I posted this tweet this morning:
This should be headlined “The beatings will not stop until we have achieved the goal of recession.” No doubt the same will happen here in due course…. pic.twitter.com/gUxQjY9HHx
— Richard Murphy (@RichardJMurphy) July 12, 2023
As is apparent from the clipped element of the FT's report, it would seem that the US is on target to meet its inflation goal, and soon. What is more, the Fed has now achieved the goal that every central banker seems to have, of delivering positive real interest rates in the US economy, even if these are bound to suppress real economic activity.
However, that is not enough for the Fed. They still want to increase rates further, the excuse being, according to the same FT report:
Prices are expected to increase 0.3 per cent on a monthly basis in June, up from 0.1 per cent the previous month, but the annual figure will be helped by so-called base effects, as extremely large rises from June 2022 drop out of the calculations.
This is absurd. Not only does this change the definition of inflation - which is always measured over a year - but also adds in a new measure of core inflation which is affordable if non-core measures have gone down to compensate.
The over-arching sense I get is that the Fed is looking for any excuse to raise rates. It knows that this core inflation will be wholly unaffected by those interest rate rises. Instead, they are just looking to create an environment where strong positive interest rates that are designed to redistribute wealth upwards in society become the norm.
Since when did we decide, anywhere, that central bankers were to become the determinants of what is fair income distribution in society, and were to be allowed to use that power to significantly increase inequality? That is what seems to be happening now. It is fundamentally anti-democratic.
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I find that we do not really give permission.
The usual order of affairs is that a crisis is created/ manufactured and then the ‘medicine’ is prescribed and no one in government at least thinks to contest it.
….when they were given “operational independence”, an inflation target and only one tool (interest rate) to achieve the target.
The Bank is merely doing its masters’ bidding.
Having said that, the relish with which they are delivering the beatings is appalling.
But if their masters’ bidding is to keep inflation at +/- 2%, they are manifestly NOT doing their masters’ bidding. Nor do they seem to be attempting to. So id their action ultra vires?
Well they also have the QE/QT tool in the box, as well as interest rates.
But yes, they do seem to be dishing out the pain rather too enthusiastically – QT and interest rates – and this when we are told time and time again that interest rates take 18 months to have an effect. The first raise was 20 months ago. The most recent half point raise seems to be just twiating the knife by making mortgage lenders raise their remortgage rates even more (while keeping their savings rates suitably modest of course)
Completely agree about the time lags. A sensible approach would be to say. “We have taken action, it takes time to work but inflation will fall”. Instead, the last hike looks like panic.
So will the next one
This is the quintessential failure of Starmer’s project, to fail to challenge the neoliberal narrative. Or perhaps it is the success of the project, to so damage the Labour brand as to ensure no challenge of that narrative is possible, externally or internally to Labour. As a paranoid lefty (aka 1970s centrist), I favour the latter.
Doesn’t this match his alleged behaviour at the FCA where he was said by many to be ignoring genuine legitimate complaints about misbehaviour in the financial sector in favour of what many would describe as continuing predation by that sector? Isn’t he simply continuing the practice here, and isn’t that likely to be why he’s in the position he is, so that he can do that? To me now, as did his alleged behaviour then, this smacks simply of more and continuing corruption in high office.
‘The annual core consumer price inflation rate in the United States, which excludes volatile items such as food and energy, fell to 4.8% in June 2023, the lowest since October 2021, from 5.3% in the prior month and below market expectations of 5%.
Annual inflation rate in the US slowed to 3% in June 2023, marking a 12th consecutive month of falls and the lowest reading since March of 2021. It compares with 4% in May and forecasts of 3.1%.
The slowdown is partly due to a high base effect from last year when a surge in energy and food prices pushed the headline inflation rate to 1981-highs of 9.1%”
https://tradingeconomics.com/stream
That’s how it works….
We will see that here as well
The vocabulary employed by financial insiders is always changing, new words are introduced which are alien to the general population. This usage of a priestly argot mesmerises the financial laity. For some reason economists do not challenge the obfuscation.
Why is the creation and issuance of money not item number one on a democratic agenda. We give profit making entities these rights, we underwrite the risks that they embrace and yet we accept a political class and a media that constantly refers to “maxing out on the credit card” and “hugging a magic money tree”.
Why is there no collective denunciation of the drivel by the economics profession?
Because we live in awe of mumbo jumbo
The Bank is totally wedded to its (DSGE) models. They twiddle the dials and take the results to be gospel truths. Like a drowning man to a brick…
Agreed
[…] When did we give central bankers the right to reorganise the economy in favour of the wealthy? Tax Research UK […]
I note on various NEWS channels the statement about “stress tests” & “resilience” of the banking system. What a load of……
In 2012, the FED & BoE produced a joint paper which in effect “reclassified” banks as Globally Active Systemically Important Institutions GSIFIs, thus reinforcing the too-big-to-to-fail con-trick.
In essence, banks in trouble would not be allowed to be insolvent but “in resolution”. Such resolution would be achieved by continued application & use of the Deposit Insurance Sheme (effectively a subsidy!), plus government bail-out provision (despite the Uriah Heep hand-wringing of the “never-again” politicians) plus bail-in i.e. the confiscation of a %age of amounts in depositors’ accounts in excess of the DIS – almost wittily (more accurately cynically & sarcastically) called a “haircut”.
In 2013 the opportunity arose for a practice haircut in Cyprus…here is a wiki extract summarising it….
“On 25 March 2013, a €10 billion international bailout by the Eurogroup, European Commission (EC), European Central Bank (ECB), and International Monetary Fund (IMF) was announced, in return for Cyprus agreeing to close the country’s second-largest bank, the Cyprus Popular Bank (also known as Laiki Bank), imposing a one-time bank deposit levy on all uninsured deposits there, and seizing possibly around 48% of uninsured deposits in the Bank of Cyprus (the island’s largest commercial bank). A minority proportion of it was held by citizens of other countries (many of whom from Russia), who preferred Cypriot banks because of their higher interest on bank account deposits, relatively low corporate tax, and easier access to the rest of the European banking sector. This resulted in numerous insinuations by US and European media, which presented Cyprus as a “tax haven” and suggested that the prospective bailout loans were meant for saving the accounts of Russian depositors. No insured deposit of €100,000 or less would be affected, though 47.5% of all bank deposits above €100,000 were seized.”
And here is the link to the GSIFI paper: http://www.bankofengland.co.uk/paper/2012/resolving-globally-active-systemically-important-financial
If you have ever run a business or worked for one, do you ever have that “I must have been in the wrong business” feeling?…..”stress tests” & “resilience”…. What a load of……yes folks you’ve guessed it…”CRAP”!
Thanks
I find the premise silly. The only tool central bankers have are interest rates. Will higher rates will lead to recession and kill off inflation? Well, yes. And it’s a really bitter medicine, I agree 100%. But it’s government through tax rates, who really decides who is more impoverished by the cost-burden of operating society, not the bankers. Let’s be fair!
Wrong
The also have QT and QE
And where is your evidence interest rates work?
I’ve always said when they talk about what’s best for “the economy” they mean their economy not ours. For Thier economy to be good, ours has to be bad and vice versa.