High interest rates = class warfare

1 Mar

Those who control both the levers of state and (ultimately) overarching narratives have magic powers to stand cause and effect on its head. They can, for instance, goad a nuclear armed state for decades with lies, insults and broken promises and, when that state finally reacts, fill the airwaves with well funded cries of “unprovoked aggression!”

Or they can wage class war – which is to say, advance and shore up the interests of a tiny elite – in any number of ways. These are by no means confined to fiscal and monetary policy but, since the setting of taxation and interest rates references mystical knowledge-sets guarded by a high priesthood, those weapons enjoy a built-in advantage. The most nonsensical of Alice-in logic may be advanced when mainstream economists who know how their bread gets buttered will concur – not necessarily on every detail but certainly on core assumptions – while the rest of us are given every encouragement to believe these are matters way above our pay grade.

Which leaves a hard and for a ruling class probably irreducible core of economically informed troublemakers who can be marginalised not only as in denial of TINA reality, but as being the real  advocates of class war.

As with conspiracy, class war is only a thing when it targets power.

Bear this in mind when reading two very short pieces today by tax specialist, Quaker, social democrat and modern monetary theorist Richard Murphy. They really are rather good.

Could it be that there is a conspiracy across the Atlantic to increase the wealth divide in the Anglo-American world? 

Posted on 

The US Federal Reserve’s policy on inflation is as perverse as that of the Bank of England. As the FT has just reported:

This is ludicrous: if, as in the UK, inflation is being kept higher than it needs to be because of the increase in the value of savings that the wealthiest are enjoying as a result of increased interest rates, which increase is then fuelling their excess spending, then this goal of reduced inflation rates might never be achieved, but the wealthy will continue to be unjustly enriched whilst the rest of society pay the price for that.

Could it be that there is a conspiracy across the Atlantic to increase the wealth divide in the Anglo-American world?

I’ve preserved the link in Richard’s penultimate paragraph. It’s to another of his posts today, also replicated here in full:

The Bank of England is failing to control inflation that is being driven by the excessive consumption of the rich so it intends to punish those least well off even more

Posted on February 29 2024

The FT has a post this morning that says:

The article says:

The Bank of England is struggling to bring inflation back to target because price rises are increasingly driven by people who are immune to the pressures of higher interest rates, a senior policymaker has said.

Catherine Mann, speaking at a Financial Times event on Wednesday, said there was “a lack of consumer discipline” to rein in businesses’ pricing power in areas of the services sector where prices were often “sticky”, as they reflect conditions in the domestic economy rather than global shocks.

What she really means is that the wealthy are immune from the pressure that higher interest rates impose on the rest of the population, and even gain from them, and as a result of their considerable, and relatively excessive, spending power within the economy inflation is continuing at above 2% and there is no real prospect of that changing.

The consequence is that she admitted that the single tool that she claimed was available to the Bank of England to control inflation – which she said is the interest rate, whilst conveniently ignoring both quantitative easing and the massive current quantitative tightening programme – is not able to bring the rate of inflation down at present because the richest in the UK are insisting on continuing to spend. This is despite the massive economic pressure being brought to bear on those with lower incomes, either from downward pressure on wages, which the Bank of England is heavily promoting, or from increased interest rates.

You would think, as a result, that Mann would realise that keeping interest rates high was a futile exercise. Far from it, though: she is still an advocate for raising them.

What is not hinted at in the reports of what she said are any indications that she thought that other tools might be brought into use to tackle this issue. Raising taxes on the wealthy would, of course, be one way to address this issue. That is glaringly obviously necessary, given the problem she outlines. I am sure it was not said.

Raising taxes on the wealthy and cutting interest rates would work even better. I think we can be sure that was not said either.

Why am I sure that these things were not said? That is because I have long felt that the Bank is engaged in class warfare against those who work for a living and live on moderate earnings. Nothing persuades me otherwise.

The comments Mann made confirm that the policy she supports of making the wealthy relatively wealthier is working and that, as a result, she wishes to punish those less well-off even more. You can’t make callousness on this scale-up, but it appears to be happening.

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