This is clearly the reason Trump has desperately reached an 'agreement' with Iran (which will almost certainly be broken). Where do stable coins fit into this?
I know that the conventional economic wisdom is to raise interest rates when the rate of inflation increases, but where does this idea come from and what is the evidence that such a policy actually works to control inflation? I worked through the inflation of the 1970s oil inflation, and it was clear to me that Volker's interest rate policies soured the economy, just as they said in Vietnam, "We had to burn the village to save it." In Russia, Nabiullina's neoliberal policies have seriously harmed the economy. So, where has this policy ever worked?
Prior to the 1970s, policy was very government fiscal oriented. With governments supposed to cut spending/increase taxes during inflation and to raise spending/cut taxes during recessionary periods. The neoliberal period has placed the predominant emphasis upon interest rates and money printing from an independent (of democratic oversight) central bank. Reduced taxes and money printing benefit the rich the most, especially when they facilitate tax cuts for the rich. Increased government spending has to be demonized, as it increases the welfare of the poor and improves the bargaining power of the working people.
As with most mainstream economic theories there is no real evidence to back monetarism up, especially when inflation is supply driven (e.g. the big rise in oil prices in the 1970s). But then economic theories are designed to legitimize whatever policies the elites deem required. The excellent, but long, book "Secrets of the Temple" shows how the Fed did not believe in monetarism in the 1970s/1980s but used it as a legitimation tool for its high interest rate policy meant to destroy the unions and create a fiscal crisis to legitimize cuts to government spending. As the velocity of money does not stay constant, the monetary theory of inflation is BS.
Instead, governments can directly manage the prices of critical goods (as China did in the late 1980s after a big price spike), hold strategic reserves of critical goods (US SPR, China oil and food reserves) to alleviate short-term supply issues, and invest in the production of critical resources and infrastructure such as oil and gas and electrified transport to remove dependencies, as well as raising taxes. The government can also bring in "windfall taxes" on those benefiting from price spikes.
Nabullina is the enemy of a Russian developmental state, but so to a large extent is Putin. The latter seems to be moving slowly out of the economic mainstream but only slowly. Russia requires significant investments in infrastructure by the state, and a state that guides economic development and taxes the rich much more fully. The last thing it needs is nosebleed real interest rates, especially when it is heavily autarkic.
roger, i think there is an interest in a greater discussion of what you articulate in the last paragraph here with regard to russia.. it would make for a rewarding post if you were to elaborate on the ideas you state in this last paragraph.. thanks...
Thank you, Mr Roger. Your explanation makes very good sense to me from experience and what I have learned from Professor Michael Hudson. As an aside, I do believe that President Putin can be talked out of neoliberalism, but Nabulina is stuck and must go.
The theory is that high short rates incentivize marginal spenders (especially the very pro-cyclical and high multiplier effect construction industry) to temporarily postpone spending, thereby smoothly out the business cycle. It's a plausible theory, but lots of other plausible competing theories out there which suggest that monetary policy doesn't really work. Federal Reserve publishes lots of these competing theories, but they are couched in impenetrable mathematical goobledegook precisely because they suggest the Fed is running a con job (Wizard of Oz story is allegory about Fed and fiat currency). Fed thus gets to feel broad minded because they assist in publishing truth, while simultaneously burying this truth because it doesn't serve the interests of the elite.
The only proof of that monetary policy works boils down to correlation confused with causation, because there is no way to run double-blind repeatable experiments in economics.
One competing theory is that government interest can and should be pegged at zero (private sector debt rate would be set by market and be not zero for credit risk), with highly flexible fiscal policy to moderate the fiscal cycle (citizens dividend increased in recession, decreased during boom). This implies monetizing government debt entirely. This might cause inflation if debt is currently significant as % of GDP, but the inflation will be self-limiting if there is no budget deficit. This is because debt at 100% of GDP become 50% of GDP if 100% inflation, and further halving of debt as % of GDP for every additional doubling of price level. If fact, reduction in debt even faster than this because inflation tends to cause surge in income tax receipts due to fake inflationary profits, so budget might go into big surplus. Argentina and Zimbabwe situations occur when there is rampant tax evasion and huge ongoing budget deficits, versus the balanced budget I just assumed.
One important thing to remember is that government debt (meaning USD currency or USD government bonds) is not just a number. Debt is owned by individuals. Debt owned by spendthrifts is immediately spent and continues circulating in the economy. Debt owned by misers comes to a dead halt, other than some small fraction used to influence government policy to ensure the remaining fraction is not inflated away or defaulted upon. Which is why, under the right conditions (miser dictatorship), USA debt could soar to 300% or more of GDP with no inflation, maybe even deflation. The more government debt the misers accumulate, the more power the misers have to influence government policy to ensure there massive hoard of debt is not inflated away.
This is clearly the reason Trump has desperately reached an 'agreement' with Iran (which will almost certainly be broken). Where do stable coins fit into this?
