Commentary on Political Economy

Wednesday 11 August 2021


 I have a HUGE library... texts and articles are available from z library... an illegal site, obviously, but a lifeline for me! Le. It is a nefarious crime that people can be prevented from using libraries by copyright and other obstacles to scholarship... Again, protecting intellectual property is a highly invidious task... because, as I explained, the real cost of a material operation can be established fairly easily (though not if you are Transurban!), but valuing intellectual rights is as arbitrary as buggery. Ultimately, intellectual property becomes a stonemill around the neck of society: an abuse that perpetuates privilege and condemns vast numbers of "underprivileged" to servitude or bondage.

Without an academic post, without student status, I would have no access whatsoever to books, except through public libraries. But they don't make digitised works available! So you have to attend libraries personally (impossibly time-wasting), and pray that a text has not been borrowed or vandalised or stolen!... We are back to the Dark Ages!

This piece illustrates what happens when “the nanny state” is used to enable anarchy, at the expense of living standards, and to praise the absentee state. The last lines are … in line with what I’ve been arguing:

“Businesses passing the buck to politicians; politicians passing the buck to judges. Where’s that “nanny state” when you need it?”

Nice little précis on the incongruity of asset price hikes and low yield. Because of the term structure of interest rates, high asset prices and negative real rates force asset owners to extend credit, via corporate bonds, to borrowers who are less likely to pay the interest, let alone the principal. Eventually, the house of cards must collapse. Central banks can stem the cascading tide so long as the panic is not widespread. One stratagem is to declare a bank holiday or to expand bond purchases - the Fed now holds 8 trillion dollars in bonds - which flattens the bond curve and keeps rates low. This "buyer of last resort" strategy is torn to shreds, however, when asset prices stall because capital owners want to realise their holdings, that is, turn them into real possessions with productive power. But any such move quickly fuels inflation, which then puts central banks in the impossible position of either fueling further inflation and destroying the currency, or else raising interest rates, which results into financial Armageddon. (Remember the saying falsely attributed to Lenin by Keynes: " the best way to undermine a state is to destroy its currency".) 

"The Real Upshot", which is omitted in this piece, is that what ultimately collapses the financial realisation that asset prices constitute "fictitious capital", that is to say, capital that cannot be employed because yields are negative when in cash, or threatens to go up in smoke if invested to produce anything at all! At that stage, as Mark Twain put it, the problem is no longer the return ON capital, but the return OF capital!

It's not just Evergrande. One by one, the wheels are coming off the equity bandwagon, and the Indians are circling ominously the besieged caravan... Essentially, the prices of just about every stock depends on indefinitely low interest rates. But central banks simply cannot keep buying bonds, because the entire point to doing so is that the sellers are paid with cash that they can then deploy to buy productive assets. Yet, as I said above, any attempt in that direction will fuel inflation, which leads to the central bank dilemma described above.

The world is watching as China’s Delta outbreak hits an already vulnerable economy

Stephen Bartholomeusz

Stephen Bartholomeusz

Senior business columnist

August 11, 2021 — 11.59am



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For our free coronavirus pandemic coverage, learn more here.

The Delta variant of the coronavirus has dashed hopes of a smooth recovery in global growth with China, first in and first out of the plunge in economic growth last year, now facing new threats as outbreaks of the virus hit an economy with pre-existing challenges.

There has been a new wave of infections across China since last month’s outbreak in Nanjing – they are now at seven-month highs – which the authorities have responded to with lockdowns, travel restrictions and limits on entertainment and large gatherings.

China’s tough approach to the pandemic and the impact it will have on activity means the new outbreak will have some dampening effects on growth and not just within China but within its major trading partners’ economies and global supply chains that connect China’s economy with the rest of the world.

China’s tough approach to the pandemic and the impact it will have on activity means the new outbreak will have some dampening effects on growth and not just within China but within its major trading partners’ economies and global supply chains that connect China’s economy with the rest of the world.CREDIT:AP

A number of conferences and other major events have been cancelled – the 2021 Beijing Cyber Security Conference (for which tens of thousands of attendees were expected) and the annual World 5G Conference among them – as the authorities roll out the draconian playbook they so successfully used to get last year’s outbreak under control.

That would inevitably have had an impact on economic growth that had been rebounding strongly.

In the first quarter of this year China’s GDP grew 18.3 per cent (a rate somewhat exaggerated by its comparison with the worst of the pandemic effects last year) before slowing to a still very strong 7.9 per cent in the June quarter.

