Don’t Tighten Economic Policies Too Soon
September 9, 2010 Leave a comment
There are many articles about the threat of a double-dip recession and the danger to react with the wrong policies now. The example of Japan’s lost-15 years is mentioned by the author of the FT article and highlights that the government and monetary authorities were too slow to react to sluggish growth and underestimated the effort that was needed to overcome many years of off-and-on growth.
There are three dangers right now that could hurt the world economy–1) the European debt crisis; 2) countries effecting fiscal and monetary restrictions too soon; and 3) slow growth across many countries increase unemployment.
Conclusion: monetary and fiscal authorities should not be too quick to deal with fiscal (deficit) and monetary growth (potential inflation) concerns until growth is re-established.