BIDENOMICS - Former IMF Economist: America’s Inflation Is Beginning to Resemble a Latin American Country

 

Inflation Worries Grow

NICHOLAS KAMM/AFP via Getty Images

JOHN CARNEY

12 Jul 202118

The American public is increasingly worried about inflation.

Twenty-six percent of adults say that inflation is a bigger problem than unemployment, a poll by The Economist and YouGov shows. Twenty-one percent say unemployment is the bigger problem. Forty-two percent said both are equally as important.

The public also rates price level as the most important economic indicator. Forty-two percent say the prices of goods and services they buy are the most important economic indicator, followed by 25 percent who said unemployment and jobs reports.  Ten percent said their personal finances are the most important and six percent said the stock market is the most important.

This is a big change. In January, just 24 percent told pollsters that the most important economic indicator was prices. Forty-two percent said unemployment and jobs reports.

The government will release its Consumer Price Index for June on Tuesday. Economists expect the pace of monthly price increases to tick down from 0.6 percent in May to 0.5 percent. CPI has come in hotter than expected for three months.

Former IMF Economist: America’s Inflation Is Beginning to Resemble a Latin American Country

altamira83/Getty Images

ROBERT KRAYCHIK

12 Jul 202163

2:39

Desmond Lachman, an economist and senior fellow with the American Enterprise Institute (AEI), told Breitbart News on Sunday that the U.S. is beginning to resemble a Latin American country given its inflation, government spending, and printing of money.

 “[The U.S. is] in [a]very bad position from a long-term point of view. I don’t see how this can end well when we’re running — now — budget deficits something like 15 percent of GDP,” Lachman said on SiriusXM’s Breitbart News Sunday with host Joel Pollak. “This is beginning to look a little bit like a Latin American country.”

Government borrowing and spending — marketed as economic “stimulus” by its proponents — combines with growing government debt and expansion of the money supply to drive inflation, Lachman explained.

“The real reason that one should be worried about inflation is that there’s far too much stimulus in this economy,” he remarked. “We’ve got the largest peacetime budget stimulus that this country has ever known. We talk about something like 12-13 percent of GDP, which is a massive budget stimulus by any reckoning.”

He continued, “But on top of that, we’ve got the Federal Reserve that keeps printing money. … We are seeing the money supply now growing well over 20 percent [year-over-year]. If you look at the broad money supply, that’s the fastest money supply [expansion] that we’ve seen in many, many years.”

Lachman spoke with Reuters last month, when the outlet reported on the Federal Reserve’s unprecedented printing of money:

Money supply — which measures outstanding currency and liquid assets — rose 12% year-over-year in April, according to The Center for Financial Stability’s Divisia M4 index including Treasuries.

The measure has been running between 22% and 31% each month since April 2020, fueled by unprecedented economic stimulus from the Federal Reserve and U.S. government. That compares with annual growth of around 3-7% that was common from 2015 to early 2020.

He concluded, “Milton Friedman’s argument — which is widely accepted — is that inflation is everywhere a monetary phenomenon, So if you’ve got this rapid rate of money growth, you should be expecting that this inflation isn’t transitory. This could be here for awhile.”

Breitbart News Sunday broadcasts live on SiriusXM Patriot 125 from 7:00 p.m. to 10:00 p.m. Eastern.

World’s largest asset management firm was “front and center” of Fed’s Wall Street bailout

Nick Beams

24 June 2021

The close collaboration between the US Treasury, the Federal Reserve and the multi-billion dollar asset management firm Blackrock in devising the March 2020 rescue operation for Wall Street has been revealed in an article published in the New York Times yesterday.

According to the article, Larry Fink, the CEO of Blackrock, the world’s biggest asset management firm, was “in frequent touch” with US Treasury Secretary Steven Mnuchin and Fed chair Jerome Powell “in the days before and after many of the Fed’s emergency programs were announced in late March.”

Chairman of the Federal Reserve Jerome Powell (AP Photo/Susan Walsh)

The extent of the collaboration is revealed in new emails obtain by the newspaper together with information that has been previously made public.

In one newly obtained email, Fink refers to planning for the rescue measures as “the project” that he and the Fed were “working on together.”