Your honesty is a marvel to read bringing a beauty into the besieged populace.
I know that the conventional economic wisdom is to raise interest rates when the rate of inflation increases, but where does this idea come from and what is the evidence that such a policy actually works to control inflation? I worked through the inflation of the 1970s oil inflation, and it was clear to me that Volker's interest rate policies soured the economy, just as they said in Vietnam, "We had to burn the village to save it." In Russia, Nabiullina's neoliberal policies have seriously harmed the economy. So, where has this policy ever worked?
Prior to the 1970s, policy was very government fiscal oriented. With governments supposed to cut spending/increase taxes during inflation and to raise spending/cut taxes during recessionary periods. The neoliberal period has placed the predominant emphasis upon interest rates and money printing from an independent (of democratic oversight) central bank. Reduced taxes and money printing benefit the rich the most, especially when they facilitate tax cuts for the rich. Increased government spending has to be demonized, as it increases the welfare of the poor and improves the bargaining power of the working people.
As with most mainstream economic theories there is no real evidence to back monetarism up, especially when inflation is supply driven (e.g. the big rise in oil prices in the 1970s). But then economic theories are designed to legitimize whatever policies the elites deem required. The excellent, but long, book "Secrets of the Temple" shows how the Fed did not believe in monetarism in the 1970s/1980s but used it as a legitimation tool for its high interest rate policy meant to destroy the unions and create a fiscal crisis to legitimize cuts to government spending. As the velocity of money does not stay constant, the monetary theory of inflation is BS.
Instead, governments can directly manage the prices of critical goods (as China did in the late 1980s after a big price spike), hold strategic reserves of critical goods (US SPR, China oil and food reserves) to alleviate short-term supply issues, and invest in the production of critical resources and infrastructure such as oil and gas and electrified transport to remove dependencies, as well as raising taxes. The government can also bring in "windfall taxes" on those benefiting from price spikes.
Nabullina is the enemy of a Russian developmental state, but so to a large extent is Putin. The latter seems to be moving slowly out of the economic mainstream but only slowly. Russia requires significant investments in infrastructure by the state, and a state that guides economic development and taxes the rich much more fully. The last thing it needs is nosebleed real interest rates, especially when it is heavily autarkic.
roger, i think there is an interest in a greater discussion of what you articulate in the last paragraph here with regard to russia.. it would make for a rewarding post if you were to elaborate on the ideas you state in this last paragraph.. thanks...
A good idea, I already have all the background material from my upcoming book
Thank you, Mr Roger. Your explanation makes very good sense to me from experience and what I have learned from Professor Michael Hudson. As an aside, I do believe that President Putin can be talked out of neoliberalism, but Nabulina is stuck and must go.
The theory is that high short rates incentivize marginal spenders (especially the very pro-cyclical and high multiplier effect construction industry) to temporarily postpone spending, thereby smoothly out the business cycle. It's a plausible theory, but lots of other plausible competing theories out there which suggest that monetary policy doesn't really work. Federal Reserve publishes lots of these competing theories, but they are couched in impenetrable mathematical goobledegook precisely because they suggest the Fed is running a con job (Wizard of Oz story is allegory about Fed and fiat currency). Fed thus gets to feel broad minded because they assist in publishing truth, while simultaneously burying this truth because it doesn't serve the interests of the elite.
The only proof of that monetary policy works boils down to correlation confused with causation, because there is no way to run double-blind repeatable experiments in economics.
One competing theory is that government interest can and should be pegged at zero (private sector debt rate would be set by market and be not zero for credit risk), with highly flexible fiscal policy to moderate the fiscal cycle (citizens dividend increased in recession, decreased during boom). This implies monetizing government debt entirely. This might cause inflation if debt is currently significant as % of GDP, but the inflation will be self-limiting if there is no budget deficit. This is because debt at 100% of GDP become 50% of GDP if 100% inflation, and further halving of debt as % of GDP for every additional doubling of price level. If fact, reduction in debt even faster than this because inflation tends to cause surge in income tax receipts due to fake inflationary profits, so budget might go into big surplus. Argentina and Zimbabwe situations occur when there is rampant tax evasion and huge ongoing budget deficits, versus the balanced budget I just assumed.
One important thing to remember is that government debt (meaning USD currency or USD government bonds) is not just a number. Debt is owned by individuals. Debt owned by spendthrifts is immediately spent and continues circulating in the economy. Debt owned by misers comes to a dead halt, other than some small fraction used to influence government policy to ensure the remaining fraction is not inflated away or defaulted upon. Which is why, under the right conditions (miser dictatorship), USA debt could soar to 300% or more of GDP with no inflation, maybe even deflation. The more government debt the misers accumulate, the more power the misers have to influence government policy to ensure there massive hoard of debt is not inflated away.
excellent summary.