Today is Wednesday, and there are only a few items today. It seems that mainstream economists have reappeared and put forward various claims that fiscal policy must be aimed at reducing deficits and monetary policy needs to be tightened (rising interest rates) to prevent our government from going bankrupt and inflation raging. It’s really like a shabby record, isn’t it. They went underground a bit during the crisis, and more people thought it was time to reiterate the nonsense of the past. that’s all. But at least Wednesday will bring music to this blog-how much we enjoy today.
The demand for higher interest rates
The New York Times published a guest article (November 22, 2021)—— Powell needs to cool the economy now to avoid a future recession – Written by one of the “free market” economists of the American Enterprise Institute.
In the past few years, as the fiscal policy has taken over and the deficit has risen, he must have been thinking wildly.
He is commenting on Biden’s decision to reappoint Jerome Powell as governor of the Federal Reserve Bank for four years.
Obviously, “Mr. Powell has done his job for him”.
Why?
Oh, just because “inflation has risen to worrying levels” and “the Fed should take steps to cool the economy.”
excuse me.
“Amazing level”?
There is no need to worry about some temporary peaks during the pandemic.
When the US labor market still lacks about 4,204,000 jobs compared to the level at the end of February 2020 and there is no basic wage pressure, why does the US government want to “cool down the economy”?
And why the U.S. government wants to stop the recovery track (we will discuss in detail whether monetary policy will do this later), because so far, low-wage occupations have obviously not been proportionally involved in the employment recovery, and many groups have experienced actual practices during the pandemic. Revenue cut?
We quickly found the core in the article:
Currently, the Fed has made too many mistakes in maximizing employment. Instead, Mr. Powell must put the balance back in place to support price stability.
Therefore, this is just a dress rehearsal for the past thirty years. Fortunately, the current Fed chairman has given up because he knows that only focusing on price stability will maintain high unemployment and huge income loss growth through restricted GDP.
In addition, in general, I don’t think that raising interest rates will have much effect in curbing inflation, unless interest rates rise so high that the economy comes to an abrupt halt. By then, it does not matter that such a large amount of damage has been caused.
Rising interest rates will increase business costs, and if they have market power to set prices and increase unit costs, then you will know what will happen next.
In addition, the current price pressure is mainly driven by the supply side of the economy-the bottleneck.
I discussed this in this blog post recently- The current inflation trajectory still looks temporary (November 22, 2021).
Increasing borrowing costs will not help alleviate these bottlenecks.
This is just one example of seeing the supplier solve it on its own-containers must be moved where they are needed, ships must go to the right place, and so on.
Then we will understand why all financial market economists are screaming for higher interest rates.
I’ve written about this before—they waved the inflation flag as a trick to raise interest rates because their company had bet millions of dollars that interest rates would rise.
If interest rates are not pushed up, all their short-selling activities will fail.
This has nothing to do with the well-being of citizens.
The financial market does not care about this goal.
They just want their short trades to make huge profits and then suspend the rest of the trades.
Financial repair trick
Bank economists raised another objection when interviewed in Australia and asked the Australian government to “fix the budget.”
The Sydney Morning Herald published an article yesterday (November 23, 2021)- Political pressure, but budget repair needs to start as soon as possible: Economist ——Solicited the opinions of Australian economists.
A selective point of view.
Authors Shane Wright and Jennifer Duke chaired the regular forecast group (of which I am a member), which listened to a wide range of economists—academics, people working for unions, non-profit organizations, and financial market economists. For the bank.
Although it is often difficult to portray this diversity in their post-investigation articles, they have received different opinions.
They at least know that I strongly oppose all these “financial repair” remarks.
So I am very disappointed that they have chosen the uncontroversial route in this article, just rehearsing the views of mainstream economists.
Obviously, various events—including a decline in terms of trade—will mean:
…The state finances may be further hit…
what does that mean?
