In light of yesterday’s detailed monetary policy analysis, today I will present a series of news reports and some brief analytical thoughts on central bank monetary policy. The latter is based on a very interesting speech given by the Bank of Japan Governor in Nagoya earlier this week. This is shocking compared to the way Western central banks are currently behaving. There’s also some self-promotion and some announcements. And then we come to Ron Carter. What a great day.
Japan’s monetary policy
On November 6, 2023, Bank of Japan Governor Kazuo Ueda delivered a speech to “Business Leaders” in Nagoya – Japanese Economy and Monetary Policy.
After the RBA needlessly raised interest rates again this week and presented false justifications to the public, it is interesting to put the mindset of the Bank of Japan into perspective, having not raised rates at all since the current inflationary episode began.
The Bank of Japan’s strategy is very different from that of Western central banks.
The latter have been trying to scorch the demand side of their economies by raising interest rates, aiming to push unemployment up to some uncertain NAIRU as they claim wage growth could explode.
With inflation falling sharply over the past 12 months or more, the rationale for continuing to raise rates is all about expectations.
The story goes that the longer they keep inflation above some arbitrary threshold, the more likely it is that worker demand will drive wage growth and the inflation dynamics will shift toward a wage-price spiral.
There is little evidence to support the idea of a breakthrough.
Global price expectations appear to be stable or declining.
Of course, it’s a bit too much to expect that these central bank boards, filled with people with limited knowledge of how the monetary system actually works, know the actual facts.
They are full of neo-Keynesian macro views that are divorced from reality.
In contrast, the Bank of Japan keeps interest rates around zero and controls the bond market to keep government bond rates steady along the yield (term) curve precisely because they want to encourage faster wage growth to support higher wages. High and stable inflation rate.
In the West, the idea of accelerating wage growth is met with fear and ridicule by businesses and governments.
In Japan, this is the goal of policymakers.
A parallel universe indeed.
The Governor told his audience:
There are two forces at work behind the current high level of inflation. The first force is the inflationary pressure generated by rising import prices that are transmitted to consumer prices. The rise in import prices, including energy and grain, has spread to consumer prices, but there is a certain lag. The second force is inflationary pressures related to the mechanism by which wages and prices interact and increase as the economy continues to improve.
The World Bank believes that the first wave of pressure is subsiding as supply chains return to normal after early disruptions in the epidemic.
They understand that “the first wave of energy will last” longer than previously expected due to a new round of fuel price increases.
But annual price pressure from these factors is declining:
…The first force that pushed prices higher is likely to taper off, even if that process takes time due to things like rising crude oil prices.
Then he turned his attention to the “Second Power”:
…The central bank expects that as the second force pushing up prices – that is, the virtuous cycle between wages and prices – strengthens, potential CPI inflation will gradually rise to 2%.
Attention – “virtuous cycle”.
He noted that some companies are now changing behavior that prevailed during periods of prolonged deflation and offering pay increases to workers.
The central bank expects this behavior to spread throughout the economy and provide Japan with a means to escape its deflationary mentality.
“Medium- and long-term inflation expectations are rising modestly, which appears to be affecting corporate wage and price-setting behavior,” the governor said.
But the central bank remains highly uncertain about whether the deflationary cycle will be broken.
therefore:
…The Bank of Japan’s basic idea for the implementation of monetary policy is that it will patiently continue to implement monetary easing policy within the framework of yield curve control, aiming to support Japan’s economic activities and thereby create a favorable environment for wage increases.
Light years away from Western ways of thinking.
Inflation fell much faster in Japan than elsewhere without the damaging effects of rising interest rates on income and wealth inequality.
So when someone says Western central banks are facing a TINA situation on interest rates, ask them what they know about Japan.
It proves once again that alternative paths in a modern monetary economy are possible and can lead to better results.
Living legend too – self-promotion warning
On Tuesday (November 7, 2023), the national newspaper “The Australian” published a special report discussing some of the analysis results of the previous few days, titled – Research 2024 – Australia’s Living Research Legends.