As the article notes, “America’s top economic officials were in constant contact with a Wall Street executive whose firm stood to benefit financially from the rescue,” showing “how intertwined Blackrock has become with the federal government.”

Blackrock’s close collaboration with the Fed and Treasury came at a crucial point in the development of a crisis in financial markets which began with the onset of the pandemic in March and fears in corporate circles over the response in the working class amid walkouts by workers insisting that safety measures be out in place.

The Fed responded to the initial turbulence in the markets by cutting interest rates. But these measures proved to be insufficient and the potential for a major meltdown in the markets emerged in the week ending March 20 when the $21 trillion US Treasury bond market—the bedrock of the US and global financial system—froze.

Instead of providing a “safe haven” for investors it moved to the centre of the crisis as Treasuries were sold off and no buyers could be found as the sell-off extended to all areas of the financial system.

Faced with a disaster when the markets re-opened, Mnuchin, Powell and Fink were engaged in a series of discussions over the weekend of March 21–22 to devise a rescue package. According to the Times report, Mnuchin spoke to Fink five times over the two days, more than anyone else, other than Powell with whom he spoke nine times.

One of the most significant features of the rescue measures announced on Monday March 23 was the decision by the Fed, for the first time ever, to buy corporate bonds which, as the Times noted, “were becoming nearly impossible to sell as investors sprinted to convert their holdings to cash.”

Blackrock had already closely collaborated with the Fed developing its response to the 2008 financial crisis was thereby set to play a key role in the March intervention.

The article pointed out that, while Blackrock signed a non-disclosure agreement on March 22 restricting officials from sharing information about the upcoming measures, the way in which the rescue package was devised “mattered to Blackrock.”

The decision of the Fed to buy corporate bonds and provide an underpinning for the market was significant and involved two key areas of Blackrock’s operations. One of the ways it makes profit is by managing money for clients charging a preset fee. But assets under management were contracting as investors went for cash and its business model was under threat.

Blackrock is also a major player in the short-term debt markets which were coming “under intense stress” as investors moved their holdings to cash.

Electronic Traded Funds (ETFs), which track market indexes but which trade like a stock, were also severely impacted.

In the words of the Times article: “Corporate bonds were difficult to trade and near impossible to issue in mid-March 2020. Prices on some high-grade corporate ETFs, including one of Blackrock’s, were out of whack relative to the value of the underlying assets.”

As Gregg Gelenzis, associate director for economic policy at the Center for American Progress told the Times: “This was the first time that ETFs came under stress in a really systemic way.”

In the rescue package the Fed committed itself to buying already existing debt as well as new bonds and also decided it would purchase ETFs with the result that the “bond market and fund recovery was nearly instant.”

As the Times article notes, while practically all of Wall Street benefited from the Fed’s intervention, and other financial firms were “consulted” apart from Blackrock “no other company was as front and center.”

The closeness of the relationship between Blackrock and the financial and economic arms of the state, the US Treasury and the Fed, were highlighted in a comment by William Birdthistle, of the Chicago-Kent College of Law and the author of a book on funds, cited in the article.

He said Blackrock was “about as close to a government arm as you can be, without being the Federal Reserve.”

The Fed makes every effort to cover up that relationship in order to try to preserve the fiction that it is not beholden to Wall Street and operates as an independent public authority concerned above all with the state of the economy and the welfare of the population.

The Times article recalled a news conference in July 2020 in which Powell was asked about the discussions with Fink.

“I can’t recall exactly what those conversations were,” he said, “but they would have been about what he is seeing in the market and things like that.

He said there were not “very many” conversations and that the Blackrock chief was “typically trying to make sure that we are getting good service from the company he founded the leads.”

Powell’s claim that, in the midst of the most significant crisis since the meltdown of 2008—with a potential to go even further, as the freeze in the Treasury market showed—he could not recall those conversations simply does not pass muster.

The value of every crisis, it has been rightly said, is that it reveals the real relations that are obscured and covered over in “normal” times.

And that is the case here. The economic arms of the capitalist state are not some independent authority but function every day in the interests of the corporate and financial oligarchy, servicing its needs and interests above all else.