It’s Wednesday and we have the music feature to enjoy some other news clips. Here’s an argument: Modern Monetary Theory (MMT) tells us that inflation is fine when there is a fiscal deficit. Currently, inflation has been rising and the pandemic has left a deficit. Hence, “in the case of rising inflation, MMT loses money” because “under MMT, inflation risk is considered to be minimal, as governments with full control over their fiat currencies are believed to be able to control price levels”. OK? So I figured I’d better stop this blog today, apologize for my stupidity, and start writing Op Eds calling for higher interest rates and an immediate government deficit reduction. But I won’t. Why? Because I’m not as foolish as some people to make this argument in the first place, who dare to write a financial column just to prove their ignorance. OK. Let’s have some music.
RBA keeps calm
Yesterday (5 April 2022), the Reserve Bank of Australia (RBA) defied all financial commentators by keeping the monetary policy rate at 10 basis points and the bank reserves rate (Australia-wide foreign exchange settlement balances) at zero .
The media often invite private bank economists to comment as if they were an independent voice.
In the past, the media used more independent academics. But that era is largely over.
A reporter once told me that bank economists are easier to contact. In the age of mobile phones, this claim is absurd.
Journalists have all developed a comfortable groupthink with these business economists, who have been claiming that “the market has priced in a rise in interest rates” and have been pressuring the RBA to approve the option.
I’ve mentioned many times that “rate hike pricing” is shorthand for the fact that these banks are speculatively betting that rates will rise in the forward market, because they think the RBA board has been caught up in mainstream rhetoric about rates and inflation.
The pressure they bring is because they know whether the RBA is going to push rates higher, whether their speculative bets will pay off and their companies will profit.
It doesn’t get much more than that.
Fortunately, the RBA board refused to get caught up in that argument and kept rates on hold.
In the Governor’s statement– Statement from Governor Philip Lowe: Monetary Policy Decision – We read:
Inflation has risen sharply in many parts of the world. Ongoing supply-side issues, Russia’s invasion of Ukraine, and strong demand as the economy recovers from the pandemic have all contributed to higher prices…
Wage growth has picked up, but at an aggregate level, only around the relatively low wage levels that were prevalent before the pandemic…
Inflation in Australia has risen, but is still lower than in many other countries; 2.6% in base case and 3.5% overall… A major source of uncertainty and the speed with which various supply-side issues are resolved, Developments in global energy markets and the evolution of overall labor costs are related to…
The board’s policy during the pandemic supports the achievement of the goal-aligned full employment and inflation targets. The board wants to see real evidence that inflation is sustainable within the 2% to 3% target range before raising rates. Inflation has picked up and is expected to rise further, but labor cost growth has been below levels likely to be consistent with inflation remaining on target. In the coming months, the board will receive important additional evidence on the evolution of inflation and labor costs. The Board will assess this and other incoming information as its policy to support Australia’s full employment and inflation outcomes consistent with its target.
full time job.
Wage growth remains weak.
Inflationary pressures – supply side and cartel driven.
Not a demand-side driven event.
Rates won’t make ships and trucks go faster, keep factories open while the coronavirus still infects millions of workers, stop the war in Ukraine, or bring OPEC chiefs to their knees.
The RBA knows this.
Financial commentators don’t seem smart enough to understand this.
MMT says no inflation threat – sorry!
When reading articles from such financial media, it is more about where to start – Yahoo Finance’s ‘verdict’ on MMT, says strategist.
In Australia we have a saying – Kangaroo Court – This appears to have emerged during the California Gold Rush of 1849, when many Australian miners flocked to the US to make their fortunes.
It refers to the court:
… disregarding accepted legal or judicial standards, having little or no official status in the territories in which they reside, and are often called on an ad hoc basis.
So this “judgment” comes from such a court.
We read:
1 “Under MMT, inflation risk is considered to be minimal because it is believed that a government with full control over its fiat currency is able to control price levels” — not even close.
MMT puts inflation at the heart of our analysis. It just refocuses our attention on real resource constraints rather than fictional financial constraints.
2. “But an 82% increase in the base money is an experiment to see if we can get away from MMT effectively. Now the verdict is out. You can’t.
Where to start.
First, current inflationary pressures have little to do with monetary base expansion.
Take Australia for example. The RBA has increased the monetary base by 372.7% since January 2020 as a result of its support for fiscal stimulus.
It bought about 93% of all U.S. Treasury bonds issued at the time.
Inflation rate is quite low.
Why? Because we are less exposed to supply and energy shocks.
This is not a demand-driven event.
Second, the expansion of the monetary base is not an “application” of MMT. MMT just gives us an idea of what the consequences of this expansion might be.
Without the coronavirus, without the greed of OPEC, without the war in Ukraine, inflation would have been tame considering the total spending I recorded earlier from the US National Accounts.
3. “… [Increasing the monetary base has created] Almost double-digit inflation…'”
No Covid, OPEC and war created inflationary pressures.
A functioning kangaroo court.
Music – Lester Young
Here’s what I’ve been listening to this morning at work.
I recently bought one- Roland AE-30 – Digital wind controller, which is easier to carry on a plane than my old tenor saxophone.
The AE-30 is a very beautiful instrument and is perfect for playing. I plan to use it in a live environment instead of my acoustic sax.
These developments— wind controller – The instruments made over the past few decades are amazing, and the sounds you can get from them are getting closer and closer to the real thing (if you want to emulate an acoustic instrument), not to mention the fantastic arrays and models of synthetic sounds you can get.
But even the best digital instruments can’t quite get the tones that master musicians get from old brass instruments.
This is one of my favorite tracks – stardust –Consists of Hodge Carmichael —1927.
Lyricist – mitchell parish.
One of my best friends named his son Hodge!
It was played by one of the greatest tenors— Lester Young – and – oscar peterson trio – and on the 1954 album (released by Norgran Records) – Lester Young and Oscar Peterson Trio (Recorded in 1952).
Lester Young died at the age of 49, nine years after the album was recorded.
The album was recorded while his health was declining due to excessive drinking.
If you could listen to some of these recordings in the 1950s when he was dying, you could almost feel the days he felt better than the other days.
His playing changed in the 1950s, albeit uneven, but at times reaching unparalleled tonal heights. I love listening to those albums.
He’s not a screaming soloist. Instead, he plays “softer” tones, emphasizing very complex harmonies interspersed with beautiful syncopations.
If he had been alive in the 1970s, we might have called him a hipster player.
Too bad he isn’t.
But all tenors will listen to his way of playing, because he taught us so many possibilities.
Enough for today!
(c) Copyright 2022 William Mitchell. all rights reserved.
