|This editorial from Reuters says that central banks should raise
rates, even though unemployment is really high in the US and many
other countries.The reserve army of labor must be maintained!
New York TIMES / Reuters
Time to Tighten Loose Money
By IAN CAMPBELL and LISA LEE
The stagflationists are losing the argument. The world is inflating
and that’s a worry. But inflation is coming from growth that seems
increasingly strong and from money that’s looking far too loose for a
reviving world. The risk is that oil and other commodities will soar
much higher now, as they did in 2008, only this time the spike may not
The chairman of the Federal Reserve, Ben Bernanke, cannot be held
responsible for social unrest in developing countries. But there’s a
link between ultra-loose money and global asset prices. The Fed has
successfully pursued an ultra-loose monetary policy to help avert a
second depression. But the $600 billion printing looks like a
precautionary overdose whose inflationary influence is widespread.
Oil at close to $100 a barrel is injecting inflation into the world
economy. Political unrest is a secondary factor. Food and other
commodity prices — less sensitive to Middle East unrest — are also
surging. Global price increases are now a big risk.
The cause? Most Western economies are out of their hole and joining in
emerging economies’ growth fest. January’s report from the Institute
for Supply Management on the huge services sector of the United States
economy showed the strongest figure in six years.
There are problems here for both developed and developing economies.
As Charles Bean, deputy governor of the Bank of England, said last
week, if external inflation is very strong, then the central bank will
have little choice but to clamp down harder on domestic sources of
inflation, even in a still weakly recovering economy like
Britain. The president of the European Central Bank, Jean-Claude
Trichet, talked down expectations of a rate increase, suggesting that
energy-driven inflation would be transitory. If the world is indeed
gathering steam, he may be wrong.
Australia’s central bank has just raised its growth forecast for the
coming years. Rates are rising around the globe. China, India and
Brazil have tightened. So, too, has Indonesia. The West will have to
follow. For inflated asset markets there will be risks. But the shift
from ultra-loose to tighter monetary policy is going to have to happen