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Central bankers back the Fed’s war on the working class

Central bankers and leading economic officials around the world have firmly attached themselves to the declaration of war on the working class by US Fed Chairman Jerome Powell at the Jackson Hole Conclave late last week.

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

In an articulate address of only nine minutes, Powell made clear that there would be no reduction in the Fed’s interest rate hike, if it proves necessary, to induce a recession, reducing the push for higher wages by workers. To compensate for the daily deduction. The standard of living resulted in the highest inflation in four decades.

Powell said the Fed’s policies would result in slower growth and soft labor market conditions that would “bring some pain to homes and businesses.”

It was significant that Powell, in his very brief address, made two references to former Fed Chairman Paul Volcker, who had been appointed to the position in 1979 by Democrat President Jimmy Carter, who had served in the 1980s during the war against the working class. Record interest rates were charged as part of this. under the Reagan administration.

Volcker’s measures produced economic devastation in America as entire sections of industry were shut down and unemployment reached its highest level since the Great Depression of the 1930s, the effects of which are still felt today. This led to a similar situation internationally, particularly in Latin America, as other governments joined the offensive.

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

This was made clear in the eagerly awaited remarks by Isabel Schnabel, a member of the European Central Bank (ECB) executive board, at the conclave on Saturday. She said there was a risk that inflation was spiraling out of control and that even more “sacrifices” would be required.

“Central banks are likely to face higher sacrifice ratios than in the 1980s, even if prices respond more strongly to changes in domestic economic conditions, as inflationary globalization exerts pressure on central banks to control prices.” made it more difficult to do,” she said. Told.

Schnabel pointed to a key issue exercising the minds of central bankers and other officials – the need to suppress wage demands, no matter the cost.

“Both the potential and costs of the current high inflation are confounded by expectations, uncomfortably high,” he said. “In this environment, central banks need to act coercively.”

Expecting inflation to be “infiltrating” is the code in central bank parlance for workers who are pushing for an increase in wages – confirmed in their daily experience – that the cost of living pressure will increase even further.

Schnabel also pointed to long-term risks to the stability of the international monetary market, which for the past 50 years has been backed by a store of value as President Nixon withdrew gold from the US dollar.

The central bank, she said, “will have to bow down with determination against the risk of people starting to doubt the long-term stability of our fiat currencies.”

The head of the French central bank, François Villeroy de Galhau, was not as harsh, but his comments carried the same message. He added that there should be “no doubt” about the ECB’s desire to raise interest rates above the neutral rate, a level that neither stimulates nor hinders growth, and that “our desire to And our ability to fulfill our mandate is unconditional.”

That’s forecast for significant rate hikes as inflation in the eurozone is expected to reach 9 percent for August – well above the bank’s target of around 2 percent – when the latest figures are released later this week.

Swiss National Bank President Thomas Jordan warned that inflation was not a passing phenomenon and could persist for years to come due to structural factors in the economy, amid signs it was becoming broad-based.

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

Bank of Korea Governor Ri Chang-yong drew attention to inflationary problems caused by an increase in the US dollar produced by the Fed’s monetary tightening. In Korea, as in many other countries, a rise in the dollar and a fall in the value of the domestic currency means that the prices of imports – especially in energy and other essential goods – rise. Thus inflation is imported.

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

“So if the Fed continues to raise interest rates it will be depreciating pressure for our currency.”

Another important contributor to the discussion was Gita Gopinath, the first managing director of the International Monetary Fund, who previously served as its chief economist. Perhaps unintentionally, he pushed the heck out of the bag as governments and central banks are responsible for inflation now sweeping through the global economy.

Gopinath said that “current models” cannot explain the growth of inflation, especially the so-called Phillips curve, developed in the 1950s, which shows that inflation is linked to wage growth, as the current Inflation was not led by wages.

He said the high inflation was due to incentives provided by governments as a result of COVID – huge amount of money given by governments to corporations. He did not mention, but may well be cited, the trillions of dollars pumped into the financial system by the world’s major central banks as another important factor.

There was also a “contraction in potential production and employment”.

While Gopinath did not elaborate fully, his remarks pointed to the essential causes of the inflation crisis, which remain in the response of governments and financial authorities to the COVID pandemic.

When the pandemic struck, governments around the world did not take decisive public health measures, lest it cripple the stock markets. Instead, they followed limited mitigation measures while funneling money into the financial system – after the markets froze in March 2020 – with the Fed alone pouring in more than $4 trillion.

And their refusal to take action to end COVID, as they overhauled even limited measures and “rip it off”, caused major problems in supply chains and contraction of the labor force, which has now led to an inflationary The spiral is accelerated. US-led proxy war against Russia in Ukraine.

The sharpest example in the rise of inflation is the policy of central banks to make the working class pay for it through the intensity of exploitation, cutting real wages, creating the conditions for the breakdown of the global economy. Implemented through a recession-induced high interest rate regime. The program was agreed upon at the Jackson Hole meeting.

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