Stop Worshiping Central Banks Anis Chowdhury and Jomo Kwame Sundaram
Preoccupied with enhancing their own ‘credibility’ and reputations, central banks (CBs) are again driving the world economy into recession, financial turmoil and debt crises. Wall Street ‘cred’ Most CB governors believe ‘credibility’ is desirable and must be achieved by fighting inflation at any cost. To justify their own more harmful policies, they warn inflation is ‘damaging’. They argue CBs need ‘independence’ from governments to pursue ‘credible’ monetary policy. Inflation targeting to ‘anchor’ inflation expectations is supposed to generate desired ‘confidence’. But CBs have been responsible for many costly failures. The US Fed deepened the 1930s’ Great Depression, the 1970s’ stagflation…
Central Bank Myths Drag Down World Economy Anis Chowdhury and Jomo Kwame Sundaram
The dogmatic obsession with and focus on fighting inflation in rich countries are pushing the world economy into recession, with many dire consequences, especially for poorer countries. This phobia is due to myths shared by most central bankers. Myth 1: Inflation chokes growth The common narrative is that inflation hurts growth. Major central banks (CBs), the Bretton Woods institutions (BWIs) and the Bank of International Settlements (BIS) all insist inflation harms growth despite all evidence to the contrary. The myth is based on a few, very exceptional cases. “Once-in-a-generation inflation in the US and Europe could choke off global growth, with…
Ideology and Dogma Ensure Policy Disaster Anis Chowdhury and Jomo Kwame Sundaram
Central banks (CBs) around the world – led by the US Fed, European Central Bank and Bank of England – are raising interest rates, ostensibly to check inflation. The ensuing race to the bottom is hastening world economic recession. Going for broke New UK Prime Minister Liz Truss has already revived ‘supply side economics’, long thought to have been fatally discredited. Her huge tax cuts are supposed to kick-start Britain’s stagnant economy in time for the next general election. But studies of past tax cuts have not found any positive link between lower taxes and economic or employment growth. Oft-cited US examples…
Inflation Targeting Farce: High costs, moot benefits Anis Chowdhury and Jomo Kwame Sundaram
Policymakers have become obsessed with achieving low inflation. Many central banks adopt inflation targeting (IT) monetary policy (MP) frameworks in various ways. Some have mandates to keep inflation at 2% over the medium term. Many believe this ensures sustained long-term prosperity. The now universal 2% inflation target “was plucked out of the air”. This was acknowledged by Reserve Bank of New Zealand (RBNZ) Governor Don Brash who first adopted IT. The target was due to NZ Finance Minister Roger Douglas’ “chance remark” of achieving “genuine price stability, around 0, or 0 to 1 percent”. IT discord Heads of major central banks…
¿Retorno a los traumáticos años 80? Anis Chowdhury and Jomo Kwame Sundaram
Los países ricos suben las tasas de interés en un esfuerzo para vencer a la inflación, mientras los países del Sur en desarrollo luchan para hacer frente a la desaceleración económica, la inflación, esa elevación del valor del dinero y otros costos, además de la creciente angustia de la deuda. Las subidas de los tipos de interés de los países ricos han provocado salidas de capital, depreciaciones de la moneda y mayores costes del servicio de la deuda. Los problemas de los países en desarrollo se han visto agravados por la volatilidad de los precios de las materias primas, las…
1980s’ Redux? New Context, Old Threats Anis Chowdhury and Jomo Kwame Sundaram
As rich countries raise interest rates in double-edged efforts to address inflation, developing countries are struggling to cope with slowdowns, inflation, higher interest rates and other costs, plus growing debt distress. Rich countries’ interest rate hikes have triggered capital outflows, currency depreciations and higher debt servicing costs. Developing country woes have been worsened by commodity price volatility, trade disruptions and less foreign exchange earnings. Rising debt risks Almost 60% of the poorest countries were already in, or at high risk of debt distress, even before the Ukraine crisis. Debt service burdens in middle-income countries have reached 30-year highs, as interest…
How France Underdevelops Africa Anis Chowdhury and Jomo Kwame Sundaram
Most sub-Saharan African French colonies got formal independence in the 1960s. But their economies have progressed little, leaving most people in poverty, and generally worse off than in other post-colonial African economies. Decolonization? Pre-Second World War colonial monetary arrangements were consolidated into the Colonies Françaises d’Afrique (CFA) franc zone set up on 26 December 1945. Decolonization became inevitable after France’s defeat at Dien Bien Phu in 1954 and withdrawal from Algeria less than a decade later. France insisted decolonization must involve ‘interdependence’ – presumably asymmetric, instead of between equals – not true ‘sovereignty’. For colonies to get ‘independence’, France required membership of Communauté…
How NOT to Win Friends and Influence People Anis Chowdhury and Jomo Kwame Sundaram
After four years of Trump’s ‘America first’ isolationism, US President Joe Biden announced “America is back”. His White House has since tried to find allies against China and Russia. But it has not found many, especially in the Global South. His summit with Southeast Asian leaders was well attended, but promised little. Worse, his Summit of the Americas revealed fading US influence in its long-time backyard. Africa not aligned The latest U.S. Strategy Towards Sub-Saharan Africa (SSA) was expected to do better on the continent of Trump’s “shithole countries”. But it delivered little more than rhetoric. As with its Indo-Pacific Economic Framework for Prosperity, it is…
Stagflation: From tragedy to farce Anis Chowdhury and Jomo Kwame Sundaram
Half a century after the 1970s’ stagflation, economies are slowing, even contracting, as prices rise again. Thus, the World Bank warns, “Surging energy and food prices heighten the risk of a prolonged period of global stagflation reminiscent of the 1970s.” In March, Reuters reported, “With surging oil prices, concerns about the hawkishness of the Federal Reserve and fears of Russian aggression in Eastern Europe, the mood on Wall Street feels like a return to the 1970s”. Stagflation in the 1970s Worse, it seems few lessons have been learnt from the last stagflation episode. There is no agreed formal definition of stagflation, which…
April Fool’s Inflation Medicine Threatens Progress Anis Chowdhury and Jomo Kwame Sundaram
The world economy is on the brink of outright recession, according to the International Monetary Fund (IMF). The Ukraine war and sanctions have scuttled recovery from the COVID-19 pandemic. Over 80 central banks have already raised interest rates so far this year. Except for the Bank of Japan governor, major central bankers have reacted to recent inflation by raising interest rates. Hence, stagflation is increasingly likely as rising interest rates slow the economy, but do not quell supply-side cost-push inflation. IMF U-turn unexplained The IMF chief economist recently advised, “Inflation at current levels represents a clear risk for current and future macroeconomic stability and…