The FT has just published a comment on recent market moves saying:
An investor consensus that took months to build, namely that robust economic growth and elevated inflation would bring about substantially higher interest rates, has been coming apart, and the pain for those caught in that trade has heightened with moves in the past couple of days.
Three questions.
First, who built that consensus?
Second, why did they do that?
Third, what did they hope to gain?
Could it be that there was organised action to bring pressure to bear for lower government spending that would harm the wellbeing of ordinary people but much enhance the wellbeing of the wealthy?
Surely not?
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It could well be. And they haven’t been reading the central banks very well since Covid 19 appeared, How could people with so much money be so clueless. For some folks old ideas die hard I suppose.
Not the organised actors so much, but the people who believe them.
I bet you they did.
To call these people vultures is to insult that species.
@ Pilgrim Slight Return
Indeed it is unfair and an insult to vultures, since vultures perform not only a useful, but an essential, role in an ecosystem – that of removing, and recycling, carrion that might otherwise be a disease-bearing pollutant.
By contrast, those who “organised action to bring pressure to bear for lower government spending that would harm the wellbeing of ordinary people but much enhance the wellbeing of the wealthy” are not only not essential and not useful, but are in fact profoundly non-essential, and actually harmful to society and the common good.
In a word, not vultures, but parasites, battening in society’s lifeblood.
Parasites – yes – that’s what they are indeed.
Parasites can end up killing the host and themselves with it.
Michael Hudson, the American economist and MMT supporter, has a book with that title.
https://michael-hudson.com/2015/09/killing-the-host-the-book/
Pink Floyds ‘Dogs’ goes some way to summing things up.
So deep this goes, so enslaved have we become and so dazzled and befuddled by the neoliberal machine that I cannot see a way out. A revolution might seem tempting, at least in a romantic way, but the end result isn’t likely to be much better than what it replaced.
So wrapped up have we become, and I include myself in this, with the trappings of modern life that sometimes I seem to value the reliability/availability of my broadband connection over a corruption free government.
Demonstrating more ignorance of the markets you presume to comment upon.
Markets (and market movements) are based on the cumulative impact of multiple individual views, which themselves are driven by qualitative and quantitative data analysis.
To suggest some sort of conspiracy is nonsense.
Narrative construction is not accidental
If you deny that the problem of understanding is all yours
A perfect illustration of a number of the delusions of neo-classical economics, used by the City to rationalise behaviour that ultimately destroys wealth, and channels the larger portion of what’s left to a minority. Based on models full of delusionary assumptions, not to mention more than a few errors
Then add the claim that City institutions never manipulate markets. Really? Not sure where you’ve been over the last 30-40 years.
A chap called Minsky had a better understanding, 70 years ago. Shiller and Akerlof more recently.
As they say in the City, ethics is a county East of London.
@ Robin Stafford, and indeed to Professor Murphy’s address as well
Yes, financial markets are full of actual and would-be manipulators, from short sellers to the Fed. But, for various tedious reasons, I have been watching this spring’s debate, and bond and stock buying, through Bloomberg & Moody’s reporting and elsewhere, and I am not persuaded
– either that there was a malign conspiracy to push rates higher, save by some over-eager investment managers in tricky situations
– or even that the FT report has the right of it.
Of course those with “sound money” instincts, among market participants and the wider public, which might include most of the Republican Party, were arguing that Biden’s spending would ruin the US. And they were indeed supported by the usual suspects such as the Heritage foundation and, if I remember correctly, our own dear IEA. But the actual progress of e.g. the 10-year treasury bond has been somewhat variable, as the FT chart shows, and several big market players have come unstuck trying to anticipate it.
Yes, there was initially a sharp rise from Jan to end-March, boosted not by scare stories but by concerns about availability of raw materials, silicon chips and the like. Moreover the US government investment plans were seen as good for industry and thus dividends in many ways. As supply pressures eased, a less panicked view was taken. The counterpart to the FT chart would be various analyses showing that value stocks rose most in the first quarter but that growth stocks, especially tech and real estate (!), have made the running since. So I am not sure the FT remark is correct or should be taken seriously.
It is ironic that at this moment when the earlier panic has subsided, one is seeing papers like the ones by Brumm, Feng, Kotlikof and Kubler for the NBER, who joyfully greet the admission by Blanchard that perhaps he was too encouraging about deficit spending in 2019. Up to others to decide if Blanchard was mistaken then or now.
Oh dear, someone else who believes in the impartial working of a market, and in the reality of market optimisation, offering a Panglossian view, that market equilibrium is the best of all possible positions in the best of all economic frameworks.
I’m reminded of the old joke about actuaries (actually more often about accountants, but certainly not true of you, Richard), namely that an actuary is one who, if your feet are in a deep freezer, and your head in a furnace, on balance you must be comfortable.
Market equilibrium can, in other words, sometimes resemble the plight of the bus at the end of “The Italian Job”, precariously balanced between euphoria and disaster.
I had a landscape gardener come to look at our garden the other day and he commented that inflation was going to be a problem and that interest rates would have to go up. I found myself arguing with him.
You aren’t wrong about a prevailing narrative, filtering down through right wing media to make sure everyone believes what they are supposed to.
