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More global coordinations in economic policy requried

Comments on Stephen Grenville “Central banks have run out of answers”, 19/12/2012, http://www.businessspectator.com.au/bs.nsf/Article/Central-banks-US-England-BoE-monetary-fiscal-polic-pd20121219-34SAC?OpenDocument&src=sph&src=rot

It is more likely for monetary policy, such as the various forms of QEs adopted now by big central banks, to work if there is only one big ones to do it and most others didn't do it.

When all central banks are doing the same QEs all at once, then the effects in one country is offset by others in terms of lowering its exchange rates and raising its international competitiveness.

While at the moment this hasn't translated into global inflation, sooner or later it will occur, along with it, a possible race by central banks to rein in monetary policies to combat inflation and generate stagnant economies that will be a repeat of the stagflation in the 1970s following the first oil shock.

In a sense, the current situation has demonstrated that monetary policies have done more than they can do to achieve meaningful objectives and more than they should do. That is more than the limit of zero interest rate or the liquidity trap when only one faced that situation.

Given the current fiscal malaises in many advanced countries and the near zero effects of monetary policy and the longer term inflationary effects, now an even taller order is required of the global leaders and economic managers, that is, they must coordinate both monetary and fiscal policies and act just as the global is the one economy and they are managing that one economy as opposed to many individual and separate economies and competing against each other.

This requires that all major countries should have work together and design both fiscal and monetary policies together. It will be extremely difficult if not impossible outright. Otherwise, the global economy will be in doldrums for a long time to come.

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