I posted this thread on Twitter this morning:
Amazon forecast yesterday that it will make sales up to $15 billion dollars less than previously anticipated in the last quarter of this year. That is a due turn of maybe 10% on expectation. Markets were shocked. They shouldn't be. Central bankers planned this. A thread….
It is staggering that markets did apparently expect consumer purchasing to hold up when the US Fed, the Bank of England and now the European Central Bank are all trying their very hardest to tip the world into a deep recession.
Coordinated interest rate rises of the type we are now seeing central bankers deliver have only one goal. That is to drive down consumer spending whilst supposedly increasing the return to financial capital in the world.
The excuse for this is the supposed need to fight inflation, but as I keep explaining, since inflation is a measure of the price change from one year to the next, and not a measure of absolute price levels, the measure of inflation is going to fall everywhere next year.
That's because right now we are still measuring prices after Putin's war began within prices before Putin's war started. That change is big. But next year we will compare prices after that war began with prices also after that war began. That change is going to be much smaller.
So, inflation will fall next year, as certainly as night follows day. Prices won't. But inflation will. The maths guarantees it.
In that case the only consequence of interest rate increases (which take up to two years to reduce prices, so poor a tool are they) will be to crush the economy long after inflation will have already gone. But the central bankers are still imposing the rate rises, anyway.
And, surprise, surprise: economies full of people terrified they will not be able to pay the rent or mortgage, let alone keep the house warm or put food on the table, are cutting back their consumer spending, exactly as the central bankers want.
Somehow this inevitable and planned outcome has caught the markets by surprise. Apparently they didn't think such a policy would hit Amazon. Now it has and they've marked its share price down dramatically. At one point they were 20% down.
Three thoughts. First, no one should have been surprised by Amazon selling less. Second, markets are stupid not to notice the world around them. Third, they should realise central bankers are intent on wholesale economic destruction, including of shareholder value.
One day someone will look back on the last year and the interest rate rises being pursued in the US, UK and beyond and wonder how an economic policy of such crass stupidity was ever allowed to happen. I have three explanations.
First, we took interest rates out of democratic control. Second, we handed the power to control them to technocratic bankers with substantial personal wealth meaning that they are insulated from almost all the economic pressures in life most people suffer.
And third, we told them they are wholly responsible for just one aspect of economic policy that is utterly unrelated to any other necessary policy to ensure we have a functioning state, economy and society. Having done so, their own disconnect from responsibility became complete.
The result is that we now see their war on consumers, households with borrowings, the state and its capacity to borrow (which they are trying to restrict by seeking to reverse quantitative easing during a recession) and on democracy by seeking to do this unaccountably.
Central bank independence is a neoliberal idea that was always intended to undermine the state, as the whole of that philosophy is. Unless it is ended now it is not just undermining the state, it is seeking to destroy economies and the well-being of nations and the people in them.
I have little regard for Amazon, and do not much care about its share price. I do have regard for all those people who know they cannot spend now because central bankers have tried to destroy their economic well-being.
For how long do we have to tolerate the total madness of interest rate rises that cannot address inflation (which is being caused by a reason way beyond its ability to address) and which are causing untold harm? I don't know, is the answer.
But I do know that millions, and because of the impact of dollar interest rate rises on developing countries, maybe billions of people are going to suffer for this madness worldwide. And that makes me very angry when it is wholly unnecessary.
The fall in Amazon's share price has got headlines. What should get attention is the nightmare happening in tens of millions of households worldwide. That's where the real pain is, all of it caused by the maliciousness of central bankers.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
All any of us can do is get this message out there as often as possible.
Interest rate rises are just a way of getting those rentiers already earning interest on credit to gouge out more on existing agreements and get a piece of the inflation cake for themselves. Increasing their unearned income.
It’s the biggest con ever foisted on society. A feeding frenzy on inflation.
And it works in tandem with the other lie – low taxation – which of course enables inflation as well as ensuring that the rentiers keep more of their money.
It’s all perfectly set up for them, as you suggest.
I agree about getting the message out repeatedly, which Richard is doing marvellously. It might be worth pointing out just how much the central bankers get paid…
and this in today’s Guardian, by Prem Sikka, is about how the energy companies continue to make huge profits.
https://www.theguardian.com/business/2022/oct/28/oil-and-gas-firms-are-still-making-a-killing-and-no-10-is-letting-them
One question not asked is: why do these companies exist in the first place? Why are they not government owned?
