulating government policies to approve their speculative bets, which have brought huge profits to hedge funds, etc., and are now facing a central bank that actually has the power and cannot be bullied to achieve such policy approvals And the Ministry of Finance. This is a progressive and interesting observation.
Monetary policy development
Considering all the current inflation hysteria, I think this is a relief from the “government going bankrupt” statement that we have already shaken off since the beginning of the pandemic.
I guess it’s just a matter of time.
When the latest anxiety does not provide data to continue this fear, I think we will temporarily return to the issue of bankruptcy.
It is circular, which is what I have observed in my career.
There is a Financial Times article (October 26, 2021)- Lagarde will postpone bets on euro zone rate hikes – This has something to do with what I have written in recent weeks about how financial markets try to coerce policymakers into pushing up interest rates and the profits of gamblers (banks, etc.) in these markets by triggering inflation concerns.
When you examine the voices in this debate—lobby groups whose interest rates must rise—mainly the large investment banks that have gained platforms in the mainstream media (or their views are disseminated to the public by compliant journalists).
They tell the public that inflation has been “priced”, which gives the impression that rising interest rates are to some extent a fait accompli.
This is one of the biggest drawbacks. Even public broadcasters are trapped in scams by regularly letting these “experts” comment on TV and radio without revealing whether their companies (banks, etc.) have portfolio positions, and if policies are formulated The benefit of the user is to follow the advice given by the “expert”.
The FT article states:
However, investors are betting that the European Central Bank may start raising deposit rates as early as the end of 2022. These expectations helped raise the German two-year bond yield from negative 0.78% in August to negative 0.66% on Monday.
Investors are the code of speculative gamblers.
Although the article revealed that the European Central Bank is indeed responsible in this regard.
According to reports, an ECB official pointed out that “he believes that the market has not’fully absorbed’ the central bank’s new guidance on when to raise interest rates.”
This means that the European Central Bank is staring at the gambling bullies, and if the European Central Bank persists, they will lose a lot of money.
The European Central Bank has made it clear that interest rates will not raise interest rates anytime soon-it is unlikely before 2024.
In my opinion, the struggle between hype and reality is conducive to reality.
As I have pointed out many times, inflation must have a distributive spread—wage-price spiral—in order to continue, not just reflect short-term supply constraints.
The British “Financial Times” reported an economist’s comment-“We are not too worried about one of the reasons for the tightening of monetary policy in the Eurozone… This is the wage situation.”
Wage growth was flat.
And it will not accelerate anytime soon.
This week also provided an interesting opinion in the form of the latest discussion paper (No. 40/2021) of the Deutsche Bundesbank (issued on October 26, 2021)——
Reach the elusive inflation target.
Interesting does not mean it is correct.
On the contrary, this means that the questions asked by the researchers are interesting and hint at paradigm tension.
The motivation for the discussion paper is based on the following observations:
Since the 2001 recession, the core inflation rate has averaged below the Fed’s implied 2% target… This phenomenon has become more serious after the 2008 recession. In other words, the “conquering American inflation” that started with Volcker deflation seems to have gone too far…
In a low nominal interest rate environment, this deflationary bias is the predictable result of a symmetrical strategy to stabilize inflation, just like the strategy adopted by the Federal Reserve before the announcement of the revision of its framework in August 2020…
We believe that in the current low interest rate environment, it is beneficial for the central bank to be more concerned about inflation being lower than the target rather than inflation being higher than the target. Low inflation targets should be combined with asymmetric monetary policy strategies, requiring more aggressive actions when inflation is lower than the target than when inflation is higher than the target.
Therefore, this is not far from the hardline neo-Keynesian view that monetary policy should be implemented in a symmetrical manner.
I say “small steps” because the same neo-Keynesian nonsense is repeated in the paper-I don’t recommend anyone to read it. I have made a difficult code to filter it.
The point is that although the authors still believe that monetary policy adjustment is an effective way to restrain the economic cycle, they now recognize that the previously dominant “forward-looking” approach is that the central bank tightens monetary policy prematurely because they “worry about the future.” Inflation is a costly method.
Even in the neo-Keynesian mentality, they are manipulating the equation to show that it is best to let inflation show that it is far above the target before policy tightens.
Of course, in an environment of persistently low inflation, there is no discussion about the role of fiscal policy bias in generating surpluses (fiscal drag), which illustrates this point.
MMT update
We are about to complete a short new course, which we hope to provide in early December, depending on the schedule.
Unlike governments that issue currencies, our resources are severely limited because we are financially limited, so things take time to develop.
We also hope to provide MOOC, which we will run again in the near future earlier this year.
We are also looking for application developers who are interested in helping us. If you are interested and skilled, please contact me through my usual email or phone address, and I will fill in the details for you.
But we cannot pay any large checks!
Music-a (former) fashionable morning
This is what I have been listening to at work this morning.
One of my favorite bands is (yes)- Sly & The Family Stone – In my opinion, who defined the sound of the West Coast of the United States in the late 1960s, combining soul, funk and psychedelic instruments.
It is led by talented people– Sylvester Stewart (Aka Sly Stone), many people think he was one of the pioneers of funk music in the 1970s.
This order- Everyone is a star -Released in December 1969, I remember when I was a teenager, this was one of the best things I’ve heard.
This is the B side of their song—— Thank you (Falettinme Be Mice Elf Agin.
In February 1970, side a and side b ranked first on the bulletin board rankings.
It was compiled in 1970- Popular song -Album, this is one of my favorites all the time.
The single is classified as – Psychedelic soul – And it was the last release of the band before it became very fashionable.
That’s enough for today!
(c) Copyright 2021 William Mitchell. all rights reserved.