The economy had been expected to grow at a rate just below 7 per cent in the third quarter and for something close to 9 per cent for the full year. Now forecasts are being cut quite sharply to reflect an expectation that full-year growth will be closer to 8 per cent than 9 per cent, after third quarter growth of less than three per cent.

It’s not just Delta, although China’s tough approach to the pandemic and the impact it will have on activity means the new outbreak will have some dampening effects on growth and not just within China but within its major trading partners’ economies and the already-disrupted global supply chains that connect China’s economy with the rest of the world.


China’s move will add about 1 trillion yuan to its banking system.


Global economy

Does China know something the rest of the world doesn’t?

Stephen Bartholomeusz

Stephen Bartholomeusz

Senior business columnist

China, pre-pandemic, was focused on reducing the leverage and risks within its economy – continuing legacies of its response to the 2008 financial crisis – and trying to shift its balance away from a reliance on exports to a greater contribution from domestic consumption.

It was forced by the pandemic to reverse course, using fiscal and monetary stimulus to blunt the worst impacts of the pandemic.

As the economy roared back in the second half of last year on the back of extraordinary global demand for its medical equipment and supplies and, subsequently, consumer goods it refocused on domestic risks.

Its debt-to-GDP ratio had blown out from 255 per cent in 2019 to about 280 per cent, which probably significantly understates the ratio, given that China’s local governments are masters at raising “hidden” off-budget debt.

The initial waves of the pandemic, coupled with the continuing after-effects of the trade and sanctions wars between the US and China and the additional layers the Biden administration has added to both, caused enormous and continuing disruption to global supply chains. The shortage of semiconductors, in particular, is disrupting production of complex manufactures, most notably (but far from exclusively) automobiles.

China’s economic rebound faces a big challenge as it deals with a Delta outbreak.

China’s economic rebound faces a big challenge as it deals with a Delta outbreak.CREDIT:BLOOMBERG

As the world’s key manufacturing base, that has had particularly significant impacts on China.

The boom in demand for consumer goods, and China’s own stimulus measures, also sparked a boom in demand for raw materials.

Commodity prices – like oil and gas, coal and iron ore – have rocketed. It hasn’t helped China’s manufacturers that its ban on Australian coal, coinciding with efforts to reduce China’s carbon intensity, has helped drive up the cost of energy.


The two nations are vying for supremacy in the 21st century technology revolution. 


Superpower showdown

Robots, electric cars and face-scanners: China and the US vie to build the future

Factory-gate inflation has been surging – it rose 9 per cent last month – and is feeding into higher core inflation more broadly despite the authorities’ efforts to dampen the commodity price rises with its threats of action against hoarding and speculation and its releases of commodities from its strategic reserves.

That will impact the profitability and stability of China’s industrial sector even as the authorities’ extraordinary assault on the big end of their tech sector disrupts, destabilises and destroys wealth in the fastest-growing segment of the economy.

The combination of slowing growth, rising inflation and corporate and market instability isn’t a good one in an economy over-laden with debt and with some of its vast state-owned and private conglomerates, like Huarong and China Evergrande, teetering under the weight of their own debts and questionable assets.

When the People’s Bank of China cut bank reserve requirements in July – before the Delta mutation emerged in China, or at least was visible outside China – it raised eyebrows given the rate of growth then occurring within the economy. Injecting liquidity into its banking system is usually China’s first response to financial or economic threats.

The obvious conclusion was that either the efforts to crack down on excessive leverage might be having some adverse consequences or the economy was slowing more significantly than the authorities were comfortable with, or both. With hindsight, the Delta outbreak could have been the other key motivation.

Just as there is no likelihood that a post-pandemic future will resemble its pre-pandemic condition anytime soon, economies are going to be continually disrupted to various degrees – as Australians can attest – by the evolving course of the pandemic.

It is likely the authorities will relegate leverage and inflation to second-order issues as they respond to the slowdown in the economy. Social stability has always been their priority.

More cuts to the reserve requirements and interest rates and, perhaps, some targeted fiscal stimulus may be on their agenda for the rest of this year as they try to put a floor under the economy that enables them to deliver the 6 per cent-plus GDP growth rate they have been targeting for the post-pandemic environment.




