(Note added on Sept. 22, 2017 : It seems that before the utterance by Janet Yellen, the Bank of International Settlements (BSI) had reached the same conclusion thinking that inflation is a « $ I billion question » of which no one knows the answer.
May I modestly suggest to these people to respect academic deontology avoiding leaving aside those essays and books from authors who pretend to have solved that very question as well as some others, such as the law of productivity? I therefore modestly send them all to my freely accessible work. Occultation is no acceptable refutation. *
Paul De Marco.)
In June 11, 2017, I wrote a piece entitled « 22 economists trapped into their own narrative: or, Why should students in the dismal discipline demand the reimbursement of their tuition fees. » in http://rivincitasociale.altervista.org/22-economists-trapped-into-their-own-narrative/
Now at last, Yellen admits that inflation is a « mystery » for the Fed. (1) We bet that no other central banker or banker tout court or President or Premier with their supernumerary entourage of economic advisers will display the same candid honesty. Although for all of them, salaries and bonuses are in no way linked to results, at least not in a way understandable for the layperson out there. Some time ago, I had demonstrated why this was necessarily so: It concerns the core of the bourgeois economics paradigm. (2) Nonetheless, the Fed people faithfully go on with their business which consists in empirically serving the needs of speculative finance and of transnational enterprises. (3)
You can already see what this will lead to on the basis of the knowledge that unresolved real contradictions will only lead to greater contradictions in the near future, while attempts will be made to hide this outcome with new empirically-based mediations : Given that the systemic dominance of the speculative logic is maintained, the announced progressive reduction of the FED balance-sheet – coming after the tapering and the ending of QE – can only aggravate the fiscal crisis of the neoliberal State. At the same time, rising interest rates will be absorbed by financial institutions and transnationals through more CDS, OTC and rotations. At least, for the most agile and solid actors. The others will have to deal with a Roe that will painfully adjust to the new interest rate patterns, in a world of chronic credit crunch.
The FED balance-sheet, which was a notch under $ 900 billion before the unfolding of the current crisis, is now set at $ 4200 billion. The FED wants to bring it back to between $ 2400/3500 billion. To do this, the FED proposes to diminish it by minus $10 billion a month for 3 months, then by minus $ 20 billion for the next 3 months and by minus $ 50 billion after one year and so on until the loose threshold is met. (4) This is intended to give some room to maneuver to the FED. You might remember the chronology of Quantitative easing: QE 1 (Nov. 2008 and March 2009), QE 2 (Nov. 2010), Operation Twist (Sept. 2011), QE 3 (Sept. 2012), Taper Tantrum (Dec. 2013), « End of QE 3 (Oct. 2014): end of new purchase although the balance-sheet remained unchanged given the total reinvestment into new Treasury bonds and into the MBS detained by the FED, that came to maturity and were reimbursed. This reinvestment will be gradually reduced starting from October 2017.» (5)
For the FED, this loose $ 2400/3500 billion threshold corresponds to the level of the economy out there. One does not dare to say that it corresponds to the « real economy »; this is because, as I demonstrated, bourgeois economics is unable to distinguish between real and speculative economy and does not even know how to re-conciliate micro and macroeconomic. This is why « efficient market» apologists and others like Tirole, Cahuc et al. (6), are ideologically pushing for the supremacy of microeconomics without any reference to macro-economics.
