The current surge of inflation is having a painful impact on the cost of living especially for folks on below average incomes. The key questions are (a) will it last and (b) what can monetary policy do about it? As Matt Klein makes clear in another excellent
Central banks WILL raise rates, since they are feeling immense pressure to "look like they are doing something." And since the only "something" they have is interest rates, they are going to raise them given the orthodoxy around monetary policy (never mind that inflation is a job for fiscal policy, NOT monetary policy -- that's a hornet's nest of an argument right there).
Of course, all this is likely to achieve is to tip us into a recession, since interest rates themselves can't magic away the underlying structural issues hidden beneath the top-line inflation numbers (which themselves mask 10s or even 100s of individual price sectors).
So, rates will be raised via the same logic that gave us "in order for the village to be saved, it was necessary that it be destroyed" ...
It might be time to reappraise monetary policy in it's entirety and accept that the basis of it was always a partial fallacy and that the real driver of inflation and the economy is trade policy, labor policy, fiscal policy and foreign policy. All monetary policy achieves is the creation of an ever larger pool of credit instruments through lower interest rates and implicit guarantees of creditors which excites economic activity in certain areas linked (in various ways but primarily financial) to the credit pool.
If you put interest rates above a certain point (I don't know what this is but I guess it's linked to the size of the credit pool relative to real economic activity) you reduce the credit pool by creating a credit crunch which would eliminate lots of debt but also lots of aligned economic activity and cause a recession due to the resulting loss of confidence. You might reduce inflation but you will also definitively damage the economy and the credit pool.
If you don't put rates above this point you reduce the credit pool via financial repression whereby the effective asset price increases erode the effective relative value of the credit pool. There is a slow deterioration in the size of the credit pool relative to the economy but it is gradual and happens over time.
I would bet that the Fed will opt for the second option. It might upset savers but a gradual deterioration in a certain group of people's relative net worth is less painful than a sudden deterioration in everyone's net worth.
Interestingly, neither of these outcomes will really matter for the people who are experiencing actual changes in their incomes and their living costs. These will be far more influenced by trade, labor, fiscal and foreign policy at a governmental level but given modern politicians don't really propose anything of any substance to change any of these policies then it's unlikely that things will change dramatically and that the macro-trends of increasing financialization, concentration of wealth, precarity for an increasing proportion of the population, decline in public services and distraction of populations with populist culture-war topics (scapegoating minorities, false-flag victimhood) while collective living standards decline will continue. Oh, and climate change will mean the world becomes less habitable.
These are not unfortunate side effects but the goals of the policies discussed.
For example COVID got rid of Trump but this is only a temporary respite if something is not done about the voters and something is …
Strange. Decades spent studying the malice that happened in Germany, failure to recognize malice happening before your very eyes.
Have a look at Ireland 1840s and ask yourself if that was really a potato fungus and some “misguided “ economic policies. The desired effects were achieved, mind you they weren’t marching around in Hugo Boss uniforms with skull and lightning symbols but the effects were desirable and achieved. You are watching the same bloodlines do the same now. Very clever people.
Central banks WILL raise rates, since they are feeling immense pressure to "look like they are doing something." And since the only "something" they have is interest rates, they are going to raise them given the orthodoxy around monetary policy (never mind that inflation is a job for fiscal policy, NOT monetary policy -- that's a hornet's nest of an argument right there).
Of course, all this is likely to achieve is to tip us into a recession, since interest rates themselves can't magic away the underlying structural issues hidden beneath the top-line inflation numbers (which themselves mask 10s or even 100s of individual price sectors).
So, rates will be raised via the same logic that gave us "in order for the village to be saved, it was necessary that it be destroyed" ...
It might be time to reappraise monetary policy in it's entirety and accept that the basis of it was always a partial fallacy and that the real driver of inflation and the economy is trade policy, labor policy, fiscal policy and foreign policy. All monetary policy achieves is the creation of an ever larger pool of credit instruments through lower interest rates and implicit guarantees of creditors which excites economic activity in certain areas linked (in various ways but primarily financial) to the credit pool.
If you put interest rates above a certain point (I don't know what this is but I guess it's linked to the size of the credit pool relative to real economic activity) you reduce the credit pool by creating a credit crunch which would eliminate lots of debt but also lots of aligned economic activity and cause a recession due to the resulting loss of confidence. You might reduce inflation but you will also definitively damage the economy and the credit pool.
If you don't put rates above this point you reduce the credit pool via financial repression whereby the effective asset price increases erode the effective relative value of the credit pool. There is a slow deterioration in the size of the credit pool relative to the economy but it is gradual and happens over time.
I would bet that the Fed will opt for the second option. It might upset savers but a gradual deterioration in a certain group of people's relative net worth is less painful than a sudden deterioration in everyone's net worth.
Interestingly, neither of these outcomes will really matter for the people who are experiencing actual changes in their incomes and their living costs. These will be far more influenced by trade, labor, fiscal and foreign policy at a governmental level but given modern politicians don't really propose anything of any substance to change any of these policies then it's unlikely that things will change dramatically and that the macro-trends of increasing financialization, concentration of wealth, precarity for an increasing proportion of the population, decline in public services and distraction of populations with populist culture-war topics (scapegoating minorities, false-flag victimhood) while collective living standards decline will continue. Oh, and climate change will mean the world becomes less habitable.
“ Wages are not keeping up.”
No, of course not.
At a certain point nor will the wage earners.
These are not unfortunate side effects but the goals of the policies discussed.
For example COVID got rid of Trump but this is only a temporary respite if something is not done about the voters and something is …
Strange. Decades spent studying the malice that happened in Germany, failure to recognize malice happening before your very eyes.
Have a look at Ireland 1840s and ask yourself if that was really a potato fungus and some “misguided “ economic policies. The desired effects were achieved, mind you they weren’t marching around in Hugo Boss uniforms with skull and lightning symbols but the effects were desirable and achieved. You are watching the same bloodlines do the same now. Very clever people.