Global economy

China’s tech crackdown has wiped out trillions - and could shut a crucial door to the US

Stephen Bartholomeusz

Stephen Bartholomeusz

Senior business columnist

While some of China’s challenges are peculiar to China (because, despite its growth, it is still in a developing phase and because of the levels of state intervention and control) the impact of mutations of the coronavirus is one that every economy is going to have to deal with for the foreseeable future.

Just as there is no likelihood that a post-pandemic future will resemble its pre-pandemic condition anytime soon, economies are going to be continually disrupted to various degrees – as Australians can attest – by the evolving course of the pandemic.

China has been prepared to implement measures that most western nations wouldn’t contemplate to get the coronavirus under control and its government plays a far larger and more central role in its economy than is the case in the West.

How the world’s second-largest economy and Australia’s major trading partner fares in dealing with the Delta outbreak and the threat to its people, growth and stability may be of, not just great interest, but real consequence for the rest of us.

Private school owners forced to hand institutions over to Chinese state

Fallout from Beijing’s education overhaul ripples across the country

Schoolchildren in Guangdong province

Schoolchildren in Guangdong province. China’s education reforms are a striking change after years of liberalisation © Reuters


August 11, 2021 12:32 am by Sun Yu in Beijing

Rising numbers of private school owners in China have been forced to give their institutions to the state as the fallout from Beijing’s abrupt education overhaul ripples across the country.

Over the past three months, city authorities have taken over at least 13 for-profit primary and middle schools as well as one high school without providing compensation, according to public records and Financial Times interviews.

“I didn’t have a choice,” said the owner of a school who handed it over to state controllers last week.

China has almost 190,000 private schools, educating more than 56m, or one-fifth of all students, according to official figures. There are more than 12,000 primary and middle schools.

Beijing wants to reduce the proportion of non-high-school students attending for-profit schools from more than 10 per cent to less than 5 per cent as soon as the end of this year, according to people familiar with the discussions.

“The top leaders do not believe private schools serve the greater good,” said a Beijing-based government adviser. “Public education does.”

The $100bn-a-year private tutoring industry has been the most obvious victim of the creeping nationalisation of China’s large for-profit education sector.


China’s ‘Godfather of education’ faces existential test

Beijing’s decision to ban private tutors for primary and middle school students from earning a profit has sent the share prices of Chinese education companies tumbling and slashed their market value by billions of dollars. Annual earnings for the tutoring industry have been forecast to fall from $100bn to less than $25bn.

The problem for private sector owners of junior and middle schools has become more acute since May, when Beijing told local governments to “rectify” their runaway expansion.

“We must make sure public schools are the main compulsory education provider,” said a circular sent by the central government to lower-level authorities, adding that Beijing would encourage the conversion of some for-profit schools into public ones.

The industry overhaul has raised concerns over the violation of private property rights. There are also fears the measures will undermine the quality of education, as many cash-strapped local governments struggle to keep previously well-managed private schools afloat.

“It is true that our industry has many problems but a state-led takeover is not the solution,” said Alex Li, owner of a middle school in Shandong province in eastern China. He is also under pressure to transfer his operation to the local education authorities.

The education reforms marked a striking change after years of liberalisation. Over the past two decades, China’s private primary schools grew 10-fold, teaching about 9.5m students in 2019.

Children at a private school on outskirts of Beijing

The problems for private sector owners of junior and middle schools became more acute after Beijing told local governments in May to ‘rectify’ their runaway expansion © EPA

Parents’ preference for private schools is more pronounced in rural areas, where they believe a lack of funds for public schools has damaged the standard of education. In some counties, as many as half of the students are educated privately despite higher fees.

“Private schools are in general better managed than public ones because the former counts on good performance to attract students,” said Liu Qian, a Beijing-based marketing executive.

As a child, Liu transferred to a private middle school in the central city of Changsha from a state-backed rural school in a nearby county. “I wouldn’t have been able to go to college had I not made the switch,” he said.

Beijing, however, grew uncomfortable with the sector’s rise. Government advisers maintain that the sector’s development has led to worsening inequality and has made it harder for the Communist party to control what is taught.

“Private schools are supposed to be a supplement to public education,” said Wang Feng, an official with the Ministry of Education, at a conference in June. “Now they are competing against each other for good teachers and talented students.”

Some parents believed the state takeover of private schools would address education inequality.


China’s young ‘lie flat’ instead of accepting stress

“The rise of expensive private schools is making it harder for students of modest means, who mostly go to public schools, to move up the social ladder,” said Yang Ping, a Zhoukou-based office worker whose son studies at a state primary school. “I support the new policy because it will create a level playing field.”

