December 07, 2007

Relaxed going down and relaxed going up

Sir Samuel Brittan afraid of overly tight monetary policies states in "That old Stagflation dilemma again" that when now cheap imports from China might be coming to its end that "the first job now is to convince people that monetary relaxations this winter in spite of rising inflation represent a tactical retreat and not the start of a headlong rout". He is right but we should not forget that the previously falling inflation, helped by China, was also used as support for monetary relaxation, and so the asset bubble resulted.