DESPERATION TIME FOR CENTRAL BANKS?

DESPERATION TIME FOR CENTRAL BANKS?

 

Underlying inflation unexpectedly picked up. The so-called core consumer price index — which excludes food and energy costs — increased 0.3% from July, the most in four months, and 3.2% from a year ago.

-       Pickup in US Housing Prices Drive CPI Gains, Bloomberg

 

Gregg Wall (9-14-2024)

 

The central banks and the establishment all appear to be on the same page.  The BOC, BOE, ECB have all cut rates and declared Mission Accomplished, and the battle over inflation nearly won or won.  And the Federal Reserve is widely expected to do so next week.  The BOJ, on the other hand… the godfather of Japanification & easy money… has been toying with actually raising interest rates (and possibly disrupting the carry trade in the process).  The BOJ is an outlier and never really raised rates, during the inflationary period.

 

But has the battle really been won?  And what to make of the central banks’ declaration of victory?  

 

In regards the first question, has inflation been conquered, the answer is most definitely NO.  Here, the establishment relies upon a specious core inflation number, that is month to month and year over year, and entirely discounts all prior years of greed and price gouging (as well as essentials: food & fuel).  And when that core number result is inconvenient, the establishment shifts over to CPI non-core.  How convenient, as some MSM papers and publications did this week.  Of course, the corporate MSM, the mouthpiece of the establishment, is quick to play its role and gaslight the public that inflation is coming down, when nothing could be further from the truth.  The reality is while the rate of inflationary increase may have climbed down… this is referred to as disinflation… there is no actual decrease in prices across the market basket of goods and services.  If such a decrease were to occur on a sustained basis, it would be called deflation.  Then the corporate MSM would be correct in declaring that inflation is coming down. 

 

And while, there has been some disinflation, and some early, minor signs of deflation on select goods and services… in the aggregate inflation continues to march higher, compounding upon four prior years of greed.   Wages, of course, have not kept up over the same four-year period, and were actually, for the most part, stagnant over the prior decades, pre-pandemic (and actually declining on an inflation adjusted basis).  In fact, given the shocking rise in housing and rents, and using the 30% rule of rents, the minimum wage needed to make it in America is roughly $80,000 a year; and a shocking number, roughly 50% of Americans, make less than $80,000 a year.  (Blame central banks, corporate consolidation, deregulation, easy money, financial engineering, globalization, M&A, monopoly, neoliberalism, and de facto government policy of siding with capital over organized labor for suppressed worker wages.)  Meanwhile, auto insurance, eating out, food, property insurance, rents, retail gas have all seen dramatic and sustained rises… and have shown little or no signs of coming down (with the exception of retail gas, which is still 35% higher than when Biden entered office, as of this writing). 

 

So, the second question, why the mad rush to declare victory, when predictable “upside surprises” … like that which occurred in the U.S. this week … can continue to be expected.  Much of the central bank rush to begin a rate cutting cycle is the business community has become highly addicted to cheap debt, easy money, and low interest rates, post 2008 financial collapse.  Many Western govs, too, have become addicted to cheap debt.  And the supplier of that cheap debt and money are the aforementioned central banks.  This is all done under the pretense of maintaining stable prices, stable employment, and presumably wages… but as anyone with two eyes can see:  ultra-accommodative monetary policy and the resulting economic & industry consolidation have produced neither stable prices or stable employment with appropriate wages (unless one considers a surfeit of lousy paying jobs, the gig economy, and indentured servitude a win).  The U.S. is said to be racking up a trillion in interest expense every 100 days, as a direct result of endless wars, endless business bailouts, financed tax cuts, fiscal insanity, and an entirely reckless trickle-down tax code.  And the Federal Reserve is to blame for enabling the aforementioned and monetary Japanification in the United States.  Japanification is a fancy way of saying, easy money and quantitative easing.

