In response to the surge in prices that began in earnest in the summer of 2021 central banks all around the world are hiking interest rates. When taken together, a series of national policy moves add up to the most widespread tightening of monetary policy since the start of the fiat money era in the early 1970s.
You argue, quite correctly, that the collective central bank anti-inflation pivot is brimming with significant risk, like the potential for some kind of unnecessary global recession.
Such a possible outcome again raises the issue of whether capitalism, as it has evolved, has now managed to transcend the traditional central bank thwarting mechanisms you mentioned in your last essay (wage policy, fiscal policy, industrial policy, welfare state, accommodative banking, lender of last resort) leaving nothing left but revolution, war and economic crises of various sorts as the only viable "stabilizers" for creating the appropriate long-run conditions for political and economic tranquility. And this type of outcome is one scary possibility that seems to look more probable based on our present trajectory.
Maybe we are all being naive in hoping, as you stated in your last essay "... that things will continue as they have since 2008, in an ongoing conservative rearguard action, based on a series of makeshifts and half-measures."
The regular BIS meetings are the place for informal information sharing (having participated in them in 2015-2016 I can say it works quite well). Plus central banks do have global inputs in their models. I think the real problem is the perception by the Fed that the US is essentially a closed economy (the 2015 pivot was an exception). Also the Fed clearly sees the nexus of inflation in a too tight labor market, and they will need to see that move before they ease back (no signs of that yet). There is also a view (see Goldman research for example) that any recession will be mild given strength of private sector balance sheets. So despite the soft-landing rhetoric, my read is the leadership at the Fed has already accepted the necessity of a recession, betting it will be mild and short.
US actions impact the rest of the world as in several ways is the "biggest customer" to many countries... if demand slows down in the US the impact is everywhere else. Then there is the Russia (unrecoverable short term) economy black hole. Matthew Klein wrote about it recently as Chartbook did. By size it is a small economy, smaller than Italy or California. But is a commodity and energy supplier. Yet Russia has cut the umbilical cord with Europe without really having an East alternative.
I happened to partially listen and then read recent RUCB media conference, when they announced cutting discount rate to 7%; even their "institutional press" there is quite concerned. The economy is slowing down of course. CB is doing, competently, what it can with tools at its disposal. But in order to save the ruble several interventions put in place will have a massive shock effect down the road.
For example, the program offering 20% on a 3-month certificates (yes you heard it right) from end of March and revolving, but lately we see some banks offering up to 30%; of course, first and immediate step was to charge penalties and/or block foreign holdings. At the same time, mortgages offered at low interest rates, a journalist asked about the concern of 0% interest for some limited period and then an APR way below discount rate and zero down; all this to keep somehow functioning an economy that has significantly affected Moscow and St Petersburg.
When this war ends, Russia will be required to pay reparations to Ukraine too.
That put two political options on the table:
1. Putin & C out, either in a soft or hard way. That will mean a westernization of West Russia with China, de facto already doing it, taking the Eastern part as its sphere of influence; but can China really afford to execute that policy long term? With all internal economic issues? And after all investments in EM are not paying off as expected? And then what will happen to all authoritarian countries that survive really under Putin protectorate? All to China?
2. Putin stays, and I do not see anything good out of that not for Russia not for the rest of the world.
Shelter makes up a large part of the cpi. Raising interest rates slows building and buying homes dramatically. This puts more upward pressure on rents. Makes inflation worse. House prices may come down but if they aren’t being built they can’t provide shelter.
One question I have: what financial or monetary policy would replace the missing Russian oil, gas, coal, fertilizer, and foodstuff? OPEC has no incentive to increase production, given the coming G7 "cap" on Russian oil and gas, since that is a potential rehearsal for what is in store for them. They are already making it up like bandits. Just look at the incriminations hurled at Norway by Europeans.
The world outside Europe and US is watching very attentively. And there is a longer and longer line up of countries wanting to apply to join the SCO gang of autocrats.... Funny that.
