Economic Policy Turned Inside Out

Unsustainable economic imbalances combined with financial engineering to reduce interest rates and currency values, could threaten the global economy, suggests economist Stephen S. Roach, a senior fellow at Yale University’s Jackson Institute of Global Affairs. The essay focuses on Japan’s struggle since 1985 to revive its economy by relying on monetary policy. In 2002, the US Federal Reserve suggested that Japan did not go far enough. The United States and Europe have since joined Japan in monetary policies known as quantitative easing and stimulus spending. “Not only have wealth and currency effects failed to spur meaningful recovery in post-crisis economies; they have also spawned new destabilizing imbalances that threaten to keep the global economy trapped in a continuous series of crises,” Roach cautions. He concludes that the reliance on monetary policy – without structural reforms – risks global asset bubbles and currency devaluations that will result in ongoing stagnation or worse. – YaleGlobal