 

With that said, the FED and other central banks are being hemmed in by fiscal and monetary excess that is now several decades old… which again has spawned cartel, consolidation in the private sector, monopoly, monopsony, and has spawned untrammeled corporate power over: prices, wages, gov policy, governments, politicians, and regulators.  Fiscal and monetary excess also spawned, as mentioned, governments that are significantly weakened, also burdened by: catastrophic debt, welfare states for corporations and the obscenely wealthy, and a labour base and tax base that has been crushed by corporate greed.  Labour is actually being crushed in two distinct ways by central bank monetary policy and resulting industry consolidation: first, in terms of higher prices paid for good and services (money exiting purses & wallets), and secondly, corporate greed yet again, via monopsony power over wages (money entering purses & wallets).  In short, when labour & retirees need backstop and support from their governments most, politicians are crying austerity, poormouth, and are tapped out by catastrophic debt.  At least that’s the excuse provided… notice, the USA and UK are never tapped out, when it comes to war, war spending, and maintaining a welfare state for banks, multinationals and oligarchy.  All the while, public services are stripped to the bone to pay for the overhead that is the bank bailouts, the billionaire class, the kleptocracy, national debt service loads, and the shifting of known - private sector - costs and expense onto the taxpayer, like the climate catastrophe happening before our eyes in real time.

 

All this central bank money printing has had the pernicious causal effect of increasing debt, leverage, and the money supply… and has directly led to the inflation of asset classes of the rich, the multinational, and the catastrophic transfer of wealth into the hands of the establishment and boomer generation.  Money and power that is used, in turn, to buy influence and political power in Washington and nation-states to double down on fiscal, monetary, regulatory, and tax policies that all serve to make the rich richer, and the majority of the population increasingly left out and struggling to survive.  So much for social stability surrounding central bank monetary policy: the West and the world are a virtual powder keg of instability, directly as a result of central bank policy.  Here, and by way of example, see the empire and multiple wars central banks finance. 

 

And the real villains… the folks who allegedly are supposed to respect the will of the people… and defend the public?  Well, in democracy, that’s supposed to be our elected representatives & yes, judges, all of whom constantly fail.  Apparently, being reduced to little more than puppets for corporations, foreign governments, greed, lobbyist, and oligarchy.  But I digress.   

 

Increasingly central banks & monetary policy are hemmed in by: the catastrophic debt they’ve created, the debt service load, politicians and political parties desiring to get re-elected, entire sectors of the economy addicted to leverage and cheap debt (see private equity and real estate) … and the great fiction that inflation is defeated.  When no such thing has occurred or is likely to occur (barring a really nasty economic depression), because why???  Nobody has addressed the Monopoly/Monopsony problem.  It’s still with us… ready to pounce, with an insatiable lust for profits, financial engineering, stock manipulation, and feeding the ravenous shareholder value beast.  Meanwhile, the public is up in arms over affordability, corporate greed... captured, corrupt, and crony 'democratic governments'...  a plethora of lousy paying jobs, immigration waves (that are permitted to drive down wages), the eradication & systemic underfunding of public services, and more than likely, a pending recession (that, although hasn’t officially been declared by the establishment, is a very real reality for the majority of citizens throughout the EU and North America).  For while a low to moderate rate regime may slow an economy, vis-a-vis free money… nothing quite kills an economy like greed and price gouging (as tapped out labour increasingly has less money to spend throughout the economy, businesses fail in record numbers, as prices on essentials continue to climb higher and higher, unemployment further rises, producing a doom loop that is likely to continue until there is a recession or worse).  In fact, despite the central banks’ and the establishment’s declarations, all the elements that drive greed and price gouging are very much with us, unhindered, unimpeded, & unregulated.  Again, I present to you, the aforementioned monopoly, monopsony, and utilities.

 

Next time you see Messrs. Bailey, Macklem, Powell and Madame Lagarde be sure and give them all a warm hug or maybe not (as they are likely to be surrounded by a phalanx of security).  For they and their predecessors are ultimately responsible for this terrible, terrible mess.  How can something that has the potential for so much good, fiat currency, be so entirely damaging to the global economy, the majority of workers, and the world?

 

Copyright JM Hamilton Publishing 2024