How is raising interest rates supposed to help with the kind of inflation we are having now?

[kabbes]

A decent portion of our current inflation problem derives from currency devaluation. There’s a reason ours is 10.1% and the US’s is 8.5%. That gap is because things like oil are priced in dollars and Sterling has dropped like a stone against the dollar. If nothing else, interest rates respond to that movement.

 

[platinumsage]

The BoE report, which you love mentioning as though it holds some deeper and profound analysis states:

“In view of continuing signs of robust cost and price pressures, including the current tightness of the labour market, and the risk that those pressures become more persistent, the Committee voted to increase Bank Rate by 0.25 percentage points, to 1.25%, at this meeting”.

Fast forward, and costs and prices are continuing rise and at a rate faster than BoE/OBR forecasts.

As I said, arguably too slow at raising rates.

You were comparing. And, as usual, in a way that reveals that you don’t really understand what’s happening now or what happened then. Sure, you know the figures and what those responsible say, but your still not grasping that what they say is bollocks and/or dissembling on behalf of the 1%

If you say so. You don't appear to even know what those responsible even think they're trying to achieve, so I'm not sure how you can critique monetary policy, either now or in Thatcher's time.

 

[Smokeandsteam]

If you say so. You don't appear to even know what those responsible even think they're trying to achieve, so I'm not sure how you can critique monetary policy, either now or in Thatcher's time.

Did you see your hero Andrew Bailey appear on TV last night? Sitting back as the head of the FCA as ordinary people were robbed of their life savings by spivs and chancers? I think I can see what he wants to achieve. Can you?

Blackmore Bond collapse: FCA failed to act before people lost life savings

BBC Panorama reveals evidence suggesting the FCA could have acted earlier before a fund collapsed.

www.bbc.com

https://old-professionaladviser-redesign.kreatio.com/news/4054863/fca-accused-hanging-investors-dry-panorama-documentary

 

[platinumsage]

I’m not sure that criticising your zero interest rates policy amounts to supporting the failure of the FCA to intervene earlier in those mini-bond sales but whatever.

 

[Smokeandsteam]

Thought you might respond with that.

Anyway, let's move on to your suggestion that you know "what those responsible think they're trying to achieve ". I assume by that you would agree with the senior economist at Deloitte who has responded to the inflation increase by stating:

With inflation above 10% and widely expected to rise further as energy bills increase, base interest rates look fairly low at 1.75%. We expect swift action from the Bank of England with the base rate potentially doubling by this time next year.
As the Bank moves aggressively to crush double-digit inflation, we are forecasting a 1.6% contraction in activity between this autumn and the next. This is a much smaller contraction than the pandemic but, with a sharp squeeze on consumer spending power and likely rise in unemployment, will feel significantly disruptive.

So, assuming that you do agree, your view is that:

a) inflation is being caused by rising energy costs. the best way to tackle this is via further interest rate rises thereby preventing more people from paying their energy bills or starving to do so?
b) unemployment is a price worth paying
c) living standards must be lowered for ordinary people

 

[platinumsage]

So, assuming that you do agree, your view is that:

a) inflation is being caused by rising energy costs. the best way to tackle this is via further interest rate rises thereby preventing more people from paying their energy bills or starving to do so?

The element of inflation caused by energy costs is not the target of the rate rises, so no I don’t agree with that statement.

b) unemployment is a price worth paying

It’s a case of what the least worst option is. Allowing inflation to promulgate would just lead to far worse problems down the line than a mild a recession.

c) living standards must be lowered for ordinary people

Living standards are primarily lowered because we sanctioned Russian energy. Secondarily the rise in rates to prevent the consequent inflation becoming embedded will also have an effect. How the government of the day goes about ameliorating this for ordinary people is a separate issue from whether rates should be raised at all.

 

[Smokeandsteam]

The element of inflation caused by energy costs is not the target of the rate rises, so no I don’t agree with that statement.

That's clearly not what the representative of capital believe.

It’s a case of what the least worst option is. Allowing inflation to promulgate would just lead to far worse problems down the line than a mild a recession.

In each of the previous 2 recessions (it's probably true for the ones before that, but I cannot state it) where higher interest rates have been used (so 2008 etc are not at issue here as inflation fell during these recessions) as deflationary measures three things have happened: unemployment has risen, living standards have fallen and wages compared to the cost of living have fallen. In both cases when 'recovery' came not of those things ever recovered to the previous level. On what basis do you think this would not be the case this time?

