February 27, 2023

It seems as though the uncertainty in the financial markets is also being played-out in the real economy.

Wild swings in investor decisions based on the news of the day is the norm in financial markets, but it is usually based on more factors than just inflation and central bank interest rates.

It seems as though just as reality asserts itself to bring values down, untethered optimism creeps back in to drive values back up. Anyone who thought that the market is some sort of rational beast, even at the macro level, will now be questioning their beliefs.

The fluctuations here are driven by investors constantly betting in the wrong direction.

Why is this happening? Because the myth of control over the markets by the central banks has been upended in reality, but the lesson has not been learned yet.

Without state intervention into the production process (IRA is coming on-line soon and will be that kind of direct support in the USA) the situation will continue to be unpredictable.

We are seeing this in the level of surprise at the employment numbers, inflation numbers, and unemployment numbers. We are also seeing it in the housing market that is very dependent on the above.

The state's intervention into the economy will come slowly and just as the central bank is making sure that the gains of that intervention go to profits.

The interest rate discussion has to be moderated by the left. We have to talk about how we determine the real interest rate (the cost of business of banks) and what other things the state can do to intervene than rely on the central bank lever.

We have talked about it a lot, but workers need to demand higher wages and demand that the state intervene with investment in production.

The alternative is the continuation of strange conversations over monopoly pricing and hand wringing over income inequality. All the while doing nothing about it.