“We’ve got to avoid a prolonged period of high levels of unemployment, and it’s a very real prospect,” he said. “It is not at all assured that we will get a return of tight labour markets even with traditional macroeconomic policy being properly applied.”
The paper continued: “This suggests that, even if a vaccine cures everyone in a year, the COVID-19 crisis will leave its mark on the US economy for many years to come.”
It makes clear that the orgy of speculation, leading to the creation of fabulous wealth at one pole and increasing poverty and misery at the other, is the official policy of the central financial arm of the capitalist state.
Fear and uncertainty dominate Jackson Hole
central bankers’ meeting
31 August 2020
The annual
Jackson Hole conclave of central bankers, which concluded over the weekend,
underscored the incapacity of global financial authorities to devise any
policies either to bring about economic growth or counter the mounting
contradictions in the financial system.
Reporting on
the meeting, held in virtual format this year because of the COVID-19 pandemic,
the Financial Times noted: “It was the head of Singapore’s
monetary authority who best summed up the biggest fear gripping the virtual
Jackson Hole conference this year.
“‘We’re
not going back to the same world,’ Tharman Shanmugaratnam warned.’”
The
central initiative at the gathering was the decision by the Fed’s key
policy-making body to maintain interest rates at their ultra-low levels for an
indefinite period and keep pumping money into the financial system.
The
decision, announced by the Federal Open Market Committee as the conclave opened
and elaborated on in a keynote speech by Fed Chair Jerome Powell, was in effect
a guarantee to Wall Street that its demand for “forward guidance”—lower
interest rates for longer—would be met.
The Fed said
it would no longer be guided by a 2 percent inflation rate limit in determining
its interest policy, but would instead focus on an “average” rate of 2 percent,
meaning that the cheap money regime could continue even if prices rose above
that level.
As for
dealing with the slump in the global economy—the most serious since the Great
Depression—and combating the potential for further storms in the financial
system following the market meltdown in mid-March, there were no answers, as
underscored by the remarks of the Singapore finance minister.
“We’ve
got to avoid a prolonged period of high levels of unemployment, and it’s a very
real prospect,” he said. “It is not at all assured that we will get a return of
tight labour markets even with traditional macroeconomic policy being properly
applied.”
It was a
significant comment because one of main themes in remarks by central bank
chiefs was that monetary policy alone would not be sufficient to restore
growth, and government intervention was needed to boost the economy. But, as
Shanmugaratnam noted, even if “properly applied,” there were no guarantees of
success.
According to
the Financial Times, the notion that central bankers “need to
face the reality of permanent upheaval and long-term economic damage” was the
“main theme” of the event.
One of the
most frequently cited academic papers produced for the meeting was prepared
earlier this month by Colombia University academic Laura Veldkamp on the
long-term effects of the COVID-19 pandemic.
The paper
said that the biggest economic effects of the pandemic “could arise from
changes in behaviour long after the immediate health crisis is resolved.” A
potential source of such a long-lived change was a shift in the “perceived
probability of an extreme, negative shock in the future,” and that “long-run
cost for the US economy from this channel is many times higher than the
estimates of the short-run losses in output.”
The paper
continued: “This suggests that, even if a vaccine cures everyone in a year, the
COVID-19 crisis will leave its mark on the US economy for many years to come.”
In other
words, the pandemic was not only a trigger event, acting on the contradictions
that had built up in the economy and financial system, but a transformative one
as well.
With the Fed
now having formally committed itself to the endless supply of cheap money to
Wall Street, attention will turn to the European Central Bank (ECB), which is
also conducting a strategic policy review, to see whether it goes down the same
road.
While the
governing council, under the presidency of Christine Lagarde, may be inclined
to move in the same direction as the Fed, it would face certain opposition from
Germany’s Bundesbank, which has expressed opposition to the easing of monetary
policy.
A member of
the governing council told the Financial Times, “we will look at
it,” but the Bundesbank would be “very nervous” about it.
