The Guardian has reported that:
The world economy may be on the brink of a new inflationary era with persistently higher growth in consumer prices due to the retreat of globalisation, a leading central bank chief has said.
Agustín Carstens, head of the Basel-based Bank for International Settlements – which is known as the central bank of central banks – said there was a strong risk that prices would rise uncontrollably without a sharp rise in interest rates above existing plans.
Oh dear, another deluded central banker who thinks that the consequences of war, supply chain shortages, a pandemic and commercial exploitation of these scenarios that will drive hundreds of millions into poverty can be solved by a good solid dose of price increases, which is what interest rate rises actually are.
The last thing the world needs now are interest rate rises.
It does need interest rate cuts.
It needs tax cuts for the poorest and significant tax increases for the richest and the exploiters.
It needs QE to fund anti-poverty measures.
It needs peacemakers.
It needs government coordination to beat supply chain issues.
It needs aid for countries where food shortages are going to be worst. Start with Egypt.
But what it does not need is a fantasist who thinks independent central banks ever controlled inflation (which was under control by 1992, which was before this era of central banking began) and ever did so using interest rate rises, for which there is simply no evidence.
Inflation is a consequence of real world phenomena, not monetary ones. It is solved by addressing real world issues, not by changing interest rates, most especially upward, which is inherently inflationary and penal in its mode of operation. When we have central bankers who understand that they will appreciate that they have little role to play in macroeconomic policy, where reality and fiscal policy must always prevail.
Central bankers might have a role in banking regulation and supplying loans to government. Beyond that I struggle to find a reason for their existence, most especially when they endanger people, as Agustín Carstens clearly does.
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If Central Bankers are out of touch what can we expect from “The Central Banks’ Central Banker” (The BIS).
Don’t worry, Richard, no is listening to him. (well, DO worry……. but not about what the BIS says).
Nevertheless, I do think your point about low inflation and CB independence being coincident rather than causal IS important.
The inflation of the 70s/early 80s was due to a repricing of the cost of energy that led (along with the Vietnam War) to the US coming off the gold standard. It meant that the inflationary burst was quite sustained but on a multi-year view was always going to decline due to “base-effects” – ie. once oil prices stopped rising (new supply/energy efficiency) inflation falls sharply.
Perhaps this has lessons for us today?
Yes
I am working on my chapter in inflation….
Private bankers have been given/ taken the job of running the money system.
This strongly favours their kind; the rich, especially dynastic wealth that can live off interest.
Interest is still a sin against God or nature or man, whichever you like.
The political philosophy argument between bigger or smaller government continues.
Meanwhile people suffer through the lack of the one thing that can be created out of nothing.
But the £ numbers belong to the private banking sector.
We should be using our own numbers.
Excellent morning article. Should be required reading for every economics, social and political studies student and every aspiring politician. We live in a critical time facing combined ecological, economic, social and political melt downs. To prevent mass global poverty, resource depletion, irreversible global warming and major social unrest we must get to grips with alternative thinking that you and PSR advocate.
Thank you for saying this loud and clear.
But what other system would work (Maybe a Scandinavian system upscaled). As far as I can see the only other alternative at the moment is state sponsored capitalism from China. Where the Communist party is the complete overlord which all private companies have to answer to e.g. Alibaba.
Social democracy would work quite nicely
All we have to do is recognise that the state and private sector need to work together rather than fight each other which is the narrative our current politics sets up, and which even the so-called peft will not challenge
We need to let the state do what ti does well, and equally what the private sector does well
But we won’t
And we have anyway drawn the line in the wrong place between the two
It’s really not rocket science to put it right
This is so obviously the right answer to the question of where the balance lies, I struggle to understand why anyone advocates differently. Getting in to debates about the public sector being the cause of all problems because of “inefficiency” or the private sector just being capitalist evil seems to be sadly too common. Let’s build a society in which the right role is taken by the right sector, where activity is encouraged when everyone’s interests are aligned or curtailed by legislation when society might suffer.
Most central bankers these days are stooges for a system that enriches the rich. They are sleeper agents for the people who put them there.
Nothing really different to anything above but that’s how I see it. Everything the Left has been accused of, the Right/Neo-liberals have actually gone and done themselves.
You couldn’t make it up.
When will more of us see this?
Richard I agree with most if not all that you say here and elsewhere. My own preferred radical policy reform regarding income tax and welfare supports is UBI. The case for UBI has only been reinforced with recent events. Inflation is crushing those on low pay and welfare recipients. Lower income taxes won’t help those who don’t pay it. Instead, with proper income tax and welfare reforms, UBI can deliver significant income re-distribution to those on lower income rates whilst guaranteeing a basic income to all.
Last year, John Baker and I presented “A New Model of Basic Income for Ireland” to BIEN 2021. In it, we showed that a UBI of €203 per week could be funded for all citizens in Ireland by reforms to the income tax rates and reliefs which did not involve any increase in the top marginal rates of 52%. We applied an imaginative U-shaped combination of rates (starting high, dropping down and then rising again) to ensure that the income re-distribution was positive towards those on lower rates of pay. Those earning €10k per annum would benefit by €5,600, those earning €20k would benefit by €2,300. Those earning €100k would lose €1,000 in their nett income, those on €300k would lose €5,000.
In the current context of rising inflation and imminent recession, a rise in the rate of UBI wouild protect all citizens from the increased cost of living, funded either by additional State borrowing or a rise in the top rates of tax for the higher income earners.
Our paper is available at: https://basicincome.ie/wp-content/uploads/2021/09/Quinn-and-Baker-2021-New-Model-of-Basic-Income-for-Ireland-BIEN-Congress-2021-corrected-170821.pdf
Dave Quinn
Dun Laoghaire, Co. Dublin.
Thanks Dave
I remain open to the idea – bit to basic services as well
Agreed. UBI without Universal Services is pointless. Free education and health services would be a minimum, housing assistance subject to means.
If central bankers are incompetent, who should trust to implement MMT without messing it up?
Appoint ones who are competent
Some problems are really easily solved
Seems like a solution and a theory reliant on the hope “the right man gets the job”.
Worked a couple of times for the Romans but mostly it didn’t.