Officials admitted it would be difficult for underfunded public schools to host an influx of students if private schools closed. Nor was it possible for cash-strapped local authorities to buy out private school owners.

The only solution, said the government adviser in Beijing, was for private schools to relinquish their operations to the state.

In Zhoukou, central China, an executive at Huaiyang No 1 High School, known for its stellar academic performance, said he had no problem donating the institution to the government because it was “in the public interest”.

Beware fairy tales about inflation

There are signs we will soon have to worry about rising prices despite reassuring central bank forecasts

James Ferguson illustration of Chris Giles column ‘Beware fairy tales about inflation’

© James Ferguson


August 10, 2021 3:45 pm by Chris Giles

Financial markets believe in Goldilocks. Having become more concerned about inflationary pressures over the first five months of the year, their current consensus is that price rises in the US and other advanced economies will be neither too hot nor too cold in the years ahead.

The gap in yields between nominal US government bonds and inflation-protected bonds has settled at a little over 2 per cent for the next 10 years. As Goldilocks would say, that is “just right”, allowing a high-pressure economy to maintain robust jobs growth and a gradual normalisation of monetary policy.

But reality is messier than fairy tales. In the second quarter, prices rose at rates not seen in decades. In the US, the annualised rate of core inflation rose to 8.1 per cent, its highest level in any quarter since 1982. Across the OECD advanced countries, the inflation rate in the quarter rose to a level not seen since 1995 and even in inflation-obsessed Germany, annualised inflation increased at its fastest pace since the early 1990s post-unification boom.

Line chart of US 10-year breakeven inflation rate (%) showing US financial markets have become much more relaxed about inflation since May

Central bankers insist that there is little to worry about. Higher inflation is “transitory”, they say, adding that monetary stimulus is still required to enable a strong recovery from the coronavirus crisis. They see the risks of tightening policy too early, leaving economies too cold, as worse than those of leaving things a bit late.

For Japan and the eurozone, their assessment appears well-founded, since both economies have been plagued over the past decade by persistently low inflation.

More widely, the consensus among policymakers is also grounded on some firm evidence of temporary problems in the global economy. A significant part of the recent jump in prices has come from bottlenecks in global supply chains, especially in semiconductors. Raising the price of imported goods and domestic manufactured products, this surge in costs will bring new investment in manufacturing plants and, eventually, its own cure. Increased spread of the Delta variant of Covid-19 is already moderating the recovery in household spending.

Line chart of Consumer price index (excluding food and energy), change, QoQ annualised (%) showing Core inflation in the second quarter rose to levels in advanced countries not seen for decades

But the wider case that inflation is under control is not built on similarly firm foundations in the US and UK and it is important to understand the assumptions, often implicit, that underpin the view that inflation will become much better behaved in the quarters ahead.

It is well known that both countries pursued aggressive fiscal policies after the pandemic started, seeking to compensate companies and people for their inability to work as normal. The IMF expects a US fiscal deficit of 13.3 per cent of gross domestic product in 2021, with the UK not far behind on 11.7 per cent, both considerably more generous than the eurozone at 7.9 per cent. Combined with Covid-19 restrictions, these high levels of fiscal support have resulted in higher levels of “excess savings” than in most European countries, according to the IMF.

There is nothing inherently dangerous about excess savings, especially since consumers in the US and UK are usually criticised for being too quick to spend. But it does mean that there is quite a risk of a surge in private spending coming with a decline in the prevalence of the virus. Reassuring forecasts depend on officials being correct that the fiscal authorities have calibrated support almost perfectly. As the IMF says about its own predictions: “The forecast assumes a smooth handoff from extraordinary policy support to private-activity-led growth, with a gradual drawdown of excess savings.”

The fund said that more money had accumulated in countries with traditionally low savings rates, so households there demonstrated they were likely to be rebuilding their finances. But the opposite deduction — that UK and US households with cash to spare traditionally spend it — is more plausible.

Labour markets are a second area of inflationary concern on both sides of the Atlantic. Changing its guidance last week, the Bank of England said that some “modest” rises in interest rates would be needed over the next three years, because it was no longer concerned about a rise in unemployment as much as ensuring a smooth flow of people into jobs. In the US, the labour market data similarly show job vacancies and quits at record levels, suggesting it is extremely tight despite high levels of unemployment.