Well, this means that in the accounting sense, taxes are lower than the federal government’s forecast, because they rely on iron ore, coal, and LPG for higher prices than when the accounting is completed (next year).
What are you asking?
Because of this, the fiscal deficit will be higher than their forecast.
Does it matter?
Not at all.
An economist they interviewed set the tone-“It’s definitely time to start the budget repair.”
Obviously, given the obvious waste of pet projects, she hopes to change the spending mix, which may be wise.
However, she also hopes that the conversion can be downgraded.
Moreover, this requires answering a different question (questions related to waste and pork barrels).
The relevant question is what is the state of the labor market?
Last time I looked at it in detail—— Australian labor market-over 2 million unemployed workers-14.7% (November 11, 2021) – and – As real wages continue to cut, Australia’s wage growth has gone from bad to bad (November 17, 2021)-The labor market is still in danger.
The economy is far from reaching full employment and there is no wage pressure at all.
So, what is the purpose of fiscal policy?
In this “budget fix” narrative, some numbers or thresholds seem to be important.
In this statement, even the existence of fiscal deficits is problematic.
But in the real world, the purpose of fiscal policy is to improve well-being, when 14.7% of the available labor is not working in a certain way (underemployed or unemployed) and thousands of workers are hidden in unemployment outside the official labor force , Talking about deficit reduction is absurd.
At present, with the pandemic still causing damage and the urgency of climate change, the direction of fiscal policy should be to increase the discretionary deficit rather than reduce it.
In addition, the entire term reveals a misunderstanding of the purpose of fiscal policy.
When I have a dental problem, I will go to the dentist for restoration work.
When my bike needs a new chain, I go to the store to repair it.
When the piano keys get stuck due to wear of springs or levers, I call a repair specialist.
We repair damaged things because this is the only way we can restore our purpose-biting, communicating, or making a sound.
In this case, repair is an appropriate term.
But this concept is not applied when discussing fiscal policy, because we can only make assessments based on purpose and context.
If 14.7% of the workers are currently unemployed, this is the background.
This means that fiscal policy is too tight relatively The current growth in non-government spending and economic productivity.
For these economists, “fixing” means cutting back to a certain level.
One interviewee claimed that “repair” may be delayed because “the debt situation is considered sustainable
This is another furphy.
“Debt position” simply defines the non-governmental sector wealth stored in the form of government bonds.
What does sustainability mean when debt is risk-free and the federal government can always use its own currency to repay any debt it generates?
How does the fact that the Reserve Bank has purchased most of the debt issued since the pandemic affect the analysis?
The government lends itself at its own expense!
This is what is happening all the time.
Music-keep going up
This is what I have been listening to at work this morning.
In the early 1970s, after the Altamont disaster in December 1969, it could be said that hippies were exhausted. This was a period of hope.
Curtis Mayfield – Is one of the famous hope providers and his first album in 1970 – Curtis – Contains one of my favorite songs of all time – Keep going up.
As we wake up from our heads in the 1960s, we are surpassing 25 minutes of guitar solo and longer drum solo, Curtis Mayfield makes us move again.
For Curtis Mayfield, this album was a breakthrough for his previous pop band (The Impressions). He began to accept the funk fusion, which is still influenced by the previous psychedelic era.
He also viewed his music from a political perspective-embracing the struggle of the black movement at the time.
His band was very large, with some great R&B and funk players at the time.
This song has 4 chords-beautiful, smooth chords-and a nice chorus. Playing in the band is a great song.
The tracks on the album lasted 8:49 minutes. When they released the single, they cut it to 2:53 and then disappeared in the blink of an eye.
No wonder it did not perform well as a single at first-all our hippies are still just warming up after 2:53!
Curtis Mayfield died prematurely after a serious accident while playing in 1990, and a great artist also died.
The only drawback of this song is that Joe Biden used it during the 2020 presidential campaign.
That’s enough for today!
(c) Copyright 2021 William Mitchell. all rights reserved.
