The Guardian view on central bankers: Don’t make them responsible for the crisis | editorial

JPeople who fought the last war are often criticized. What about central bankers who seem unable to grasp the lessons of the recent emergency, let alone anticipate the next? By putting central banks in charge of responding to the current crisis, governments risk a global recession hurry by excessively high prices.

This was the warning from the United Nations Conference on Trade and Development (Unctad) this month, and it didn’t arrive a moment early. Central banks cannot lower inflation at Socially acceptable cost. Raising interest rates as pandemic support ends will affect income. The result will be similar to “electroconvulsive therapyimposed on voters through austerity policies after the 2008 financial crisis. The difference between then and now is that central banks’ tightening of cash, rather than cutting government spending, is being used to engineer deflation.

United State Federal Reserve He is the main culprit. Where he leads, others follow – leading to everyone putting pressure on their economy at the same time. The result, Unctad warns, you can see 17 trillion dollars wiped out the global GDP. The Fed’s stance has already caused the currencies of about 90 developing countries to weaken against the dollar this year, making it difficult for them to buy, or repay, dollar-priced goods. dollar-denominated debt. Suffers a lot of power outages and Food shortage.

Rising inflation since the end of last year belied hopes that this would be a temporary nuisance. The Russian invasion of Ukraine sent a shock wave in the markets. However, the price hike did not come from government spending or wage pressures. Inflation has been amplified by companies able to increase their profit margins, first during the global recovery in 2021 and then in 2022, by excessive speculative trading on the backs of the world’s poor.

Corporations have great influence in global affairs. Half of US inflation is driven by higher profit margins – compared to 10% historically. In food, only four comp It accounts for at least 70% of global grain trade, with an incentive to hold stocks until prices peak. Financial investors are also making money. Seven out of ten buyers of wheat futures contracts are now speculators. In 2018, they represented only 23% of buyers. The record profit $6.7 billion that commodity trading company Cargill made last year unexpected taxes.

In the developing worldThe company’s growing strength, Unctad says, has seen labor costs fall, while corporate profitability has increased. When higher profit margins are a source of price hikes, raising interest rates is ineffective and unfair because the tightening must be greater to affect inflation, harm growth and employment.

Since the 1980s, voters have lost the economic power of the free market in exchange for stability and peace. feel now deceived. Debt-financed speculation and rising asset prices are accelerating the global inflation crisis. There are obvious environmental reasons why the global energy system cannot continue as it was. Greener and redistributive policies are needed. Financial institutions must be rewired to serve a broader public jurisdiction. Interventional government – armed with progressive taxes and antitrust measures and price controls – It should be the order of the day.

Unctad is right: Central bank independence from any social goals is unsustainable. The suggestion From the Governor of the Bank of England, Andrew Bailey, that higher interest rates are needed after the new UK minister indicated Public spending cuts and tax increases It seems unwise. The Covid crisis has revealed that the trade-off where governments have to choose between high deficit spending or low interest rates exists only if central banks want it to. Mr. Bailey exposed the bank to something like a comedy U-turns For fear of being seen as subject to politicians. His strategy risks plunging more people into poverty. Monetary policy is not apolitical, but undemocratic. That must change.

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