...and here we go (again!) in the U.S., with Powell's latest hike, amidst banks continuing to fall like dominoes... and getting fire-sale deals on the victims (the failing banks, that is; they are not yet buying up humans -- well, not directly, anyway...).
I think she can probably figure out Dalio's debt cycle by herself - or by reading Michael Hudson, Edward Chancellor et al. I don't believe Pettifor is arguing for greater money supply rather for greater regulation concerning use of these funds. Can't remember who said it but: credit should be plentiful, not easy (or stg like that). In a collapsing debt cycle (which seems self-evident) the question is how to raise supply without increasing inflation. This is the problem faced by all Western govs right now. Rachel Reeves' interesting Mais speech hints that she is prepared to increase debt in the short term while remaining within a 5 year target. This may be the only resolution to the doom spiral - short term, carefully allocated public spending (i.e. keep it out of hands of private capital) to rebuild supply & support productivity growth in the hope that within 5 years, we start to rebalance the economy and get genuine productive growth not this dismal debt-financed consumption. Of course a lot also depends on how the US responds - whether they keep shipping their damn deficit to Europe & Asia which means: more printing, or whether they start taxing domestic market to pay their bills.
Final comment - Mr. Dalio tells a salient anecdote in one of his books. It could be called the financier's credo: in the 70s, he sold out of his holdings when the oil shock hit and took the losses. The pain was so great, he had to borrow money from his parents to stay afloat. Meanwhile, he watched as others prospered from the crash. His takeaway was that in the event of a shock, governments always print money to bail out finance. Next time a shock hit (GFC) he bought assets ... and became filthy, disgustingly rich. He's a smart guy but he used one simple heuristic to get richer than everyone else: finance will always be bailed out in a crisis. Which is pretty much Pettifor's point here?
Why should controlling inflation be used to transfer wealth from individuals to a for profit third party (banks)? And it doesn’t target the entire population - surely there is a fairer way?
I am not an economist, so apologies if I am asking incredibly stupid things. I have various questions based on my understanding here and elsewhere that ultimately money is produced/guaranteed by government. Doesn’t that mean that inflation can only be the result of there being too much money in the economy, somewhere, couple with a resource shortage somewhere because otherwise how and why would society pay more for something? If we follow the logic of the wage-price spiral that we constantly hear – that wages can’t increase above inflation - then how does the value of wages ever increase? And as real wages have fallen on average over the last decade, then the excess money must be with someone else and in non-wages. Is that right? So, if we want to reduce inflation in the current climate, the solution should be to reduce rents / wealth whether through taxes, direct controls or debt/interest cancellation?
Similarly, I understand government ‘borrowing’ is essentially the government printing money and pushing it into the system through bonds on which they pay interest. Why do they pay interest on something that the government is producing? Aren’t the interest payments either a redistribution of existing money through tax to the (already) wealthy or the printing of new money paid directly to them like a basic income for doing nothing!). If money has to printed, wouldn’t it be better just to fund, for example day-care, by giving it directly to workers without interest payments.
The regulators are on horseback while the speculators are playing fast and furious at the speed of the internet. One trader gets impatient sells out then yells fire and everyone else on the internet rushes in and then the government comes in to bail out a bunch of speculative software ventures, meanwhile real manufacturers in the USA cannot get a credit break at the bank. We should only bailout USA manufacturers of real products, starting with food and fuel and manufacturing plants with workers not robots.
The medicine doesn't work. By driving up the highest cost for most people - housing - they have caused inflation. They have given a huge spur to unions to wake up and demand a better deal. The collateral damage is across the economy - particularly the already poor. Only accountants and asset strippers will gain.
What we have seen suggests that banking and the banking system in which they are embedded are fundamentally flawed.
- Too big to fail
- Too big to manage - their own managers do not understand them
- Too big to regulate
- Too big to deal with - they have lost interest in the bulk of their retail and commercial customers
They serve only themselves and their interests.