@Pilgrim Slight Return
By contrast, those who “organised action to bring pressure to bear for lower government spending that would harm the wellbeing of ordinary people but much enhance the wellbeing of the wealthy” are not only not essential and not useful, but are in fact profoundly non-essential, and actually harmful to society and the common good.
Who are these people? Can you name some names, or point to any evidence to this ‘organised action’ ?
Sure, lets start with the Institute for Economic Affairs
And Policy Exchange
And the Centre for Policy Studies
It’s early not hard
‘Barbara’
Have you not heard of political lobbying or the industry and providers who provide it?
The rest of us happen to have.
Do keep up.
And please don’t use your ignorance to pretend that some thing does not exist in the real world. There’s enough of that going on already.
I tell you what – I’ll lend you a hand. Try this:
https://www.merriam-webster.com/words-at-play/the-origins-of-lobbyist
You think the investment managers pay attention much attention to this?
Yes
Barbara
I will say this:
Markets are good way in which information can be shared, evaluated etc. When engaging with markets when taking on contractors and being part information networks about products and there performance, even I can see that as plain as day.
However, there is a flip side, and that markets work just as efficiently at circulating lies (of which there are many in company accounts lying about how well they are doing) and fraud, as well as blind optimism, panic and greed.
In my line of work (building homes), bad products and services soon get exposed.
In the markets under discussion here however and with complex ‘products’ with opaque names (like ‘credit default swaps’ for example) it is much harder I would argue to see if you have invested in a big bag of shit until its too late. That is also because the financial sector just treats the disasters that often occur as just another market to exploit.
And that is why not all money managers are the same: some actually take their fiduciary duties to their clients very seriously and can sort the wheat out from the shit and are quite good at doing it – usually because they employ their own analysts rather than using the tarts at the rating agencies who have to rate new products highly in order to get repeat work from the criminals who issue them.
I hope that that has cleared up a few things for you.
Now, is there anything else we can help with you with before you go on your way?
As Professor Murphy’s response is somewhat cursory, not to say gnomic, may I expand a little, though without pretending to be an adequate substitute or indeed to necessarily agree with him.
Lobbying organisations masquerading as academic institutions (legally, the IEA actually has little right to use the term Institution) are often set up by and are generally maintained by the rich, even though they generally disguise or refuse to indicate their funding sources. (There are of course genuinely independent lobbying organisations; and some left-wing ones are less than independent.) Among these supporters are of course many investment managers, but the relationship is not quite so simple as the buyer tells the organisation what to say, and then acts on what is said: more a matter of a shared frame of reference – although there are cases where institutions have been pushed to lobby for particular causes (the City of London is a prime example).
In the case of the inflation worries, there were genuine causes for concern in both directions. Supply chains had been disrupted across the world, many intermediate activities had been closed or reduced to a very low level; and the shortage of goods at the business to business or consumer level resulting could have led to high inflation as economies restarted. In the opposite direction are constraints such as slow reopening of business or business failures during the crisis, not to mention for instance the uncertainty about how much saved consumer and business expenditure wold be available for the re-opening or would actually be spent.
However there was a large and disparate group opposed in principle to any massive government spending to restart an economy (see my previous note above). They (banks, central bankers, fund mangers and politicians, not to mention Mr Gilbert’s garden adviser) all campaigned in various ways to limit government spending, ably or at least enthusiastically supported by various academics and the lobbying organisations mentioned, which do not just include the IEA & other groups named by Professor Murphy, but also their US, German &c., equivalents.
So to a real extent there was a wide consensus (on one side) that a push for economic growth wold bring inflation with resulting high interest rates. Of course not everyone agreed, but that is a separate issue.
Where the argument gets complicated is the extent to which fund mangers and the like conspired to push up market interest rates, particularly in the government bond markets. My own view is that the rise in interest rates was mostly induced by supply chain worries, irrespective of views on reflationary effects – after all, even now very little has actually been spenct by governments out of the varyingly large sums proposed; and back in the first quarter of the year, virtually nothing – indeed the tendency was often been the other way, with at least partial withdrawal of government aids.
I could go on, but no doubt others in this discussion will want to disagree with me – anyway, i hope this helps.
I can agree with all of that but we must also consider that this is a world that is dominated by debt, and an interest rate rise would obviously benefit those who have used their money as debt funding who would have field day if the base interest rate went up. How many of them have funded the Tories and expect favours in return?
We are told too often that the State squeezes out the private sector like a cuckoo in the nest.
Well, that’s wrong. It’s the private sector that under Neo-liberalism that has become to be the cuckoo.
@Pilgrim Slight Return
I am uncertain about the helpfulness of the broad generalization that “this is a world that is dominated by debt”, as debts are very unevenly distributed – for instance private debt in the UK has fallen during the crisis, albeit not so much for the poor; and business’s long-term efforts to replace share capital by debt leaves many large companies very exposed to interest rate rises – not just the smaller, poorly funded firms. This loading up on bonds continues, particularly in the USA, where the premium for high-yield debt has, perhaps surprisingly, narrowed of late (thanks of course to the reduced speculation about inflation). There are probably at least as many pressing for low and stable interest rates as the opposite tendency, starting with organizations like the CBI.