You argue, quite correctly, that the collective central bank anti-inflation pivot is brimming with significant risk, like the potential for some kind of unnecessary global recession.
Such a possible outcome again raises the issue of whether capitalism, as it has evolved, has now managed to transcend the traditional central bank thwarting mechanisms you mentioned in your last essay (wage policy, fiscal policy, industrial policy, welfare state, accommodative banking, lender of last resort) leaving nothing left but revolution, war and economic crises of various sorts as the only viable "stabilizers" for creating the appropriate long-run conditions for political and economic tranquility. And this type of outcome is one scary possibility that seems to look more probable based on our present trajectory.
Maybe we are all being naive in hoping, as you stated in your last essay "... that things will continue as they have since 2008, in an ongoing conservative rearguard action, based on a series of makeshifts and half-measures."
The regular BIS meetings are the place for informal information sharing (having participated in them in 2015-2016 I can say it works quite well). Plus central banks do have global inputs in their models. I think the real problem is the perception by the Fed that the US is essentially a closed economy (the 2015 pivot was an exception). Also the Fed clearly sees the nexus of inflation in a too tight labor market, and they will need to see that move before they ease back (no signs of that yet). There is also a view (see Goldman research for example) that any recession will be mild given strength of private sector balance sheets. So despite the soft-landing rhetoric, my read is the leadership at the Fed has already accepted the necessity of a recession, betting it will be mild and short.
US actions impact the rest of the world as in several ways is the "biggest customer" to many countries... if demand slows down in the US the impact is everywhere else. Then there is the Russia (unrecoverable short term) economy black hole. Matthew Klein wrote about it recently as Chartbook did. By size it is a small economy, smaller than Italy or California. But is a commodity and energy supplier. Yet Russia has cut the umbilical cord with Europe without really having an East alternative.
I happened to partially listen and then read recent RUCB media conference, when they announced cutting discount rate to 7%; even their "institutional press" there is quite concerned. The economy is slowing down of course. CB is doing, competently, what it can with tools at its disposal. But in order to save the ruble several interventions put in place will have a massive shock effect down the road.
For example, the program offering 20% on a 3-month certificates (yes you heard it right) from end of March and revolving, but lately we see some banks offering up to 30%; of course, first and immediate step was to charge penalties and/or block foreign holdings. At the same time, mortgages offered at low interest rates, a journalist asked about the concern of 0% interest for some limited period and then an APR way below discount rate and zero down; all this to keep somehow functioning an economy that has significantly affected Moscow and St Petersburg.
When this war ends, Russia will be required to pay reparations to Ukraine too.
That put two political options on the table:
1. Putin & C out, either in a soft or hard way. That will mean a westernization of West Russia with China, de facto already doing it, taking the Eastern part as its sphere of influence; but can China really afford to execute that policy long term? With all internal economic issues? And after all investments in EM are not paying off as expected? And then what will happen to all authoritarian countries that survive really under Putin protectorate? All to China?
2. Putin stays, and I do not see anything good out of that not for Russia not for the rest of the world.
quite good in its context--really good--thanks
Shelter makes up a large part of the cpi. Raising interest rates slows building and buying homes dramatically. This puts more upward pressure on rents. Makes inflation worse. House prices may come down but if they aren’t being built they can’t provide shelter.
One question I have: what financial or monetary policy would replace the missing Russian oil, gas, coal, fertilizer, and foodstuff? OPEC has no incentive to increase production, given the coming G7 "cap" on Russian oil and gas, since that is a potential rehearsal for what is in store for them. They are already making it up like bandits. Just look at the incriminations hurled at Norway by Europeans.
The world outside Europe and US is watching very attentively. And there is a longer and longer line up of countries wanting to apply to join the SCO gang of autocrats.... Funny that.
America and the rule of law (internal and international), what a joke. https://www.laphamsquarterly.org/rule-law/due-process
...And coincidentally a very good novel, Little Fires Everywhere by Celeste Ng