Neither in the US nor in the UK is underlying wage growth yet suggesting high inflation will be persistent, but if employers continue to require more staff and the assumed surge of people back into the labour market does not materialise, continued wage and price increases will be the result.

These considerable risks in the balance between demand and supply come at a time when the ageing workforce in China suggests it will not be the force for global deflation it once was, and the retirement of the large baby-boomer generation will gradually shift the balance further towards consumption in advanced economies.

None of this suggests we are heading towards the wage and price spirals of the 1970s, but it does point towards a future in which we need to worry more about inflation than in recent years.

Mistakes are likely to happen and should be expected. The fact that financial markets expect the authorities to judge things perfectly is, itself, a reason for concern.

As you can see, Western capitalist governments are losing control precipitously of essential services that are easily attacked by "rogue" states... One is led to wonder: who exactly are the "rogue" or mafia states? The ones that steal the loot enabled by "lawful legitimate" (Western) states? Or these Western states for "enabling" the loot in the first instance through uncontrolled anarchical privatisation of what are unavoidably "vital" social functions. And by enforcing, through monopoly imposition of these new "technologies" and intellectual property, rapacious transfers of wealth from the global periphery to the capitalist metropole?

Meanwhile, of course, rogue or failed states are sprouting the world over, perilously turning the Cold War into a very unstable... Hot Peace...

In the piece linked above, Paul Kelly laments the growing protectionism of the West and the even faster spread of poverty and distress in the rest of the world. By not allowing migrant workers to become temporary workers in their territories, Western governments are forced to deindustrialize their domains and transfer manufacturing to the periphery. But this strategy has its limits, because inferior employment in the core, the enabling of rogue dictatorships in the periphery, and the disconnect between the Western ideology of human rights and the reality of middle class pauperization lead to unmanageable social and political instability in the Western core and the intensifying pillage of peripheral domains through the imposition of "unequal exchange", "value-adding technologies" foisted on the damned of the earth. The bill for this abuse, in geopolitical conflict and environmental degradation, is now coming in.

Right on this topic, a timely confirmation of Kelly's thesis:

McCrann is certainly of the view that private vs. public is a fictitious opposition. All depends on the strategic role and the governance of specific industries. The best teachers are in public schoos, because for tenured staff the certainty of employment beats higher monetary rewards for precarious temporary contracrs! True, a large part of what Xi is doing with private schooling in China is ideological control. But the alternative would be uncontrollable social conflict as poor families are left to gamble meagre resources on shrinking and often nonexistent "career opportunities"!

If someone from the Victorian government had said to me, or Paul Ferraro, that Victoria was going to extend law schools to... TAFEs!... we may have taken different paths... Paul once said to me, after I had quit: "Joe, I would rather have been a truck driver!" 

That's what we call in legal parlance "an open and shut case".

When Wile E. Coyote runs out of ground under his feet, at first he keeps moving because he doesn't look down... It is only an instant later he realises that there is no ground under his feet... and he is headed down into the abyss.

As "profitable" opportunities evaporate - profitable means able to command human living labour "realistically", not by hot air -, then investment moves into sheer "mystique". Just listen to the bullshit behind this latest venture backed by the delusional supremo of Aussie politics, Mr. Rudd:

"The company, which has built an education network designed to accelerate and prepare students for placement in universities such as Harvard and Oxford, is looking to invest in its technology infrastructure and expedite growth in developing countries such as Turkey and India, and throughout the Middle East."

So, you don't just get the supreme bullshit of mixing up education and "technology" (how in the universe is that possible?)... You actually even get the superlative insanity of "education technological infrastructure"!

And all this for the chimeric goal to send kids to Harvard and the like, at the time where career opportunities are quite simply evaporating much faster than midday mist in an Alpine valley... on a perfect sunny day!

Thankfully, Rudd and co. plan "to expedite growth in" some of the poorest regions of the globe! Poor bastards...

And this is the original bullshit artist behind this "scheme"... Faccia da tomboloni!

John Authers:

Employers are behaving as though the labor market is already tight, even though it plainly isn’t. It’s conceivable that this is just a transitory effect as people work out how their lives will change when and if the pandemic is finally over. It seems more likely, however, that the balance of power is shifting toward​ labor. That could be great for the ills of society, but will put upward​ pressure on inflation.

"What should we make of this? The debates over meme stocks and cryptocurrencies are riven with abuse of boomers who, according to the younger generation, just don’t get it. There is something to that in this case. Baby boomers’ spending and investment decisions have created problems that will make for a much worse deal for the generations who follow them, and if they now anxiously start buying to head off future inflation, that will be one more fine mess they have dumped on their juniors.