Examples from outside of the Uk abound. DONG – Danish Oil and Natural Gas was a 100% state owned company – its past focus – is clear from its old name. Now called Orsted it is the largest off-shore wind farm operator on the planet and still majority state owned (having divested all of its oil and gas operations). No need for windfall taxes etc etc – given the company is state owned.
Of course this begs the question, if it’s good enough for the Danes (& all Danish political parties buy into the view of keeping a majority shareholding in the company) – what is the problem in the UK – BP – given it was built up by the UK gov (in the 1st 2 decades of the 20th century) it beggers belief that the UK has no state-owned energy company. But in fairness to the tory imbeciles that have pretended to run the country for 43 years (B.Liar was a tory ditto Liebore 1997 to 2010) – they are incapable of thinking in terms of the national interest – only in their own self interest naturally guided by a narrow ideological framework = private good – state bad.
Mr Parr,
If I may embellish your point about BP. It was created as the Angl-Persian Oil Company (1908). It was not just the creation of the British Government, it was the brainchild of the Admiralty. It was realised the future of the Royal Navy (crucial to British Imperial policy) depended on switching from coal to oil. Persia was identified as the source of supply Britain could handle; The Glasgow besed Burmah Oil supplied all the expertise and engineering skill (and the risk capital), inc;uding an extraordinary feat in building a 145 mile pipeline from the oilfields to Abadan in two years, 1909-1911 (the two outstanding contributions were made by the pipeline engineer from Burmah Oil, Charles Ritchie, and Morris Young, a doctor brought in to look after staff, but who left a lasting favourable impression with Iranians through his wider medical work).
I should have added that Ritchie, remarkably completed the pipeline in the middle of a violent revolution and change of Government in Persia (Iran); and the principal revolutionaries were from warlike tribes whose home territory included the oilfields.
This madness will not end until there’s enough political pressure and will to return the power over interest rates to democratically elected and accountable finance ministers such as last existed in the days of Ken Clarke before it was given away by Gordon Brown.
Why are you so concerned a fall in consumption for largely discretionary (non essential) items which is what Amazons figures are saying. Surely this is a good thing for the preservation of the planet and something you would applaud?
It is
But it has to happen in a planned way
This is not and so it is punishing people
“But it has to happen in a planned way”
What the hell does this mean?..you want to regulate through legislation how many jumpers or trainers people buy?..and can you sit around and wait?..a very odd comment to make
Oh come on, stop being stupid
Of course governments influence consumer behaviour
And they will need to do so
As you’ve said in a previous topic. Let it work through the system. When it has the “told you so” brigade will say the medicine has worked and, maybe, call a general election off the back of it.
If only someone could lift the cap on bankers bonuses…….!
No more boom.
Even the gilt market agrees with you (well, sort of). It prices in higher rates in the near term…. followed fairly swiftly but cuts again.
If the bank has any sense it will “see through” this – ie. No hikes now thus requiring no cuts later….. but of course, that assumes that they have any sense.
Having talked tough on rates it is quite hard to back off…. but there is a simple plausible narrative that should permit the “reverse ferret”.
“Economic indicators on future consumption along with a change in fiscal policy suggests rate rises are no longer needed to meet the inflation target in the medium term”
Any solution also requires us to be clear about what inflation actually is. Prices are never totally static. If there is a poor wheat harvest, world prices for wheat will rise. It doesn’t mean we have an inflation problem.
If there is a reduction in energy supply due to wars and restrictive actions by international cartels the price of energy will rise. This will lead to nearly all other prices to rise too. It still doesn’t mean we have an inflation problem, even though it might feel like we do.
Excellent point, Neil, but it doesn’t take account of the profiteering that is taking place. While I realize that this may not have been your considered remit, it appears to be becoming dangerously problematic and viewed almost as ‘business as usual’. I understand that some CEOs are concerned about this but seem unwilling or unable to do much or anything about it.
A case in point provided by this example of profiteering which just dropped into my email box:
https://mailchi.mp/f2b015e7311d/oilprice-intelligence-report-why-oil-prices-are-seeing-a-steep-correction-1528208?
NeilW’s observations provide a timely reminder that the general debate minefield here brings to mind the problem highlighted by the Gell-Mann effect:
https://www.goodreads.com/quotes/65213-briefly-stated-the-gell-mann-amnesia-effect-is-as-follows-you
Which clearly affects the best of us.
