I've been wondering if Germany was going to experience something similar to what was done to Russia, see: "When the Harvard Boys Did Mother Russia (Steyer and Summers, Shleifer and Sachs)" but in this essay one of our favorite Marxist Economists implies it could happen on a much wider scale.
From Michael Roberts' The Next Recession blog, October 10:
Shock therapy was the term used to describe the drastic switch from a planned publicly owned economy in the Soviet Union in 1990 to a full-blown capitalist mode of production. It was a disaster for living standards for a decade. Shock doctrine was the term used by Naomi Klein to describe the destruction of public services and the welfare state by governments from the 1980s. Now the major central banks are applying their own ‘shock therapy’ to the world economy, intent on driving up interest rates in order to control inflation, despite the growing evidence that this will lead to a global recession next year.
That’s what they say. The Federal Reserve board member Chris Waller makes it clear “I am not considering slowing or stopping rate increases due to financial stability concerns.” So even if rising interest rates begin to crack holes in financial institutions and their speculative assets, no matter. Similarly, Bundesbank chief Nagel is resolute, despite the Eurozone and Germany in particular already slipping into recession: “Interest rates must continue to rise – and significantly so”. Nagel does not just want higher interest rates; he wants the ECB to cut back on its balance sheet ie not just stop buying government bonds to keep bond yields down but actually to sell bonds, leading to rising yields.
Nagel goes on: “there is an energy price shock, the effects of which the central bank cannot change much in the short term. However, monetary policy can prevent it from leapfrogging and broadening. In this way, we are cracking the inflation dynamic and bringing the price development to our medium-term target. We have the instruments for this, especially interest rate hikes.”
All this macho talk by central bankers hides the reality. Hiking interest rates will not work in bringing inflation rates down to target levels without a major slump. That is because the current 40-year inflation rates have been mainly caused not by ‘excessive demand’ ie spending by households and governments, but ‘insufficient supply’, particularly in food and energy production, but also in wider manufacturing and tech products. Supply growth has been constrained by low productivity growth in the major economies, by the supply chain blockages in production and transport that emerged during and after the COVID slump and then accelerated by the Russian invasion of Ukraine and economics sanctions imposed by Western states....
....MUCH MORE
