Stiglitz slams inflation-targeting

Agreed, "inflation targeting" by means of a Central Bank keeping interest rates artificially high is not the best way to do things; however... that is not to say that "growth targeting" by means of artificially lowering interest rates is any better.

At the moment, it is fashionable to target growth above all things, but that's a result of the bull market of the past decades; we've all got used to high growth and low inflation. People don't have (or don't remember accurately) experience of a high inflation environment.

We must realise that our current predicament is a result of a false growth curve brought about by massive debt, much of it for speculative purposes. This debt could only be serviced by earnings generated through other people's debt, which was similarly based on still other debt. It was a fictional growth curve that grew further and further from reality, and which is now in the process of unwinding.

Targeting only growth through forced monetary easing will likely work well in purely nominal terms; in other words, the numbers on your balance sheet will grow satisfactorily; but in a strongly inflationary environment, the real value of your balance sheet will certainly decline.

And the real problem with this is that (as some people DO remember only too well) inflation is incredibly sticky.

The global economic crisis comes from the "belly of the beast. The rampage economic policies that exist between the "Core and the Periphery" is highly unjust and have negative consequences on the development of poor countries. President Lula Da-Silva of Brazil argued during the G20 Summit held in London recently that the global economic crisis is the direct consequence of greed caused by "The White man with blue eyes". The shortage of trade credit, which allows exporters and importers to settle accounts, has been a factor in a sharp drop in global trade which is exacerbating the global economic downturn. Both the British and American banks should be held responsible and governments who are in cahoots with one another to established a deeply flawed model of commerce that produces fraudulent economic growth.......with very little scope for growth in a saturated global political economy. The ultimate blame lies at the overwhelming corrupt policies of the IMF and the World Bank, facilitated by corrupt politicians and "Captains of Industries" in the West, with an ambition of living a lavish lifestyle financed by the poorest of the poor in the world.

Conspiracy theories regarding the economic order are not helpful. The ongoing debate between development economists such as Sachs and Easterly reveals that rather than conspiracy, genuine lack of agreement on how best to alleviate poverty and inspire development lies at the heart of the failures of the IMF and World Bank.

What is true is that Western governments fear the backlash of their electorates should they drop protectionist measures and subsidies, particularly to farming communities (witness protests in France and the US).

I'm sure Stiglitz is right - many of the drivers of inflation are disconnected from the cost of credit. Administered prices in SA being a case in point and imported inflation being another.

What cannot be denied is that South Africa experienced a massive increase in consumer credit extension over the period 2005 to 2008. This contributed to inflationary pressure and as a side effect due to structural issues, put massive pressure of the South African balance of payments. I am sure Stiglitz would agree that raising interest rates was entirely the right course of action under these circumstances.