Living standards are primarily lowered because we sanctioned Russian energy. Secondarily the rise in rates to prevent the consequent inflation becoming embedded will also have an effect. How the government of the day goes about ameliorating this for ordinary people is a separate issue from whether rates should be raised at all.

Less than 4% of our energy comes from Russia. The reason why our bills our higher and inflation rising higher than elsewhere is that we sold off and lost national economy ownership of energy in the 80's.

 

[platinumsage]

That's clearly not what the representative of capital believe.

Not sure what you mean by that

In each of the previous 2 recessions (it's probably true for the ones before that, but I cannot state it) where higher interest rates have been used (so 2008 etc are not at issue here as inflation fell during these recessions) as deflationary measures three things have happened: unemployment has risen, living standards have fallen and wages compared to the cost of living have fallen. In both cases when 'recovery' came not of those things ever recovered to the previous level. On what basis do you think this would not be the case this time?

Not sure where you're getting your figures from e.g.:

Less than 4% of our energy comes from Russia. The reason why our bills our higher and inflation rising higher than elsewhere is that we sold off and lost national economy ownership of energy in the 80's.

Not sure how this is relevant. 4% of gas was from Russia but we buy most of it on the global market, so the price will be determined by global supply and demand. The notion that the UK could have insulated itself from global prices by sate sequestration of domestic energy assets is simply wrong.

 

[brogdale]

State broadcaster doing as state broadcasters do...

 

[brogdale]

And as a reminder/helpful tool for posters that may not have been around then...this the time period over which the "price worth paying" to deal with inflation took place under Thatcher & sons:

 

[Supine]

I know energy is currently a significant factor in inflation but it has been rising since the beginning of 2021. The BBC are still reluctant to mention what happened around that time. The main political parties also don’t seem to want to go there either funny enough.

 

[bimble]

The notion that the UK could have insulated itself from global prices by sate sequestration of domestic energy assets is simply wrong.

It was in no way inevitable that this country would become one of the biggest net importers of energy in the world, we could have at least tried to maintain some degree of self sufficiency in electricity for a start, and then we’d not be paying ten times more than the French are to the French government owned EDF, for instance.

But I’m enjoying your argument glad you’re still going, am not satisfied that raising interest rates is going to help lower this inflation but I appreciate your attempts to push back and explain how it might be the least worst option in some ways.

 

[brogdale]

On last night's Newsnight their Ecomonics editor, Ben Chu, was in graph mode when discussing the "The Big Squeeze" and these particular graphs caught my eye:

1. The UK's economic inactivity rate which, due to the vermin's class-war blitzkrieg on benefits etc, had been on a declining trend, (blue dotted line), but, since the pandemic, has shown a marked reversal. More of us are retreating from the formal labour market. No real surprises there but, when compared internationally, it shows that our "inactivity" is pretty much world-beating.



2. International comparisons of economic inactivity:



Showing that the UK really is bucking the global pattern of return to trend, with some comparable states seeing trend+ reversals of inactivity.

So, why the difference?

Some of the talking heads gave some interesting pointers which relate to our accelerated USification with the neoliberal determination to make workers pay for child-care and adult social-care meaning that so many working age people find themselves unable to afford to work.

So, there is no labour shortage in the UK, just a labour 'market' that can't compete with the consolidator state's determination to shrink the welfare state to death. Neoliberalism eating itself.

 

[bimble]

This sentence here, what exactly is the mechanism by which this is supposed to work (higher interest rate = people will get paid less): is it simply by increasing unemployment or is it something else??

 

[brogdale]

This sentence here, what exactly is the mechanism by which this is supposed to work (higher interest rate = people will get paid less): is it simply by increasing unemployment or is it something else??
View attachment 338164

Fear of unemployment is what this cunt thinks is the answer.

 

[bimble]

Fear of unemployment is what this cunt thinks is the answer.

Raising interest rates = a recession = that’s good because people will get sacked , bringing down inflation. That’s it?

 

[brogdale]

Raising interest rates = a recession = that’s good because people will get sacked , bringing down inflation. That’s it?

That's it, and that's all they ever had.

 

[brogdale]

Truss really will go for the removal of supply side rigidities* in her Thatcher 2.0 attack on inflation.

*attacking the unions further and making it even easier to sack workers

 

[platinumsage]

It was in no way inevitable that this country would become one of the biggest net importers of energy in the world, we could have at least tried to maintain some degree of self sufficiency in electricity for a start, and then we’d not be paying ten times more than the French are to the French government owned EDF, for instance.

