Gazing Into The Freedom Pool
By Michael Every of Rabobank
On 9/10 2001, my wife and I were in the World Trade Center; on 9/11, we were on a bus to DC, watching the terrible events transpire through the window. This weekend marks the solemn 20th anniversary of those attacks, and gives cause for reflection as we gaze into the memorial freedom pool on the former WTC site.
The world has changed markedly since then – and a lot more very recently. Yesterday the world met the new central bank governor of Afghanistan: a member of the Taliban carrying a rifle at his desk.
When I argued in 2017’s ‘Heaven or Hell-icopters’ and 2020’s return-of-ideology “-ism” examination that central banking would irrevocably change, this was not the ecclesiastical shift I had in mind. When one talks of this governor being hawkish or dovish; hikes and cuts; having ammunition left; keeping power dry; and using a bazooka, it takes on new meaning. The market will of course want to know what his stance is vis-à-vis QE or, more likely, money printing without the charade of asset purchases. Perhaps he could accept Bitcoin if the Taliban want cool kids’ OK?
More in keeping with the shift I described, the ECB’s Lagarde –not a terrorist, but previously convicted for negligence— yesterday confirmed our expectations that PEPP will end after March. That said, the ECB clearly remains data-dependent, and has kept all options open for December. That desire to remain flexible was underscored by the avoidance of the word ‘tapering’, and the message that yesterday did not mark a turning point for PEPP. However, compared to the Fed, the ECB is still lagging in terms of its inflation aim, so – unlike the US – even if the ECB decides not to extend PEPP, the Bank is still a long way from ending asset purchases altogether. We expect APP (and other instruments) to take over the reins in pursuit of the inflation goal.
Lagarde paraphrased ex-British PM and notable Eurosceptic Thatcher when stating “the lady isn’t tapering, she is recalibrating”. Also following Mrs T, showing how world changes are still accelerating, and that the French have an ironic sense of humour, yesterday Mr. Barnier, who led the EU’s Brexit negotiations, and is running for president, declared: “France must reclaim its juridical sovereignty and no longer be subject to the rulings of the ECJ and ECHR. We will propose a referendum on [non-EU] immigration for September.”
But back to central banks. Economist Anne Pettifor, channelling Klein & Pettis, again critiques the ECB, Fed, et al., in underlining arguments long heard here, noting:
“The folly of relying on central bank monetary operations to tackle deep and dangerous global economic imbalances [which are] are a result of globalized, export-oriented, over-producing economies drowning in goods and services, while purchasing power at home, and worldwide, is cut.”
“The combination of excessive production and purchasing-power cuts is deflationary. Tackling deflation with quantitative easing is, as John Maynard Keynes once argued, like pushing on a string. But central banks apparently do not view their role as helping to restore balance to a very imbalanced economy, or as prioritizing the domestic economy over the globalized economy. Technocrats at central banks act to sustain and protect just one sector of the global economy: the financial sector.”
Furthermore, that: “The financial sector has, in turn, abandoned the ‘free market’, and wants its risky activities to be guaranteed and protected by taxpayers. They call this ‘de-risking’ investment. It is an extraordinary distortion of a system once defined as ‘free-market capitalism.’”
Power comes from the barrel of a gun, as they say, but sometimes you don’t need guns for real power: at least until the people with guns arrive, as in Kabul. When the ECB boss has to turn up armed to press conferences, even liquidity-addled markets might start to get nervous.
Combining ‘power’ and a critique of ‘free-market’ capitalism, China yesterday released oil from its strategic reserves for the first time to try to dampen supply-side inflation, after a 9.5% y/y PPI print. Beijing has the ideological excuse to openly intervene on multiple fronts, even if it remains something the West refuses to read. Under which Western ideology are the problems noted by Pettifor being created and ‘resolved’? Marxists have an answer: this is what happens with late-stage capitalism – to which capitalists appears to have no reply other than “Can I sell you some rope?” Bloomberg explores this in more depth than usual today in ‘What Xi Means by ‘Disorderly Capital’ is $1.5 Trillion Question’. Except that it is a far larger question than $1.5 trillion.
That issue of ideology as limit to action is also in focus on another front, as US President Biden declares “The bottom line: we’re going to protect vaccinated workers from unvaccinated co-workers,” when the argument so far has been the unvaccinated are a danger to themselves. Specifically, Biden announced mandatory vaccinations for federal workers, with limited exceptions; for all private firms with more than 100 workers, or to test workers weekly, firing those who will not comply, with federal fines of $14,000 for each violation; told governors who won’t help he will use his powers to “get them out of the way”; and required 100% vaccinated staff at any medical facility that takes federal money (which is nearly all of them).
To say that this will exacerbate the already bitter US politics of vaccination is an understatement: Republican governors have already made clear they will resist these measures. Is it constitutional for the US government to force bosses to force you to be vaccinated? We will soon find out, and the boundaries of our political economy will shift accordingly.
As in the UK, where the Tories are proposing a bill that could see journalists imprisoned for up to 14 years for embarrassing the government. (Does that mean ministers have to be imprisoned as accomplices for embarrassing themselves? The UK will be ungovernable in no time if so.) As in Australia, where a new law allows the police to modify, add, copy or delete your social media posts, and where a court just ruled media can be sued for third party comments to on-line stories. As in Canada, where they are burning books.
To say that President Biden’s announcement may exacerbate the current labor market supply-demand imbalance is also an understatement. 80m Americans are still not vaccinated. If they continue to resist, and are fired, what will that do to payrolls and supply chains? Good luck trying to model any of this. And goodness me, aren’t we back to de facto arguments for more QE? How useful to have such a monetary Panopticon ready at all times!
Back on 9/11 2001, there was no social media, you could fly as easily as taking a bus, the Fed Funds rate was 3.5%, US 10-year yields were 4.84% (the previous close), and we had never heard of QE: and Afghanistan’s central bank was ruled by the Taliban.
Fri, 09/10/2021 – 09:45