According to the report, the list of researchers is Australian:
…the most famous intellectual achievers… We call the people on this list “living legends” because they captured the world’s attention with their ideas, even though many of them were not as famous as each other. What do they have in common, because they are in very different fields.
If you look through the list, you’ll find an economist — an MMT economist.
The report stated:
The list does include Nobel Prize winner Barry Marshall, Elizabeth Blackburn, Robin Warren, JM Coetzee and Brian Schmidt, among other figures who have appeared in the public eye. But it also includes notable scholars such as David Chalmers, Raven Cornell, Christopher Clark, David Christian, Bill Mitchell, and Cordelia Fine, although they By no means a household name.
I was surprised, but also delighted.
No mainstream economists in sight.
If you can’t get the report through the newspaper, here is the media version – Australia’s living research legend – received by Newcastle University as part of its media monitoring subscription.
Smith Family Comics Episode 4 – Released Tomorrow
In episode 4, bank analyst Chris shows up at the Smith home as Kevin seeks support in an argument with his father, Ryan, over whether taxpayers fund government spending.
Ryan reveals his ignorance by asking who Chrisben Burstank is.
The results were not good.
Only Ryan refuses to understand how the system works in reality.
Book launch – Tokyo, November 17, 2023
On Friday, November 17, 2023, we will launch my new book in Tokyo with my co-author, Professor Satoshi Fujii of Kyoto University.
Satoshi Nakamoto was a former senior adviser to Shinzo Abe, but resigned in protest after Abe raised the sales tax again to “control” the deficit.
The book (currently in Japanese) is titled “Active Fiscal Policy in an Era of Inflation” and is the result of our collaboration over the past 12 months.
You can access information at: A seminar to commemorate the release of Fujii Satoshi & Bill Mitchell’s new book will be held soon! (Translation: Satoshi Fujii & Bill Mitchell will hold a seminar to commemorate the release of the new book!)
Tickets are 3,000 yen, but you can get a signed book as part of the registration fee.
Due to strong demand for tickets, the organizers have just increased the number of spectators to 150.
The event starts at 19:00 and ends at 21:00.
Location: Hotel LePort Kojimachi – 2-4-3 Hirakawacho, Chiyoda-ku, Tokyo 102-0093 (not far from the Capitol Building in central Tokyo).
The student purchased the book for 2,500 yen.
So if you’re in Tokyo on the 17th and want to attend the event, it would be great to see you.
Music – Ron Carter
This is what I heard at work this morning.
I read a great interview with a famous American double bass player – Ron Carter – another day.
He was interviewed by the British Guardian (November 3, 2023) – Ron Carter, jazz’s most prolific bassist: “Our band was a laboratory – Miles Davis was the chief chemist” — I thought that was really interesting, especially the struggles he faced as a black musician breaking into the scene.
He only turned to jazz when his high school orchestra would never choose him to play cello at public events.
Soon after, he learned that he would not be hired as a cellist or double bass player in a classical orchestra, so he switched to jazz, and we are all better off because of that decision.
This is one of my favorite tracks – Tunisia Night (Written by Dizzie Gillespie and Frank Paparelli, although the latter didn’t really contribute).
It was recorded on October 6, 1977 and appears on the album — Depart directly from Los Angeles.
It’s not the most economical album I’ve ever bought, at only 29 minutes, but the quality is impeccable.
I love Ron Carter’s playing.
The album is marketed as – great jazz trio – These include:
1. Tony Williams – drum.
2. Hank Jones – piano.
Three players made a lot of noise.
The song features Ron Carter breaking away from the traditional walking bass line with a quarter note.
Technical details don’t apply to this part, but you can feel the sound of the oscillation pattern very clearly.
Instead, he deployed what he calls— stubborn – bass line –
That’s enough for today!
(c) Copyright 2023 William Mitchell. all rights reserved.
