Why will interest rates likely rise in the US under the new impending chair of the Federal Reserve, Jay Powell? Because he is tall. Or so says financial journalist and editor of The Constant Investor, Alan Kohler.
The ABC last week reported that US interest rates, far from being connected to political events or changes in the economy, are correlated to the heights of the respective Fed Chairs who sets them:
“The tallest was Paul Volcker (who was Fed Chair) in the early 80s at six foot seven, he took interest rates to 16% to crush inflation,” said finance journalist and editor, Alan Kohler.”Then Alan Greenspan, who was just six foot. Interest rates came down (to around 8%). Ben Bernanke, five foot eight brought them down even further (to 4%) and then under pocket-sized Janet Yellen – all of 5’3 – interest rates were lowest in history, although she has lifted the Fed’s fund rate by a full percentage point by now. Jay Powell is six foot. Rates are going to keep rising.”
With more than 46-years of reporting under his belt, Kohler is an authority on finance and a journalist of for whom I have great professional admiration, particularly for this piece he wrote on the impact of political dysfunction on Australia’s dwindling productivity. I have no doubt that he would be the first to tell you that there is a significant difference between correlation and causation. And while this segment might make for a nice whimsical piece of television, it simply doesn’t pass muster.
In reality, interest rate decisions have nothing to do with height and everything to do with central banks trying to return interest rates to what it perceives to be ‘normal levels’. In the US this is around 4%. Except as renegade economist and friend of the show, Professor Steve Keen will tell you, the levels of outstanding private debt are three-to-four times what it was when the Fed used to make 1% moves up or down, rather than a fraction of a percent. Rates should and will (with any luck) likely never return to previous levels and we should stop pursuing an equilibrium which no longer exists.
A rate increase will likely result in the following:
- Shrinking credit based demand.
- Significant deleveraging.
- Increasing unemployment.
- Lead the US and the global economy back towards the crisis from which it has never truly recovered.
Specialising in economics, technology and policy, Connelly is working on her first book and podcast series, How the World Really Works*. (*Title may be due to change). You can pre-order a copy here. #shamelessselfpromotion.
With more than a decade of experience under her belt, Claire has written for leading publications including The Australian Financial Review, The Saturday Paper, ABC, SBS, Crikey, New Matilda, VICE & others. She is the co-host of The Week In Start-Ups Australia, and features regularly as a commentator on TV and radio shows including Radio National's Download This Show, ABC's The Drum, Ten's The Project, and more.
How do you spend your days?
I am the editor-in-chief of Renegade and founder of Hello Humans, a subscription journalism experiment. I also freelance & consult for a number of publications of the editorial and commercial variety.I work from home. I am a bit of a work-hermit. I can mostly be found on the internet and at the dog park.
Why is this important to you?
Now more than ever, it is really important to make sense of the world around us. But in an age of information saturation it is becoming harder to distinguish the truth from bullshit. Part of the reason I am doing this is to help people differentiate between the truth and narratives being sold by people and organisations with vested interests.
I want to help people identify rhetorical red flags and immunise themselves against a sea of bullshit.
What drove you to focus on journalism?
I guess you could say my parents played a fairly big part in my becoming a journalist, much to their despair. Watching the news, reading the paper and listening to the radio was a compulsory activity in my household. My parents read me the paper before I could read.
Being engaged in the world around us was the way we repaid our debt to society.
They channelled the last of their politically active twenties and thirties into fostering our curiosity and distrust of authority. It wasn’t until I reached university that I fell in love with economics, politics and international relations.
Was there a particular moment you can remember that led you to this field?
The day Israeli Prime Minister, Yitzchak Rabin was assassinated, (the 4th of November 1995). I was 10. It was a weekend and I was in my winter school uniform complete with pinafor and scratchy tights. I played clarinet in the school orchestra and we were due to play at the old folks home. And I was pissed. And I said so.
The phone rang, and with tears rolling down her face, my mum turned to me and said the concert had been cancelled. Yitzhak Rabin, the Israeli Prime Minister had been killed.
I threw my stuff down and turned to get changed. But before I could my mum grabbed me firmly. I will never forget the look of disappointment on her face. She made some comment about how Rabin did not die for my convenience.
“You live in this house, you have clothes on your back and warm blankets and three square meals a day. You may not do anything with your education that we pay for, but you will be informed.”
She sat me down in front of the ABC and made me watch eight hours of assassination coverage. Little had I known the world was falling apart.
That day pretty much sealed my fate.
You can read more it here if you are interested.
What drives you professionally?
Justice. Egomania. Curiosity. And the fact there is no other profession more suited to my personality.
In your opinion what are the three biggest problems facing the developed and developing world?
Neoliberalism. Economic and social instability and insecurity. Banking fraud. Climate change. (Ok that’s four things. I never was very good at lists).
If you hadn’t become a journalist what would you have done?
My mum wishes I had studied law.
What led us to this moment in history?
We are living proof of a 30 year operation to permanently reduce the responsibility ofgovernment over the wellbeing of its constituents. You can read more about that here. (Link to neoliberalism piece).
What are the lessons we failed to learn during and since the 2008 crisis?
Austerity is a means of redistributing the profits in of productivity in which we all used to share to the world’s uber-wealthy.
The global financial crisis was one small step for man, one giant leap for the banking industry. It cemented financial crises as a permanent phenomenon and the formalisation of corporate revolution.
It signalled to the world that government exists only to support the private sector, triggering a wave of disillusionment which allowed neoliberalism to complete its task at hand: the complete and utter destruction of democracy, replacing it with a market society in which economics permeates every facet of modern life, from education to healthcare to law & order.
Even the military operates as a for-profit model, conveniently privatising any activity that sits outside the criminal justice system.
Some call the bail-outs of 2008 a failure of neo-liberalism. To the contrary, the private sector attained almost exactly what it set out to achieve: a system with no obligation to true economic recovery, that supports only profits and the corporations which generate them.
We keep voting for wealthy populist leaders thinking the knock-on-effects will put dollars in our pocket when the very opposite is true.
So long as voters continue to accept the mythic propaganda sown over the last 30 years that tax breaks & subsidies create jobs, deficits are bad, surpluses are good and that any instability is somehow the fault of the poor, our economic insecurity will only continue to increase.
Can you list some ‘baby steps’ out of the current economic mess?
A return to full employment.
A royal commission into the continuation of subprime mortgage fraud. (It didn’t go away after the GFC. In fact it was pretty much legalised).
Slash the cost of university degrees & create new pathways for the unemployed and underemployed to attain new skills and education.
Deficit spending to create infrastructure that will create the jobs of the future.
Support local agriculture.
Reduce private debt.
If you were a President / Prime Minister what would your first three pieces of policy be?
A job guarantee.
Re-introduce a price on carbon.
Legalise gay marriage.
Tell us something you have been wrong about?
I didn’t think that in 2017 that gay marriage and abortion would still be illegal in Australia.
Latest posts by Claire Connelly (see all)
- NATO itching for war with Russia - November 15, 2017
- Bean counters: Lost in Paradise - November 8, 2017
- Interest rate height correlation doesn’t stand up to scrutiny - November 7, 2017