But I’m enjoying your argument glad you’re still going, am not satisfied that raising interest rates is going to help lower this inflation but I appreciate your attempts to push back and explain how it might be the least worst option in some ways.

I agree our energy policy has been shit for decades, but I don’t think state ownership would have improved our self-sufficiency in the slightest. Successive governments have demonstrated by their shit energy policies just how badly they would have organised a state-owned sector.

Ed Milliband specified Sizewell C as a site for a new nuclear reactor in 2009, when he was a government minister. It received planning consent last month.

UK nuclear power plant sites of future unveiled

Ministers unveiled potential sites for Britain's next generation of nuclear power plants

www.theguardian.com

 

[platinumsage]

On last night's Newsnight their Ecomonics editor, Ben Chu, was in graph mode when discussing the "The Big Squeeze" and these particular graphs caught my eye:

1. The UK's economic inactivity rate which, due to the vermin's class-war blitzkrieg on benefits etc, had been on a declining trend, (blue dotted line), but, since the pandemic, has shown a marked reversal. More of us are retreating from the formal labour market. No real surprises there but, when compared internationally, it shows that our "inactivity" is pretty much world-beating.

View attachment 338161

2. International comparisons of economic inactivity:

View attachment 338162

Showing that the UK really is bucking the global pattern of return to trend, with some comparable states seeing trend+ reversals of inactivity.

So, why the difference?

Some of the talking heads gave some interesting pointers which relate to our accelerated USification with the neoliberal determination to make workers pay for child-care and adult social-care meaning that so many working age people find themselves unable to afford to work.

So, there is no labour shortage in the UK, just a labour 'market' that can't compete with the consolidator state's determination to shrink the welfare state to death. Neoliberalism eating itself.

Seems we’ve started to follow the global trend now though:

UK’s Over-65s Return to Work as Cost of Living Crisis Bites

Older Britons are coming back to the labor market as the cost of living crisis forces them to rethink retirement plans.

www.bloomberg.com

 

[platinumsage]

Raising interest rates = a recession = that’s good because people will get sacked , bringing down inflation. That’s it?

Firms will seek to limit wage rises if they have higher interest payments and there is lower growth, so it’s not just about sacking people. Wage cuts are another possibility although unions and employees tend to prefer redundancies so they’re not very common.

 

[bimble]

Why are we top of this? Probably a few things but energy dependency and it’s privatisation amongst them.

 

[platinumsage]

View attachment 338170
Why are we top of this? Probably a few things but energy dependency and it’s privatisation amongst them.

The BoE being slower than the Fed in raising rates hasn’t helped, as kabbes mentioned earlier. Also the UK has worse labour shortages than Europe combined with worse energy costs than the US.

 

[brogdale]

Not according to the OECD/ONS sources cited in the Newsnight data graphed; remember retirement age workers are are a sub-set of the whole market:

 

[brogdale]

Firms will seek to limit wage rises if they have higher interest payments and there is lower growth, so it’s not just about sacking people. Wage cuts are another possibility although unions and employees tend to prefer redundancies so they’re not very common.

Firms seek to limit wage rises whatever the interest rate; the higher rate environment will help them to threaten job losses to protect their returns and stoke the fear to suppress wage claims.

 

[platinumsage]

Not according to the OECD/ONS sources cited in the Newsnight data graphed; remember retirement age workers are are a sub-set of the whole market:

View attachment 338179

Yes you posted that already, the graphs are undated so I can’t tell if they’ll reflect recent changes.

 

[brogdale]

Yes you posted that already, the graphs are undated so I can’t tell if they’ll reflect recent changes.

2015 - 2022 on the x axis?

 

[platinumsage]

Firms seek to limit wage rises whatever the interest rate; the higher rate environment will help them to threaten job losses to protect their returns and stoke the fear to suppress wage claims.

They don’t mind raising wages to attract and retain employees in a labour shortage if they expect growth, because then a sufficient number of the most productive employees they can attract equals more profits. If they expect a BoE interest-raterise-induced reduction in demand and a recession, coupled with an increase in their borrowing costs, this changes.

 

[platinumsage]

2015 - 2022 on the x axis?

When in 2022 is the obvious thing missing. March? July?

 

[brogdale]

When in 2022 is the obvious thing missing. March? July?

Oh, FFS