ECONOMYNEXT – In a remarkable in not hilarious turn of events several officials of the International Monetary Fund have suggested ‘taming’ market power as a bubble fired by the Federal Reserve and key central banks sent demand, assets prices and commodities shooting up and firms raised prices.
“Some central banks are currently debating whether to tighten monetary policy to fight inflationary pressures, after having eased decisively in response to the COVID-19 shock,” IMF officials Romain Duval, Davide Furceri, and Marina M. Tavares said in a blog post, Taming Market Power Could (also) Help Monetary Policy.
“In making such decisions, central bankers have to consider how much businesses and consumers will respond,”
“The structure of the financial system and the future expectations of consumers and businesses are key drivers of how effective monetary policy actions will be. Yet there’s another, overlooked, driver: corporate market power.”
In 2000 after corporates cut prices after driving productivity growth then-then Greenspan-Bernanke Fed cut rates to zero and fired a massive housing and commodity bubble which ended in the Great Recession.
The bubble was fired over fears Bernanke fear that there was ‘deflation’ as firms improved productivity and thinned margins after the collapse of the so-called ‘tech bubble’ in the late 1990s.
Now a ‘Powell bubble’ is being fired as US credit system has recovered and money supply is the fastest and companies are being blamed for raising prices as energy, food and base metals short up and demand remains strong amid stimulus money.
The IMF officials are calling for controls on companies so that central banks could continue print money in a classic ‘kill the messenger’ style action.
Actions of companies may force central banks to stop money printing earlier than the monetary policy committees would prefer to.
“On top of being generally harmful to business dynamism and growth, excessive market power can also hamper central banks’ ability to stimulate economic activity during recessions, and to cool it down during expansions,” the IMF officials claimed.
“In principle, if monetary policy is less powerful, central banks could just use more of it—by easing more aggressively to fight a recession, for example; however, this approach may not be fully successful in advanced economies when so many central banks are constrained by the effective lower bound on interest rates, and also face (actual or perceived) limits to quantitative easing—such as financial stability concerns from very large and persistent asset purchases.”
“Conversely, greater market power implies that, should inflationary pressures become persistent, central banks may need to tighten monetary policy more aggressively than would be the case in a more competitive economy, all else equal.”
It has been a longstanding practice to blame ‘capitalism’ for the inevitable results of monetary expansion and state spending.
Roman emperor Diolcletian, who imposed price controls after expanding coin issue with base money to present day IMF officials have sung the same tune.
After the 2001-2008 Greenspan-Bernanke bubble burst in a bank run and steep downturn activists ‘occupied Wall Street’ instead of calling for Fed reform.
Similar experience had been seen in Europe in the run up to the Great Depression and after.
“European governments and parliaments have been eager for more than sixty years to hamper the operation of the market, to interfere with business, and to cripple capitalism,” classical economist Ludwig von Mises wrote in the run up to World War II.
“They have blithely ignored the warnings of economists. They have erected trade barriers, they have fostered credit expansion and an easy money policy, they have taken recourse to price control, to minimum wage rates, and to subsidies.
“They have transformed taxation into confiscation and expropriation; they have proclaimed heedless spending as the best method to increase wealth and welfare.
“But when the inevitable consequences of such policies, long before predicted by the economists, became more and more obvious, public opinion did not place the blame on these cherished policies, it indicted capitalism.
“In the eyes of the public not anticapitalistic policies but capitalism is the root cause of economic depression, of unemployment, of inflation and rising prices, of monopoly and of waste, of social
unrest and of war.”