The FT has reported today that:
So, at a time when the world is at war, when major supply chains are disrupted, when US households are being devasted by inflation and when recession is likely the Fed decides it is time to take $95bn a month out of the US economy to support a policy of increasing interest rates that will make life a lot worse for US families already facing financial devastation and which will, because so mich international debt is denominated in dollars, be ruinous for many developing countries. And this will solve literally none of the inflationary pressures that exist, because literally none of them has anything to do with the money supply.
You cannot make incompetence on this scale up.
It is as if western democracies were now led by people with a death wish for western democracy.
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The debate we’ve had here about interest rates (and your work on Twitter) makes all this abundantly clear.
However, out there, interest rate orthodoxy still rules in the public and government spheres.
In the public sphere, people are very resilient and in a culture of individualism that runs rampant anywhere that calls itself a democracy, its the public’s own determination that will see them through somehow.
In such a culture people will blame themselves first and not the Government. Cynically, Governments know this. And also, what else do people expect? Not much.
That’s why – as you say – those producing the counter narrative must keep at it.
In America BTW, they’ve had a political system that rampantly helps the rich for years.
Democracy has been commandeered by wealth to serve its best interests the world over.
“In America BTW, they’ve had a political system that rampantly helps the rich for years”
In his book “Against Elections” David van Reybrouck makes the case that “democracy” in the United States was designed from the start to favour the rich. Sure, sometimes things were a bit more equal – but +/- looking from 1790 to now – most of the time (230 years) the system favoured the rich. & the rich get the poor to do their dirty work – Civil War poor whites fighting for the slave owners etc etc (Vietnam war – if you were rich you could dodge the draft – Dubya etc). In the case of the Uk, it has +/- a sham democracy, where “if your face fits” rules. When it does not, you get monstered (e.g. Corbyn and to some extent Miliband).
“It is as if western democracies were now led by people with a death wish for western democracy.”
Not ‘as if’, it really is;
‘Democracy’ has been given many meanings, and the word ‘democratic’ has even been used to describe political systems that are anything but democratic, those typically known as ‘The People’s Democratic Republic of X’. But one system of democracy – representative democracy – was painstakingly thought out and constructed with the aim of making democracy really work, and was applied in almost all of what we think of as the ‘liberal democracies of the Western world’. But in at least two of its leading examples in today’s world, the United States and the United Kingdom, representative democracy has been made to fail. Notice these words: ‘made to fail’. I argue that if the ideas that underlie the concept of representative democracy were properly and transparently applied, democracy would truly be, as Winston Churchill claimed, the least bad of all systems. But it has been made to fail by a combination of causes, all of them deliberate.
From the Preface to ‘Democracy and Its Crisis’ by A.C.Grayling (ISBN 978-1-78607-289-4). This was a real eye-opener; I already had my suspicions, and this book spelled out how, and confirmed them.
I used to think of capitalism as capable of delivering ‘the greatest amount of social utility to the greatest amount of people’. That was just acknowledging its potential and sounded like a good objective to me.
Reading Mike Sim’s post above reminds me that I have confused capitalism with democracy.
Delivering the greatest amount of social utility (benefits) to society is not a job that capitalism is capable of on its own because it has a tendency to do the opposite – since Adam was a lad, human beings have known this.
Sharing the wider benefits of capitalism should be the job of democracy.
And Mike is right: it is democracy that has failed for sure.
Let’s see what happens at the next few US Treasury auctions.
(1) No bid from the Fed to replace maturing bonds in its portfolio
(2) Less appetite for risk in the banking sector (due to regulation) than in prior tightening cycles
(3) Less desire to hold USD (and therefore US Treasuries) by some Central Banks (although non-CB flows might be the other way)
My guess is that reducing the Fed balance sheet is an “aspiration” rather than a firm plan. They will stop reinvestments to see what happens but reverse ferret if it all goes wrong. The strategy is to make sure there are no surprises (from the Fed at least) but they can’t control everything. My fear is that a “failed auction” could happen and the corresponding leap in yields could trigger a collapse in asset prices more generally that can’t be reversed by a reversal of Fed policy. Confidence is a delicate thing.
Rapid reverse ferret, maybe
Do you read Twitter comments? Or just here? Market interest rates have already significantly tightened and the rebound in growth from the reopening of the economy is now fading so these “data dependent” lot will soon realise that this is going to be a very short interest hiking cycle, and not the 50bp a meeting that they are imagining. The Chinese economy, going off PMI data, is basically back in recession so there isn’t the global growth at the moment
Do you read what I say?
I am forecasting recession but the central banks don’t believe it – which is why I cite them
What point are you making?
The long suffering people in the UK do not need any more austerity and the impending recession will hurt.
Our undemocratic government, supported by a feeble news media, chooses to impoverish the majority without any real challenge.
When the UK economy collapsed as a result of. WW2, the re-build incurred massive DEBT, and repayment took 60 YEARS.
According to the government, the current economic situation requires immediate and drastic surgery before the next general election. This summation is another big lie.
The Magic Money Tree fruit needs to be harvested by a democratic government and shared out by targetted investment in UK plc, tax increase abandonment, increased pensions and energy use subsidies.
Call the resulting debt a mortgage. Pay back the loan over 25 years.
Discuss.
Agreed