They do this with the hope to better serve the Stateless financial institutions and transnationals without having to bother any longer for the reaching of a national general equilibrium. Not even a « razor-hedge equilibrium », one based on the ridiculous Robert Solow’s fallacy about the existence of a physiological threshold for the right salary level that would make this razor-hedge equilibrium possible. Of course, one only needs to check this ridiculous regurgitation of a half-digested Malthus against the average longevity of the half-billion Dalits in India which is now set around 40/42 years. You can also check it against the decreasing average longevity, especially for men, in Glasgow or in the neighborhoods behind the White House or anywhere else the « working poor » (Julius Wilson) are parked. However, the silliness of this valiant bourgeois economists’ attempt, already re-compensated with many Nobel Prizes – hi-han! – will not do because bourgeois microeconomics is rotten at its core. As a matter of fact, I have demonstrated that it is a philo-Semite Nietzschean narrative based on a series of initial falsifications (See my « Methodological Introduction » mentioned in Note 2 below). In effect, to get the supply-curve they must provide exogenously the demand data and, conversely, to get the demand curve they must provide exogenously the supply data. Then to get at the right market price they simply merge both curves, and voila! This is bourgeois economics science for you! I will spare you the eventual movements of these curves on the right and the left, lest it sends you dreaming …
Mutatis mutandis – as you know, economic thinking and modeling are based on parametric logic -, given the inanity of current Federal policy – flat tax philosophy etc – the end of this short tightening cycle will climax into a new and rising federal debt ceiling, followed by the FED treating government debt just like it did Fannie Mae’s and Freddie Mac’s … The J curve of foreign trade mill not be affected much – « once again » one might say, but then after the unofficial accords at Doha and Dubai Summits, and recently at Jackson Hole, we all know what to expect. This failed Western attempt to switch locomotives across the Atlantic was initiated some time ago by Reagan, Thatcher and others with the Plaza Accords of September 22, 1985. (7) Meanwhile, the international weight of the US dollar will continue to whither away, slowly but inexorably.
Soon Mario Draghi will have to decide whether to follow on Yellen’s tracks or whether he needs to extend his out-mandate policy of buying junks from some member States’ banks to government bonds, for instance from Italy, just to gain some time to complete the wall-to-wall privatization programs. (8) Germany is the home of the Treuhand, and therefore one only wonders how German leaders and the Karlsruhe’s court will deal with such a deviant policy choice from the ECB, given that they are also keen on completing the on-going wall-to-wall privatization in the European States, especially those are are now strangled by the Fiscal compact and even more by their blind adhesion to the neoliberal and Spinellian gospels.
I am not sure that the American people nor the people of European member States will cope with this nonsense much longer.
Paul De Marco
September 20, 2017
Notes:
1 ) « Yellen Admits The Fed Depends on Stock Prices When Determining Rate Hikes »
by StalingradandPoorski , Sep 20, 2017 4:25 PM in http://www.zerohedge.com/news/2017-09-20/yellen-admits-fed-dependent-stocks-price-levels-when-determining-rate-hikes-inflatio.
SEE ALSO: « Yellen Fed Puzzled By Lack of Inflation, Calls it ‘Transitory’ » https://www.youtube.com/watch?v=W3te6sMlOrY ). In these circumstances I am surprised that economics students have not yet lunched a class action for the reimbursement of their tuition fees. At least that would help diminish the student loan indebtedness problem.
2 ) See the Livres-Books section of www.la-commune-paraclet.com . My essay « Tous ensemble » (nov. 1996) followed by the book Tous ensemble (2002) reestablished the scientific status of the Marxist Law of Value and, for the first time, proposed the lineaments of the Marxist quantitative theory of money. My bilingual book of 2005 entitled Keynesianism, Marxism, Economic Stability and Growth warned about the speculative financial « montages » mainly caused by the banking deregulation and denounced the bourgeois shibboleths about inflation. (Use the terms « montage » and « inflation » in the Search function). My 2009 book entitled « HI HA! The bourgeois economist’s donkish visual hallucinations » demonstrated the fallacious basis of the bourgeois paradigm in all its variations. This demonstration is completed in my Methodological Introduction (Nov. 1, 2012) My Synopsis of Marxist Political Economy (2013) provides an exposition of the Marxist Law of Value integrating my scientific demonstration of the Marxist Law of Productivity into the Equations of Simple and Enlarged Reproduction; on that basis, it is then possible to elucidate further the Marxist quantitative theory of money as well as the difference between profit, classical interest and speculative interest, hence the difference between capitalist credit forms versus socialist credit management. This argument is applied to the present European predicament focusing on the case of Italy in the essay entitled « Public debt and Marginalist shibboleths: Ialy’s case, March 3, 2017» in http://rivincitasociale.altervista.org/public-debt-and-marginalist-shibboleths-italys-case-march-3-2017/; it also points out the modifications or better the falsifications of bourgeois national accounting since 2013-2014. This was conceived to lead people into believing that there is some, albeit thin, GDP growth: it is grotesque to say the least, given that the national accounting changes, which added drugs, prostitution, armaments etc, artificially added 3 % and more to the GDP while the statistical growth announced is still around 2 % and much less for some European nations. That sounds like real « negative growth » to me, particularly if you add the shallow but huge bias in favor of speculative finance also named « Kerouac money », in homage to the famous author’s writing paper rolls!!!