I see no other good option other than to break them back down into their component parts, as per pre-deregulation in the 80s, or Glass-Steagal. Otherwise we are doomed to see regular crashes, bailed out by governments at massive costs to the wider economy and society, whilst they fail to serve that wider economy and society. Thats before we consider their more malign activities such as money laundering and tax evasion.
Alex the key commodity is oil, and so if you follow Javier Blas on Twitter (@JavierBlas) he regularly posts charts of oil and other commodity price moves. He has also written a good book "The World For Sale" - although he does not deal with the Chicago-based, global commodity market - Chicago Mercantile Exchange. Another excellent book is Rupert Russell's ' Price Wars'....
If ludicrous corporate profiteering is driving a bulk of the inflation in both USA and the UK, wouldn't it make more sense to set marginal rates of corporation tax or dare I say a windfall tax for the big winners, like big oil and gas? That way workers salaries have a better chance of rising in line with inflation and maybe it keeps inflation itself from spiralling out of control? (I'm a complete beginner in this so idea if that makes sense or not.)
It seemed like when Larry Summers was on Jon Stewart (as you mentioned), he was just working through a standard process: "prices rising? -> ok, then put burden on workers, thats what I wrote in a textbook so it has to be true". A boiler plate defence. At a certain point it kind of sunk in that it's peoples live's that he's talking about but then he buried that thought deep deep down.
2). It is rich for Larry Summers and other to call for real wages to fall when the majority of non-elite Americans have had their wages destroyed over the last forty years. The share of national income going to labor is historically low. But workers should pay the cost of inflation that is rooted in bad investment decisions by companies. Companies went off shore for cheap labor rather than investing in the human capital of workers and raising their productivity. Rising wages has more to do with changes in the labor force, including demographics and push back by workers at the crazy demands bosses made of them pre-Covid. Lower wages certainly not going to attract more people into the labor force, which has been a problem for years.
Sorry,, Summers and Rogoff are talking to pander to the elites who have unfairly garnered a huge portion of the income and wealth of America since 2000. And they sure as hell are going to fight giving up one penny - as they deserve it - BULLSHIT!
Two things. The FED is the bank of the bankers and it aligned with their interests,,which why in 2009, the big banks did not go bankrupt and their assets sold to high quality others. Nope,,they were rescued, the culture of Wall Street never changed and the banks,,by refusing to lend to all but high credit score business and consumers essentially kept the economy growing at mediocre rates up until 2017 when growth ticked only slightly higher. Of course, the banks made huge amounts of money, much of which they end up paying in fines for other bad behaviors.
Don't I remember that prices adjusting creates more supply? And more supply brings down prices? Choking off the means to expand production seems to be a good way to cement prices at high levels, since new producers have higher entry costs.
You are right that ideology seems to come first for central bankers. The recommendations in Recovery Plans for Ukraine from the IMF, World Bank, EC all begin with dropping in Neoliberal rules and setting up a competitive market structure where the conditions for a competitive market do not exist. It reminds me of the privatization "shock therapy" that worked so well at the end of the Soviet Union.
How do you assess the recent evidence that corporate profits in US and UK (c58% of inflation) are the major cause of inflation not labour costs (c8%) see for example the EPI
Thanks Ann, I see the Lane ends on the note of wages driving inflation over the next few years. But at least in the UK, my understanding is since 2008, wages have failed to keep up with inflation, by quite a margin, so I’m left wondering how they can be expected to soon drive inflation….
I think that corporate profiteering has certainly played a part, as even the ECB's Christine Lagarde has acknowledged...But the big driver was the speculative wall of money aimed at commodities like oil, gas and grain after the invasion of Ukraine...see my post on that issue. https://annpettifor.substack.com/p/why-are-western-governments-impotent
Mar 21, 2023·edited Mar 21, 2023Liked by Ann Pettifor
Recent post to Steve Keen's substack newsletter.
Excellent, excellent policy idea! "Systems were made for Man, not Man for systems" afterall. Private banking and the overwhelming bulk of financialization of the economy is simply a deceptive way of being dominated by same.