“We are not
out of firepower by any means, and to be honest, it looks from today’s vantage
point that we were too cautious about our remaining firepower pre-COVID,” he
said, adding that there are times when we “need to go big and go fast.”
The
actions of the Fed have done nothing to boost the real economy, as an
increasing number of companies announce that temporary layoffs will be made
permanent.
The Wall
Street Journal reported Saturday that a survey conducted by Randstad
RiseSmart found that “nearly half of US employers that had furloughed or laid
off staff because of COVID-19 are considering additional workplace cuts in the
next 12 months.”
This
indicates that the pandemic has been a trigger for a major restructuring of
employment conditions.
The effects
of the Fed’s policies and the further monetary easing to come are focused on
the stock market, with Wall Street indexes rising to the record levels they
achieved in February. The main beneficiaries have been the high tech
companies—Apple, Microsoft, Alphabet (the owner of Google) and Facebook—which
together comprise more than a fifth of the Nasdaq index.
The
extent of their rise and growing financial and monopoly power is indicated by
the results of an analysis carried out by Bank of America Global Research,
reported by the business channel CNBC. It found that the market capitalization
of the major US tech firms, now standing at $9.1 trillion, was greater than the
market capitalization of the entire European market, including the UK and
Switzerland, at $8.9 trillion. In an indication of the massive shift that has
taken place, the research note pointed out that in 2007, total European market
capitalization was four times that of US technology stocks.
Josh Hawley: GOP Must Defend Middle Class Americans Against
‘Concentrated Corporate Power,’ Tech Billionaires
JOHN BINDERThe
Republican Party must defend America’s working and middle class against
“concentrated corporate power” and the monopolization of entire sectors of the
United States’ economy, Sen. Josh Hawley (R-MO) says.
In an interview
on The Realignment podcast, Hawley said that “long gone are
the days where” American workers can depend on big business to look out for
their needs and the needs of their communities.
Instead, Hawley
explained that increasing “concentrated corporate power” of whole sectors of
the American economy — specifically among Silicon Valley’s giant tech
conglomerates — is at the expense of working and middle class Americans.
“One of the things
Republicans need to recover today is a defense of an open, free-market, of a
fair healthy competing market and the length between that and Democratic
citizenship,” Hawley said, and continued:
At the end of the day,
we are trying to support and sustain here a great democracy. We’re not trying
to make a select group of people rich. They’ve already done that. The tech
billionaires are already billionaires, they don’t need any more help from
government. I’m not interested in trying to help them further. I’m interested
in trying to help sustain the great middle of this country that makes our
democracy run and that’s the most important challenge of this day.
“You have these
businesses who for years now have said ‘Well, we’re based in the United States,
but we’re not actually an American company, we’re a global company,'” Hawley
said. “And you know, what has driven profits for some of our biggest
multinational corporations? It’s been … moving jobs overseas where it’s cheaper
… moving your profits out of this country so you don’t have to pay any taxes.”
“I think that we have
here at the same time that our economy has become more concentrated, we have
bigger and bigger corporations that control more and more of our key sectors,
those same corporations see themselves as less and less American and frankly
they are less committed to American workers and American communities,” Hawley
continued. “That’s turned out to be a problem which is one of the reasons we
need to restore good, healthy, robust competition in this country that’s going
to push up wages, that’s going to bring jobs back to the middle parts of this
country, and most importantly, to the middle and working class of this
country.”
