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.
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| 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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