Reserves are actually gifts to the banking system....and direct gifts to the individual are their own reserves. A 50% Retail Discount/Rebate of that Discount back to the merchant giving it utilizinging the same accounting method by which banks create our money is another great idea. As everyone directly participates in retail sale a monetary policy at that point has macro-economic effects. That's actually a new macro-economic insight. Such a policy would simultaneously end inflation forever and immediately double everyone's purchasing power (You could also implement an income sliding scale requirement that such new purchasing power be invested in industrial pursuits and/or treasuries of between 0-95% thus curbing any great increase in consumption.) With the ending of inflation you could shut the mouth of every conservative, neo-classical and libertarian pundit espousing fiscal austerity and enable the kind of deficits that could really kick start the research and development necessary to confront climate change.
A 50% debt jubilee policy at point of loan signing would downsize the power and ability of private banking to dominate everyone and every other actually legitimate business model with inevitable private debt build up. A debt jubilee is a good idea, integrating debt jubilee/Monetary Gifting directly and continuously into the the economic process is paradigm changing.
All of your work, MMT, Ann Pettifor's Financialization Hypothesis, UBI, Public Banking, Hudson's Financial Parasitism and Graeber's history of debt conceptually and intentionally align with Monetary Gifting. It's just that we need to fully awaken to that new operant applied/paradigm concept and how it would better enable the goals of each separate movement.
We should largely ignore the current authorities. We need a new mass movement about the new paradigm and its policies communicating its benefits directly to the individual that would herd the neo-classicals and the entire political apparatus toward the new paradigm and ecological sanity it would enable. That's how Gandhi and MLK, Jr. got things accomplished. We should follow their lead.
...and here we go (again!) in the U.S., with Powell's latest hike, amidst banks continuing to fall like dominoes... and getting fire-sale deals on the victims (the failing banks, that is; they are not yet buying up humans -- well, not directly, anyway...).
You need to read up on the long term debt cycle as explained by Ray Dalio.
I think she can probably figure out Dalio's debt cycle by herself - or by reading Michael Hudson, Edward Chancellor et al. I don't believe Pettifor is arguing for greater money supply rather for greater regulation concerning use of these funds. Can't remember who said it but: credit should be plentiful, not easy (or stg like that). In a collapsing debt cycle (which seems self-evident) the question is how to raise supply without increasing inflation. This is the problem faced by all Western govs right now. Rachel Reeves' interesting Mais speech hints that she is prepared to increase debt in the short term while remaining within a 5 year target. This may be the only resolution to the doom spiral - short term, carefully allocated public spending (i.e. keep it out of hands of private capital) to rebuild supply & support productivity growth in the hope that within 5 years, we start to rebalance the economy and get genuine productive growth not this dismal debt-financed consumption. Of course a lot also depends on how the US responds - whether they keep shipping their damn deficit to Europe & Asia which means: more printing, or whether they start taxing domestic market to pay their bills.
Final comment - Mr. Dalio tells a salient anecdote in one of his books. It could be called the financier's credo: in the 70s, he sold out of his holdings when the oil shock hit and took the losses. The pain was so great, he had to borrow money from his parents to stay afloat. Meanwhile, he watched as others prospered from the crash. His takeaway was that in the event of a shock, governments always print money to bail out finance. Next time a shock hit (GFC) he bought assets ... and became filthy, disgustingly rich. He's a smart guy but he used one simple heuristic to get richer than everyone else: finance will always be bailed out in a crisis. Which is pretty much Pettifor's point here?
Why should controlling inflation be used to transfer wealth from individuals to a for profit third party (banks)? And it doesn’t target the entire population - surely there is a fairer way?
I found this a throught provoking starting place: https://podcasts.apple.com/ca/podcast/abc-news-daily/id1349523628?i=1000599795942
Thank you for the interesting article.