While multinational
corporations monopolize industries, Hawley said the GOP must defend working and
middle class Americans and that big business interests should not come before
the needs of American communities:
A free market is one
where you can enter it, where there are new ideas, and also by the way, where
people can start a small family business, you shouldn’t have to be gigantic in
order to succeed in this country. Most people don’t want to start a tech
company. [Americans] maybe want to work in their family’s business, which
may be some corner shop in a small town … they want to be able to make a
living and then give that to their kids or give their kids an option to do
that. [Emphasis added]
The problem with
corporate concentration is that it tends to kill all of that. The worst thing
about corporate concentration is that it inevitably believes to a partnership
with big government. Big business and big government always get together,
always. And that is exactly what has happened now with the tech sector, for
instance, and arguably many other sectors where you have this alliance between
big government and big business … whatever you call it, it’s a problem and it’s
something we need to address. [Emphasis added]
Hawley blasted the free
trade-at-all-costs doctrine that has dominated the Republican and Democrat
Party establishments for decades, crediting the globalist economic model with
hollowing “out entire industries, entire supply chains” and sending them to
China, among other countries.
“The thing is in this
country is that not only do we not make very much stuff anymore, we don’t even
make the machines that make the stuff,” Hawley said. “The entire supply chain
up and down has gone overseas, and a lot of it to China, and this is a result
of policies over some decades now.”
As Breitbart News
reported, Hawley detailed in the interview
how Republicans like former President George H.W. Bush’s ‘New World Order’
agenda and Democrats have helped to create a corporatist economy that
disproportionately benefits the nation’s richest executives and donor class.
The billionaire class,
the top 0.01 percent of earners, has enjoyed more than 15 times as much wage growth as
the bottom 90 percent since 1979. That economy has been reinforced with federal
rules that largely benefits the wealthiest of wealthiest earners. A study released last month
revealed that the richest Americans are, in fact, paying a lower tax rate than
all other Americans.
John Binder is a
reporter for Breitbart News. Follow him on Twitter at @JxhnBinder.
Fed resets
monetary policy framework to meet Wall Street’s demands
28 August 2020
The US
Federal Reserve has announced a major shift in its official framework for
determining monetary policy to bring it into line with its existing practice of
supporting financial markets, following the 2008 financial crisis and now the
pandemic, and to assure them such support will continue indefinitely.
The shift
was announced in a statement released by the policy-making Federal Open Market
Committee (FOMC) yesterday morning before a keynote address by Fed chair Jerome
Powell to the Jackson Hole conference of central bankers.
The FOMC
said in future its interest rate policy would be formulated with the aim of
seeking to ensure the inflation rate achieved an “average” of 2 percent over
time, removing the concern in the markets that the Fed would look to lift rates
once the inflation rate went above 2 percent.
The effect
of this change is to assure Wall Street that the Fed rate, and the interest
rate structure of the entire financial system based on it, will remain at their
present ultra-low levels for a long time.
To bolster
this assurance, the FOMC also made clear that because low official unemployment
rates in the period prior to the pandemic had not produced significant wage
rises or set off inflation the Fed would not look to lift interest rates if the
labour market tightened.
The
breakdown in the previous relationship is largely the result of changes in the
labour market in the past decade through the increased use of gig economy
employment, part-time working and casualisation which have been the major
source of increased employment rather than full-time jobs.
Announcing
its new policy framework, the FOMC said the “updates reflect changes in the
economy over the past decade and how policymakers are taking these changes into
account in conducting monetary policy.”
That was an
accurate assessment as far as it went. But the rest of the statement and the
address delivered by Powell explaining the change was largely an exercise in
covering up the real driving forces of the shift.
Powell spoke
of the need to ensure the achievement of the Fed’s congressionally mandated
goals of achieving price stability and maximum employment “in service to the
American people,” together with the claim that through its “listening” program
it had been taking into account their views and those of their communities.
There was no
reference to the most significant change over the past period, especially in
the wake of the financial crisis of 2008, that is, the growing divorce of Wall
Street from the underlying real economy and the accumulation of wealth in the
hands of a financial oligarchy at the expense of the rest of society.
This
process—epitomised by the news on Wednesday that the wealth of Amazon chief
Jeff Bezos has now reached $200 billion as he rakes in $321 million per day—has
seen the institutionalisation of mechanisms whereby profit is accumulated via
speculation, share buy backs and other forms of “financial engineering.”