Indeed it is a source of constant surprise to witness analytical consistency in one field replaced by inconsistency in another from the same source.
Neil, please could you elaborate. I can see that a poor harvest will lead to an increased price for that item, which is not, of itself inflation if other items are unaffected. Please could you explain why rising energy prices resuting in the price of everything rising is not inflation?
I think it is inflation, but not monetarily caused
@ Cyndy,
I would say it depends if the rising price is a singular event, even if the base price of something so fundamental as energy does lead to most other prices rising too, as opposed to a general process of wages and prices chasing each other. There is little sign of a general upsurge in wage levels which would lead us to believe that we did have a genuine inflation problem.
I do agree with Richard, in that however we do describe the price rises, they aren’t caused by loose monetary policy. This type of inflation would typically be what we would expect to see happen during a credit boom. Therefore tightening monetary policy as in happening in the major central banks is not the right approach just now.
The problem for the Bank of England, and the ECB, is having to follow what the Americans are doing to at least some extent to prevent the pound and euro falling too much on the forex markets.
But do they have to?
“Do they have to (match what the Americans are doing) ?”
Not in any purely economic sense, but politically it would be very difficult for any government to let the pound slide too far.
“All I am suggesting is that we might be better off letting the pound fall than by trashing the economy by increasing rates”
The electorate probably wouldn’t agree, though. There’s quite a lot of elderly people, who do vote and who also want higher interest rates to protect their pension pots. They also don’t want to have to pay £150 to fill up their cars with fuel. There will be real political constraints on any government in following, without limitation, the MMT idea that currencies should be freely floating.
If the American Fed is leading the way into an economic disaster, most other countries will feel obliged to follow.
See the post I have just written
NeilW: “The problem for the Bank of England, and the ECB, is having to follow what the Americans are doing to at least some extent to prevent the pound and euro falling too much on the forex markets.” Richard or Neil, can you please tell us more about this please?
All I am suggesting is that we might be better off letting the pound fall than by trashing the economy by increasing rates
It’s as simple as that.
[…] Cross-posted from Tax Research UK […]
“But do they have to?”
The Japanese experience would suggest not?
The Japanese experience would suggest not?
Inflation on the up in Japan and the Yen is in freefall
You exaggerate
But that would be my choice instead if destroying millions of households, businesses and jobs
Why would you prefer to destroy hope?
Richard, what has happened in Spain to see inflation dropping quite rapidly there, or is just the same cycle you see happening here further down the line?
I have a post coming soon, if I have the energy before I got my vaccinations later this moening
In response to your Twitter feed, you are a ‘Heavy hitter’ – never a ‘Heavy tweeter’ Richard.
You can use whatever bat you like but you’ll still score homeruns and aces by just using the facts in the face of the bullshit being peddled out there.
Bankers may feel comfortable denying ‘maliciousness’.
However, I speculate that, beneath their apparent indifference or callousness may be shame at having accepted a consensus that they probably did not fully own in the first place. When so many ‘authorities’ have asserted ‘how it is’ with such certainty for so long, it cannot have seemed plausible to challenge them.
People with positions, recipients of honours or titles all agreeing with one another – apparently. How could young bankers have challenged them when what they wanted was qualifications, jobs, promotion and generous salaries – not ridicule?
‘Obedience to authority’ normally trumps knowledge and understanding. How much evidence and understanding – how much genuine belief in oneself – is required to challenge the collective agreement?
‘Never mind all that’ one imagines the advice, ‘just parrot support of “what everybody knows” and suppress the niggling doubts’ … until you become one of the ‘renowned experts’ with too much history and too little integrity to now stand out against the crowd.
Might something like this have enabled Liz Truss, Dominic Raab, Kwasi Kwarteng, Priti Patel and Chris Skidmore to feel no embarrassment about the outrageous assertion that ‘Once they enter the workplace, the British are among the worst idlers in the world’ as was written in “Britannia Unchained” (https://www.theguardian.com/politics/2022/jul/30/british-idlers-how-a-2012-attack-on-uks-work-ethic-could-haunt-liz-truss). Are these authors, bankers and many interviewers realistically examining evidence and then explaining how they reached a conclusion?
I think not- and to some extent I feel sorry for them. Even more for the rest of us.
Thank you, Richard, for confronting them.
When I was 25 I quite what is now KPMG because I realised I could never comply
I did nor know why then with the clarity I do now but I knew I was rejecting a system that did not care about its consequences for people and the planet