Are we reliving the 1930s or the 1970s? Looking at the catastrophe which has befallen Greece, it’s beginning to seem more like the former. The economic upheaval of the 1970s was pretty awful at the time, but ultimately, Western economies worked their way through the decade’s inflationary challenges to enter an unprecedented period of prosperity and economic advancement.
It’s much less easy to be optimistic about the outcome of today’s uniquely complex mix of economic conditions. Admittedly, there is as yet no comparison with the social deprivations of the 1930s, but even so, the inability of many countries to raise themselves out of their post-bubble slump makes comparisons with the pre-war era hard to avoid.
Everything up to and including the kitchen sink has been chucked at the problem, but still we are struggling to achieve escape velocity. Both in terms of fiscal and monetary measures, policymakers are all out of ammo.
The point has not been lost on the Bank for International Settlements (BIS) – often referred to as the central bankers’ bank. In its annual report this week, it draws the opposite conclusion to the one you might expect. If this were a 1930s-style slump, you might expect the BIS to support the present policy mix of ultra-loose monetary and fiscal measures. Instead, it sees this more as part of the problem than the solution. “The sooner advanced economies abandon the leverage-led growth that precipitated the great recession, the sooner they will shed the destabilising debt accumulated during the last decade and return to sustainable growth,” it says. “The time for public and private consolidation is now.”
Much the same strictures are aimed at the Bank of England, whose tolerance of relatively high inflation in pursuit of increasingly elusive growth is regarded by the BIS as dangerous and, if sustained, likely to trigger the kind of super-inflation seen in the 1970s. Continue reading and comment » | Jeremy Warner | Wednesday, June 29, 2011