I am not an economist, so apologies if I am asking incredibly stupid things. I have various questions based on my understanding here and elsewhere that ultimately money is produced/guaranteed by government. Doesn’t that mean that inflation can only be the result of there being too much money in the economy, somewhere, couple with a resource shortage somewhere because otherwise how and why would society pay more for something? If we follow the logic of the wage-price spiral that we constantly hear – that wages can’t increase above inflation - then how does the value of wages ever increase? And as real wages have fallen on average over the last decade, then the excess money must be with someone else and in non-wages. Is that right? So, if we want to reduce inflation in the current climate, the solution should be to reduce rents / wealth whether through taxes, direct controls or debt/interest cancellation?
Similarly, I understand government ‘borrowing’ is essentially the government printing money and pushing it into the system through bonds on which they pay interest. Why do they pay interest on something that the government is producing? Aren’t the interest payments either a redistribution of existing money through tax to the (already) wealthy or the printing of new money paid directly to them like a basic income for doing nothing!). If money has to printed, wouldn’t it be better just to fund, for example day-care, by giving it directly to workers without interest payments.
The regulators are on horseback while the speculators are playing fast and furious at the speed of the internet. One trader gets impatient sells out then yells fire and everyone else on the internet rushes in and then the government comes in to bail out a bunch of speculative software ventures, meanwhile real manufacturers in the USA cannot get a credit break at the bank. We should only bailout USA manufacturers of real products, starting with food and fuel and manufacturing plants with workers not robots.
The medicine doesn't work. By driving up the highest cost for most people - housing - they have caused inflation. They have given a huge spur to unions to wake up and demand a better deal. The collateral damage is across the economy - particularly the already poor. Only accountants and asset strippers will gain.
What we have seen suggests that banking and the banking system in which they are embedded are fundamentally flawed.
- Too big to fail
- Too big to manage - their own managers do not understand them
- Too big to regulate
- Too big to deal with - they have lost interest in the bulk of their retail and commercial customers
They serve only themselves and their interests.
I see no other good option other than to break them back down into their component parts, as per pre-deregulation in the 80s, or Glass-Steagal. Otherwise we are doomed to see regular crashes, bailed out by governments at massive costs to the wider economy and society, whilst they fail to serve that wider economy and society. Thats before we consider their more malign activities such as money laundering and tax evasion.
Trying to think of how to scrutinise ‘commodity market speculation’ (mysterious words for the uninitiated) in terms of what we buy every week, bread or similar. This has been explored before, but I’ve never seen it in a nutshell (long read from 2011 - https://www.theguardian.com/business/2011/jun/02/global-food-cricis-commodities-speculation )
Is there a really accessible way to keep tabs on it?
Alex the key commodity is oil, and so if you follow Javier Blas on Twitter (@JavierBlas) he regularly posts charts of oil and other commodity price moves. He has also written a good book "The World For Sale" - although he does not deal with the Chicago-based, global commodity market - Chicago Mercantile Exchange. Another excellent book is Rupert Russell's ' Price Wars'....
Where is Michael Hudson? We need him up front here.
If ludicrous corporate profiteering is driving a bulk of the inflation in both USA and the UK, wouldn't it make more sense to set marginal rates of corporation tax or dare I say a windfall tax for the big winners, like big oil and gas? That way workers salaries have a better chance of rising in line with inflation and maybe it keeps inflation itself from spiralling out of control? (I'm a complete beginner in this so idea if that makes sense or not.)
It seemed like when Larry Summers was on Jon Stewart (as you mentioned), he was just working through a standard process: "prices rising? -> ok, then put burden on workers, thats what I wrote in a textbook so it has to be true". A boiler plate defence. At a certain point it kind of sunk in that it's peoples live's that he's talking about but then he buried that thought deep deep down.
2). It is rich for Larry Summers and other to call for real wages to fall when the majority of non-elite Americans have had their wages destroyed over the last forty years. The share of national income going to labor is historically low. But workers should pay the cost of inflation that is rooted in bad investment decisions by companies. Companies went off shore for cheap labor rather than investing in the human capital of workers and raising their productivity. Rising wages has more to do with changes in the labor force, including demographics and push back by workers at the crazy demands bosses made of them pre-Covid. Lower wages certainly not going to attract more people into the labor force, which has been a problem for years.
