R.A.,
regarding Bernanke’s Jackson Hole speech, your column notes that you “found the
tone on monetary policy to be confusing and timid.” Expectations now turn to
what President Obama will say next week and what the Fed will do (or not do)
when they next meet. Uncertainty again prevails.
 |
| Alexander Mirtchev |
Without
sounding trite, we are in need, as the old adage goes, of “one-handed
economists” in a situation like this. In the wake of the global financial and
economic crisis, governments are aiming to jump start growth by supporting
consumption, stimulating the economy and encouraging exports. To do this they
need to keep their currencies relatively weak. In the US (and Europe) currency
debasement is taking the form of “quantitative easing.” Despite recent
statistics showing some respite from global inflationary pressures, governments
worldwide, including the US Fed, should be increasingly concerned about the
inflationary impact of their policy responses – i.e., QE3 -- to flagging
economic recovery. Further, the actions currently considered by governments and
central banks are pretty much the “two-handed economist’s approach.” Rather
than building a bridge over the river, they end up building a bridge alongside
the river. In essence, the measures are of a stop-gap nature, and what is
needed is a set of radical actions to address the structural weaknesses that
are imperiling the global economy.
As
the US Fed continues to ponder QE3, they should consider that inflation is a
factor of global economic security that has the innate capacity to upend
carefully laid plans and further upset the equilibrium. Worryingly, none of the
responses that have emerged so far appear capable of addressing the economic
security risk of creating inflationary pressure in a period of stagnating
growth. Addressing these issues would inevitably require structural changes in
the developed economies that do not just scratch the surface but address the
integral sustainability of the global economic model that prevails at present.
Dr.
Alexander Mirtchev, Executive Chairman, Royal United Services Institute for
Defence and Security Studies (RUSI) International
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