If policymakers respond to every supply shock or geopolitical risk by repeatedly raising interest rates, the advanced Western economies will simply become poorer and poorer.
If advanced Western countries attempt to combat inflation through a policy mix of higher interest rates and expansionary fiscal policy without first excluding China's effective demand from the world economy, financial speculators on Wall Street will associate expansionary fiscal policy with accelerating inflation, leading to currency depreciation and even higher inflation.
Furthermore, repeated interest-rate hikes undertaken in the name of inflation control will squeeze corporate profits, making it increasingly difficult for nominal wage growth to keep pace with inflation. As a result, real wages will continue to decline.
As repeatedly pointed out before, this process will ultimately bring severe stagflation to the advanced Western economies.
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If policymakers respond to every supply shock or geopolitical risk by repeatedly raising interest rates, the advanced Western economies will simply become poorer and poorer.
If advanced Western countries attempt to combat inflation through a policy mix of higher interest rates and expansionary fiscal policy without first excluding China's effective demand from the world economy, financial speculators on Wall Street will associate expansionary fiscal policy with accelerating inflation, leading to currency depreciation and even higher inflation.
Furthermore, repeated interest-rate hikes undertaken in the name of inflation control will squeeze corporate profits, making it increasingly difficult for nominal wage growth to keep pace with inflation. As a result, real wages will continue to decline.
As repeatedly pointed out before, this process will ultimately bring severe stagflation to the advanced Western economies.
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