Tuesday, January 11, 2011

Indonesia Now...


From the Inflation Watch blog, under the heading Inflation scare growing in Indonesia, Dr. Duru writes:

...observers are citing growing inflation fears for the drop in the Indonesian stock market. The Indonesian Central Bank decided to hold interest rates steady for now, but economists and analysts seem to expect a rate hike program to finally begin after rates stayed at record lows for 17 months. As always, the trick is whether monetary authorities can act swiftly enough to stem the looming tide of inflation in the country. The monetary mentality has to rapidly switch from recovery to constraint.

That's the context in which this statement is delivered:

As always, the trick is whether monetary authorities can act swiftly enough to stem the looming tide of inflation in the country. The monetary mentality has to rapidly switch from recovery to constraint.

First, we have the As always. Yeah. Always we do the same thing, to fight inflation. That's where the problem lies. That's what I'm sayin, here and here and here and here. We cannot solve the same old problem with a solution that no longer works. We need a different solution.

Second, we have to rapidly switch from recovery to constraint. So lemmee ask: Where's the boom? Where is Anna Schwartz's buoyant economy? Where is the excess demand that is so often said to be the cause of inflation? Where is the approach to capacity limits? It's like the weather: One day it still feels like winter, and the next day it's hot as summer already. And everybody asks: What happened to Spring?

Why would anybody think we need to switch to constraint? Don't we need the economy to grow?? The only reason I can see, why anyone would call for constraint, is they don't know any other way to fight inflation. So the solution is to kill off growth.

As always.

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