The current predicament of the FED was already analyzed in my THE FED DILEMMA (Sept/Oct 2015) accessible in the compendium written in English and entitled « Another America is possibly » (Feb 1, 2017) in the homonymous Category in the site http://rivincitasociale.altervista.org .
You might also want to check the essays entitled « Credit without collateral » ( ) « The Treasury and the FED » ( ) in the International Political Economy Section of www.la-commune-paraclet.com .
If you wonder why so-called real socialism went wrong, do not blame the Bolsheviks before you do your homework, but read instead the essay entitled « Marginalist socialism or how to chain oneself in the capitalist cavern » (Dec 2014/Jan 2015) also in the International Political Economy Section of the site www.la-commune-paraclet.com
3 ) See THE FED DILEMMA already mentioned in Note 2 above.
4 ) See « La « Fed » tente un retour à la normale »
La banque centrale américaine poursuit le très lent retour à la normale de la politique monétaire après les mesures exceptionnelles prises dans la foulée de la grande crise financière de 2008. in LE MONDE | 20.09.2017 à 20h08 • Mis à jour le 21.09.2017 à 09h40 | Par Arnaud Leparmentier (New York, correspondant) http://www.lemonde.fr/ameriques/article/2017/09/20/la-fed-tente-un-retour-a-la-normale_5188778_3222.html
5 ) Tutti i numeri della normalizzazione, la riduzione del bilancio della Federal Reserve: al via il QT, Quantitative Tightening
6 ) See « NEGATION DE MON DROIT DE REPONSE : ODIEUSE CENSURE PHILOSEMITE NIETZSCHEENNE EN FRANCE ET AU JOURNAL LE MONDE. » dans http://www.la-commune-paraclet.com/fascismFrame1Source1.htm#racisme
7 ) See https://en.wikipedia.org/wiki/Plaza_Accord. See also my essay « Les conséquences socio-économiques de MM. Volcker, Reagan et Cie » March 1985.
8 ) « Public debt and Marginalist shibboleths: Ialy’s case, March 3, 2017» in http://rivincitasociale.altervista.org/public-debt-and-marginalist-shibboleths-italys-case-march-3-2017/;
* ) Voir « Mais où est passée l’inflation ?» Par Jean-Christophe Catalon | 22/09/2017, 7:30 | 1071 mots http://www.latribune.fr/economie/international/mais-ou-est-passee-l-inflation-750871.html. Et, cité dans l’article précédent : « Taux bas, poids de la dette et entreprises “zombies” : la BRI met en garde » Par latribune.fr | 18/09/2017, 10:36 | 595 mots http://www.latribune.fr/entreprises-finance/taux-bas-poids-de-la-dette-et-entreprises-zombies-la-bri-met-en-garde-750666.html .
Citation tirée de ce second article : « Quant à l’inflation, le responsable de la BRI se pose “une question à 1.000 milliards de dollars” en se demandant pourquoi “reste-t-elle résolument si faible, alors que les économies approchent ou dépassent les estimations de plein emploi et les banques centrales déploient des efforts sans précédent pour la soutenir?”
“Il est préoccupant que personne n’en connaisse véritablement la réponse”, admet Claudio Borio, qui a vu que les craintes d’un “resserrement concomitant des politiques monétaires” se sont éloignées en juin, les salaires n’ayant pas augmenté et l’inflation “s’étant même plutôt affaiblie”. »