These
mechanisms, which involve the siphoning of ever increasing amounts of wealth
produced by the labour of hundreds of millions of workers into the coffers of a
tiny financial elite, depend above all on the guaranteed maintenance of
ultra-low interest rates and a Fed commitment that it will step in to back the
markets whenever rampant speculation threatens a financial crisis.
This has
been the actual practice of the Fed, going back to the stock market crash of
October 1987 and accelerating after the meltdown of 2008.
But to the
extent it was not formally codified and there was any degree of ambiguity in
the central bank’s policy framework statement the financial markets demanded
that changes be made in the interests of so-called “forward guidance.” That
demand has now been met.
In his
Jackson Hole speech, Powell recalled that the review of the Fed’s monetary
policy statement was initiated in early 2019.
The timing
is significant. From December 2015, the Fed had begun to raise interest rates
from the near-zero levels it had sent in place following the 2008 crash. This
was in line with the claim that the measures it had introduced, including the
purchases of trillions of dollars of Treasury bonds, were of an emergency
character and would be gradually withdrawn once the economy started to return
to “normal.”
In 2017 and
2018 there was a brief upturn in the US and world economy with the largest
increase in gross domestic product since the period just prior to the financial
crash and the Fed decided to press on in order to provide it with some room to
manoeuvre in the event of another sharp downturn.
In 2018, it
carried out four interest rate rises, each of 0.25 percentage points, and
indicated there would be a further three such rises in 2019. It also stated it
would continue winding down its holdings of financial assets, which had
accumulated from around $800 billion prior to 2008 to more than $4 trillion, at
the rate of $50 billion per month. In October 2019, Powell said the program of
asset reductions was on “auto pilot.”
However,
the orgy of financial speculation that had accelerated after 2008 had now
become deeply entrenched in Wall Street and the entire financial system.
This meant
that even very gradual moves to anything resembling what had previously been
regarded as “normal” and the merest hint the supply of ultra-cheap money was an
emergency measure, to be withdrawn at some point, produced a violent reaction.
It took the
form of a sell-off on Wall Street in December 2018, recording its worst result
for that month since 1931 in the midst the Great Depression. Together with a
campaign in sections of the financial press, especially the Wall
Street Journal, as well as the continued denunciations of Powell by US
President Trump for keeping interest rates too high, this led to a U-turn.
In a speech
in January 2019, Powell made clear that interest rate rises were off the agenda
and the reduction of the Fed’s assets would be put on hold. This was followed
by cuts in rates from the middle of 2019.
But Powell
and the FOMC recognised this was not sufficient so long as there was even a
trace of ambiguity remaining in the Fed’s policy framework. This led to the
policy review the results of which were announced yesterday—a guarantee to the
financial oligarchy that the ultra-cheap monetary policy, so essential to its
operations, would continue indefinitely.
In his
speech, Powell did not specifically deal with the measures initiated by the Fed
in response to the meltdown of the financial system in mid-March when the Fed
stepped in to act as the backstop for every area of the market.
It announced
further massive purchases of Treasury bonds, the buying up of student loan and
credit card debt, short-term commercial paper and initiating, for the first
time, a program of buying corporate bonds, including from companies that had
been junk-rated as a result of the pandemic
There were
more than enough reassurances for Wall Street in the speech that these
measures, described as temporary and to be withdrawn at some point, would also
be permanent.
Powell noted
that in previous times expansions in the economy typically ended in overheating
and rising inflation but in the past period long expansions had been more
likely to end with financial instability “prompting essential efforts to
substantially increase the strength and resilience of the financial system.”
In another
part of the speech, he said Fed policy was determined by risks to the economic
outlook, “including potential risks to the financial system that could impede
the attainment of our goals” and that to “counter these risks, we are prepared
to use our full range of tools.”
There can be
mistaking the essential content of the Fed’s adjustment to its statement of
objectives. It makes clear that the orgy of speculation, leading to the
creation of fabulous wealth at one pole and increasing poverty and misery at
the other, is the official policy of the central financial arm of the
capitalist state.
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