Central bankers back Fed war on working class

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Central bankers and key economic leaders around the world aligned themselves forcefully with US Fed Chairman Jerome Powell’s declaration of war on the working class at the Jackson Hole conclave late last week.

Federal Reserve Chairman Jerome Powell, center, takes a coffee break with attendees of the central bank’s annual symposium at Jackson Lake Lodge in Grand Teton National Park Friday, Aug. 26, 2022. in Moran, Wyo. [AP Photo/Amber Barsler]

In a direct address of just nine minutes, Powell made it clear that there would be no respite from the Fed’s interest rate hikes, recession-inducing if necessary, to quell pressure from workers for higher wages to compensate for the daily reductions in their wages. standard of living resulting from the highest inflation in four decades.

Powell said that due to the Fed’s policies, there would be slower growth and looser labor market conditions, which would “suffer households and businesses.”

It was significant that in his very short speech, Powell made two references to former Fed Chairman Paul Volcker, appointed to that position by Democratic Chairman Jimmy Carter in 1979, who imposed record high interest rates in the 1980s as part of the war against the working class. under the Reagan administration.

Volcker’s measures caused economic devastation in the United States as swathes of industry were shut down and unemployment soared to its highest level since the Great Depression of the 1930s, leaving the effects still felt today. today. It also produced similar conditions internationally, particularly in Latin America, as other governments joined the offensive.

Four decades later, the decay and decay of the capitalist economy has grown by leaps and bounds, and the representatives of finance capital are ready to go even further if they deem it necessary.

This was made clear in much-awaited remarks by Isabel Schnabel, a member of the executive board of the European Central Bank (ECB) to the conclave on Saturday. She said there was a risk that inflation would spiral out of control and an even bigger “sacrifice” would be needed.

“Central banks are likely to face a higher sacrifice ratio compared to the 1980s, even if prices were to react more strongly to changes in national economic conditions, as the globalization of inflation makes it more difficult for banks central authorities to control price pressures,” she added. said.

Schnabel pointed to the key issue on the minds of central bankers and other officials – the need to scrap wage demands, whatever the cost.

“The likelihood and cost of current high inflation rooted in expectations is uncomfortably high,” she said. “In this environment, central banks need to act forcefully.”

“Ingrained” inflation expectations are code in central bank parlance for workers demanding wage increases in the belief – confirmed by their daily experience – that cost-of-living pressures will rise further.

Schnabel also pointed to the longer-term risks to the stability of the international money market, which for the past 50 years since President Nixon withdrew the gold backing from the US dollar, has not been backed by a store of value. .

Central banks, she said, “must lean headlong against the risk that people start to doubt the long-term stability of our fiat currencies.”

The head of the French central bank, François Villeroy de Galhau, was not so vehement but his remarks carried the same message. He said there should be “no doubt” about the ECB’s willingness to raise interest rates above neutral, a level that neither promotes nor limits growth, and that “our willingness and our ability to fulfill our mandate are unconditional”.

This is a forecast of significant rate hikes as the inflation rate for August in the euro zone is expected to reach 9% – well above the bank’s target of around 2% – when the latest figures will be released later this week.

Swiss National Bank President Thomas Jordan has warned that inflation is not a passing phenomenon and could persist for years due to structural factors in the economy, amid signs it is became widespread.

“There are signs that inflation is increasingly spreading to goods and services not directly affected by the pandemic or the war in Ukraine,” he said.

Bank of Korea Governor Rhee Chang-yong drew attention to inflationary concerns caused by the surge in the US dollar prompted by the Fed’s monetary tightening. In Korea, as in many other countries, the rise of the dollar and the fall in the value of the national currency means that the prices of imports, especially energy and other essential commodities, are rising. Inflation is therefore imported.

“We are now independent from the government, but we are not independent from the Fed,” he said in an interview with Reuters.

“So if the Fed continues to raise the interest rate, there will be pressure to depreciate our currency.”

Another important contribution to the discussion was that of Gita Gopinath, the first managing director of the International Monetary Fund, after having served as its chief economist. Perhaps inadvertently, she pulled the cat out of the bag about the responsibility of governments and central banks for the inflation currently tearing the global economy apart.

Gopinath said “existing models” could not explain the surge in inflation, especially the so-called Phillips curve, developed in the 1950s, which purports to show that inflation is linked to rising wages, because current inflation was not led by wages.

She said the high inflation was due to the stimulus provided by governments in the wake of COVID – the massive sums of money handed out by governments to businesses. She did not mention it, but could well have cited the trillions of dollars pumped into the financial system by the world’s major central banks as another key factor.

At the same time, there was also “a contraction in potential output and employment”.

Although Gopinath did not give full details, his remarks highlighted the root causes of the inflation crisis which lie in the response of governments and financial authorities to the COVID pandemic.

When the pandemic hit, governments around the world failed to take decisive public health action for fear it would cause a crisis in stock markets. Instead, they at best pursued limited mitigation measures while funneling money into the financial system – the Fed alone poured out more than $4 trillion – after markets froze in March. 2020.

And their refusal to take action to eliminate COVID, while abandoning even limited measures and adopting the “let it rip” agenda, has led to major problems in supply chains and a twitching of the hand. which has now triggered an inflationary spiral, exacerbated by the US-led proxy war against Russia in Ukraine.

After having created the conditions for what amounts to a collapse of the world economy, the most striking example of which is the escalation of inflation, the policy of the central banks is to make the working class pay by reducing real wages, intensification of exploitation enforced through a recession-prone high interest rate regime. This is the program agreed upon at the Jackson Hole meeting.

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