There’s no doubt that the US Fed should be trying to normalise interest rates. However, as only very few commentators have pointed out, it can’t. The financial sector in whose real interests it runs policy are dependent on ‘accommodative’ monetary policy: whether that continued low interest rates or quantitative easing.
They are clamouring for the Fed to hold off, joined by the IMF and World Bank.
That isn’t to say that a token (0.25%) rate rise is totally inconceivable. However, whatever the Fed does isn’t going to stop a ‘deflationary bust’ as Soc Gen analyst Albert Edwards and Professor Steve Keen have been forecasting for quite a while now.
The big lie
The biggest lie that is generally believed (by journalists, commentators and the public) is that the Fed, Bank of England, European Central Bank run policy based on what is good for the economy as a whole. They don’t. They run in for the benefit of their financial sector; banks, hedge funds etc. The ‘1% mafia’ or ‘political-financial ‘complex.
It is a point made very well by economist Michael Hudson in the following video when talking about the US economy and recent stock market volatility.
Of course, this is all going to end in tears as soon as the penny drops. The question for the Fed is: how can it avoid that penny dropping and keep the Ponzi scheme running, despite the lack of a real recovery in the US economy. Any token rate rise needs to be set in this context.
Evidence
As John Williams’ Shadowstats has written, the real unemployment rate in the US is roughly 23% but has been calculated in such a way to define it in such a way that many long term unemployed workers drop out. Moreover, in his his latest newsletter he points out that real monthly median US incomes are still below the 2009 headline trough of the formal 2007 recession.
His explanation is that: “Discussed frequently here, actual U.S. economic activity has not recovered from its collapse into 2009; it is not recovering, and it is not about to recover. Despite all the gimmicked and upside-biased GDP reporting, underlying economic reality is weak enough to have begun to surface in recent, downside headline reporting.”
Among other factors hurting economic activity, US consumers remain constrained by currently intractable liquidity woes, which prevent sustainable real or inflation-adjusted growth in personal consumption and residential investment, areas that account for more than 70% of broad, domestic economic activity.”
This conclusion vindicates Professor Steve Keen’s analysis years ago that the US/UK recoveries would be hampered by high levels of private debt, leading to a Japan like scenario.
To avoid this stagnation Steve Keen recommended only last year that goverments should be: “Writing off much of the private debt, and changing laws relating to mortgages and share ownership would be a good start. A certain amount of debt-financed investment and consumption is actually desirable in a growing economy, but while debt levels are as high as they are now thanks to the Ponzi Schemes of the last four decades, that debt-financed investment and consumption will be weak. They should also realise that a government deficit is a sensible policy most of the time in a growing economy.”
With the election of Jeremy Corby as leader of the Labour Party, there now seems to be a realistic possibility that the voters of England will be able to hear the truth about what has been going on before the next election from a party that stands a chance of being elected through our present electoral system. (Although, they won’t get much help from much of the mainstream media).
Learn more
I’ve found the works of Professor Steve Keen, Mitch Feierstein and Michael Hudson invaluable in gaining a better understanding of what is really going on. Sadly, you won’t (yet!) see any of the them interviewed at length on prime time UK television.