Sorry,, Summers and Rogoff are talking to pander to the elites who have unfairly garnered a huge portion of the income and wealth of America since 2000. And they sure as hell are going to fight giving up one penny - as they deserve it - BULLSHIT!
Two things. The FED is the bank of the bankers and it aligned with their interests,,which why in 2009, the big banks did not go bankrupt and their assets sold to high quality others. Nope,,they were rescued, the culture of Wall Street never changed and the banks,,by refusing to lend to all but high credit score business and consumers essentially kept the economy growing at mediocre rates up until 2017 when growth ticked only slightly higher. Of course, the banks made huge amounts of money, much of which they end up paying in fines for other bad behaviors.
Don't I remember that prices adjusting creates more supply? And more supply brings down prices? Choking off the means to expand production seems to be a good way to cement prices at high levels, since new producers have higher entry costs.
You are right that ideology seems to come first for central bankers. The recommendations in Recovery Plans for Ukraine from the IMF, World Bank, EC all begin with dropping in Neoliberal rules and setting up a competitive market structure where the conditions for a competitive market do not exist. It reminds me of the privatization "shock therapy" that worked so well at the end of the Soviet Union.
How do you assess the recent evidence that corporate profits in US and UK (c58% of inflation) are the major cause of inflation not labour costs (c8%) see for example the EPI
Oh and I meant to share this with you Sue: https://www.irishtimes.com/business/2023/03/07/are-firms-profiteering-on-the-back-of-inflation/
Thanks Ann, I see the Lane ends on the note of wages driving inflation over the next few years. But at least in the UK, my understanding is since 2008, wages have failed to keep up with inflation, by quite a margin, so I’m left wondering how they can be expected to soon drive inflation….
I think that corporate profiteering has certainly played a part, as even the ECB's Christine Lagarde has acknowledged...But the big driver was the speculative wall of money aimed at commodities like oil, gas and grain after the invasion of Ukraine...see my post on that issue. https://annpettifor.substack.com/p/why-are-western-governments-impotent
Recent post to Steve Keen's substack newsletter.
Excellent, excellent policy idea! "Systems were made for Man, not Man for systems" afterall. Private banking and the overwhelming bulk of financialization of the economy is simply a deceptive way of being dominated by same.
Reserves are actually gifts to the banking system....and direct gifts to the individual are their own reserves. A 50% Retail Discount/Rebate of that Discount back to the merchant giving it utilizinging the same accounting method by which banks create our money is another great idea. As everyone directly participates in retail sale a monetary policy at that point has macro-economic effects. That's actually a new macro-economic insight. Such a policy would simultaneously end inflation forever and immediately double everyone's purchasing power (You could also implement an income sliding scale requirement that such new purchasing power be invested in industrial pursuits and/or treasuries of between 0-95% thus curbing any great increase in consumption.) With the ending of inflation you could shut the mouth of every conservative, neo-classical and libertarian pundit espousing fiscal austerity and enable the kind of deficits that could really kick start the research and development necessary to confront climate change.
A 50% debt jubilee policy at point of loan signing would downsize the power and ability of private banking to dominate everyone and every other actually legitimate business model with inevitable private debt build up. A debt jubilee is a good idea, integrating debt jubilee/Monetary Gifting directly and continuously into the the economic process is paradigm changing.
All of your work, MMT, Ann Pettifor's Financialization Hypothesis, UBI, Public Banking, Hudson's Financial Parasitism and Graeber's history of debt conceptually and intentionally align with Monetary Gifting. It's just that we need to fully awaken to that new operant applied/paradigm concept and how it would better enable the goals of each separate movement.
We should largely ignore the current authorities. We need a new mass movement about the new paradigm and its policies communicating its benefits directly to the individual that would herd the neo-classicals and the entire political apparatus toward the new paradigm and ecological sanity it would enable. That's how Gandhi and MLK, Jr. got things accomplished. We should follow their lead.