February 22, 2010

Smoking more so as to be able to quit smoking more sounds like the wrong way to go.

Sir Wolfgang Münchau makes reference to a paper co-authored by the chief Economist of the IMF that proposes increasing the inflation target from 2 to 4 percent and is correct when titling the article “Inflation must not become a moving target” February 22.

To talk about higher inflation target so as to have more room to manoeuvre is like increasing the cigarettes smoked just to make it easier to cut the number of cigarettes smoked.

We could perhaps understand if what could be labelled as a “pro-growth” proposal had come from a development institution like the World Bank, but to hear it come from the IMF just evidences the utmost confusion this financial crisis has caused.

Also defaults, restructurings and high inflation are, though nasty and unwelcomed, quite effective tools when taking care of debt overhangs but, that said, what you least do is to preannounce them since that allows for the build-up of defensive positions that will only make the final battle so much bloodier.