The ‘enfants terribles’ of the economy who rebel against central banks: “Continuing to raise rates is irresponsible”

Just because central banks have a hammer does not mean they have to destroy the economy with a hammer .” The Nobel Prize winner in Economics, Joseph Stiglitz, said it at the beginning of the year in El País , and he attacked them again. A few days ago, after both the European Central Bank (ECB) and the Federal Reserve (Fed) announced new increases of rates , despite the banking earthquake. Central banks use monetary policy as a tool to guarantee price stability. The problem is that there are times when the remedy they sell may be a fix for a tear. One of the inescapable postulates of economics is that inflation is a monetary phenomenon , so central banks are in charge of stopping it (with the hammer of interest rates ). But the orthodox theory has been questioned on more than one occasion.

It is irresponsible to ask for new interest rate increases

It is a wrong decision in the face of the economic slowdown and the incipient financial crisis,” Veronica Nilsson, acting Secretary General of the TUAC, warned last week. “It is not the right instrument” food, supermarket, fruits and vegetables The hegemonic discourse, inherited from the theories of Fisher and Friedman , is based on the fact that the only important Greece Mobile Number Database cause of inflation has to do with an excessive increase in the rebel against central amount of money, and that, therefore, the only cure would be to withdraw that market money. As? Making it more expensive (raising rates). Raising rates means pouring cold water on consumption. But what happens when what causes inflation is not demand? In the case of Europe, the origin of the conflict is in the high price of basic products, such as energy.

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The cure can be worse than the disease

He summarized a few days ago. “The cure can be worse than the disease” If European economies are burning. Right now, it is not because of excessive. Consumption that has triggered prices, but because of a problem of lack of supply derived from the supply crisis . In other words, prices rise because there is little supply, not because there is too much demand. “Monetary policy does not address the underlying source of the problem. It will not solve supply German phone number list bottlenecks, that would require sectoral credit allocation policies. It can rebel against central only make things worse,” adds Stiglitz. ” It is as if you are diagnosed with a disease in your leg , and the solution that. The doctor gives you to cure it is to amputate it,” illustrates Gonzalo. Bernardos, Professor of Economics at the University of Barcelona.

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