The point is that asset price inflation eventually has to translate into real inflation as people like us begin to spend! That will only make the task of central banks and the stability of the financial pyramid utterly and catastrophically impossible.

Or, alternatively, those over 60 have a clear memory of real, significant inflation and the mess it could cause their lives, and they grasp, unlike the millennials, how high the stakes are, and how bad things could get. The lines are unlikely to stay so far apart for long. Let’s hope they rejoin via a fall in the blue line, rather than a rise in the red one."

Fubini at Corriere deserved the moniker... "furbino" or furbetto: he says exactly what I'm saying:

Il regime cinese «protegge» i bambini dai videogame. E no

di Federico Fubin

10 agosto 202

Stop ai videogiochi per i bambini e tasse più elevate. Ma la preoccupazione del Partito comunista cinese ha un sapore equivoc

C’è un Paese così convinto che i bambini siano una risorsa scarsa da proteggere, che cerca di limitare la loro dipendenza dai videogiochi. Non è l’Italia. È la Cina, dove le tendenze demografiche più recenti somigliano sempre di più alle nostre: meno 32% di nascite dal 2016, al punto che il numero di figli per donna è ormai pari a quello — bassissimo — dell’Italia. Le sue politiche per la natalità non sono più efficaci delle nostre, ma il governo di Pechino sembra dedicare una cura particolare alla formazione psicologica dei pochi bambini che ci sono. Tencent, il colosso digitale cinese, ha appena annunciato nuove restrizioni su richiesta delle autorità: i minori di 13 anni non avranno accesso ai videogame per più di un’ora al giorno. I media di Stato definiscono ormai quei giochi «oppio spirituale» per i ragazz

La preoccupazione del Partito comunista cinese per i più piccoli naturalmente ha un sapore equivoco. Il regime vuole impedire che i videogiochi controllino le loro coscienze solo perché considera quel potere un proprio monopolio. Il Partito comunista non cerca di far sì che le persone crescendo imparino a essere libere, intende solo sottometterle alla manipolazione che preferisce: la propria. Eppure la scelta di limitare la dipendenza dei bambini dai videogiochi e dai giganti della Rete pone anche a noi occidentali domande difficili sul modo in cui definiamo la nostra educazione alla libertà. Di certo il governo di Pechino è chiaramente preoccupato che, con la loro ascesa, le Big Tech cinesi diventino un contropotere autonomo nel Paese. L’ultima mossa per contrastarle è la fine degli sgravi fiscali straordinari, che di fatto alza il prelievo sui profitti di Tencent o sul gigante dell’e-commerce Alibaba dal 10% al 20%. Anche in Europa e negli Stati Uniti si discute dell’esigenza di far pagare alle Big Tech tasse su aliquote più simili a quelle delle altre imprese. Ma per ora stiamo solo cercando la forza di farl

When will these analysts understand that it is much too late for any kind of "taper" without a full-scale financial collapse? The term structure of interest rates is not something that you can "taper" once zombie finance has corrupted every corner of economic life!

The Fed Is Watching How the BOE Inches to a Taper

No one remembers the 2013 tantrum with affection. So how Bailey approaches the end of the U.K.’s QE program may inform how Powell proceeds with his.

By Marcus Ashworth

11 August 2021, 1:00 pm GMT+8

Updated on 11 August 2021, 3:15 pm GMT+8

Bank of England Governor Andrew Bailey: Looking for a green light.

Bank of England Governor Andrew Bailey: Looking for a green light. Photographer: Chris J. Ratcliffe/Bloomberg

“Some modest tightening of monetary policy over the forecast period is likely to be necessary” was how the Bank of England worded the forward guidance at its quarterly review on Thursday. It sounded like tough talk. Indeed, the BOE is the first of the major central banks to set out a template for reducing stimulus, with parameters for when the flow of quantitative easing will stop, when the balance sheet will be allowed to naturally taper — and even when it will be actively sold down.

But, in reality, the BOE is playing for time. What Governor Andrew Bailey has done is set out his shop stall for others to peruse. The others being fellow central bank chiefs preparing for their annual conference at Jackson Hole, Wyoming from Aug. 26 to 28. They are just as focused as Bailey on how markets and economies will respond when they finally have to roll back their own stimulus programs. 

o.i.o1ii? farlo.

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