Finance Drives World to Stagflation

By Anis Chowdhury and Jomo Kwame SundaramSYDNEY and KUALA LUMPUR, May 10 2022 (IPS) The world is being pressed by financial interests to raise interest rates, ostensibly to check inflation. After the US Federal Reserve started raising interest rates, more central banks have been doing likewise. Considering inflation’s contemporary causes, such ‘follow the leader’ central bank mimicry cannot check it except by slowing economies. Worse, this has meant taking on huge new risks, seriously damaging world economic prospects in the medium and long-term. Anis ChowdhuryInflation bogey dangerous Much earlier, World Bank supported research had shown moderate inflation – in the range of 15–30% – was not harmful to growth, and could “be reduced only at a substantial cost to … growth”. Nonetheless, “The ratio of fervent beliefs to tangible evidence seems unusually high on this topic”. Unsurprisingly, central banks are still trying to keep inflation below 2% – an arbitrary target “plucked out of the air”, due to a “chance remark” by New Zealand’s finance minister then. Raising interest rates will derail recovery and worsen supply disruptions and shortages due to the pandemic, war and sanctions. European Central Bank (ECB) Executive Board member Fabio Panetta has noted the euro zone is “de facto stagnating” as economic growth has almost stopped. As policymakers struggle with inflation, growth and wellbeing are being subjected to huge risks. As Panet...
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