Cheap money no al­ter­na­tive to struc­tural re­forms

China Daily (Canada) - - TORONTO -

Spec­u­la­tions on ex­actly when the US Fed­eral Re­serve will raise in­ter­est rates are high, be­cause it could be a game changer mov­ing global mar­kets in sig­nif­i­cantly dif­fer­ent di­rec­tions. Spec­u­la­tions are also rife on why the Fed has dragged its feet on the mat­ter.

But the fact that the world econ­omy has still not emerged from the shad­ows of the 2008 global fi­nan­cial cri­sis should jus­tify an im­me­di­ate end to the un­prece­dented experiment of zero in­ter­ests that the US led the world into.

The sooner that hap­pens, the faster nec­es­sary re­forms can be im­ple­mented in all coun­tries and the bet­ter the chances will be for the world econ­omy to im­prove. The re­sult­ing elim­i­na­tion of un­cer­tain­ties in the global fi­nan­cial mar­ket, rather the world econ­omy as a whole, will be more than welcome for China which is im­ple­ment­ing far-reach­ing eco­nomic re­forms to sur­vive its dif­fi­cult slow­down.

Re­cent signs that an in­creas­ing num­ber of de­vel­op­ing economies are un­der ris­ing pres­sure of cap­i­tal out­flows have prompted calls for the Fed to post­pone the in­evitable for another cou­ple of months.

But each day has passed with in­vestors putting on hold big bets ahead of the Fed’s pol­icy meet­ing, with the world econ­omy a step be­hind on its long road to re­cov­ery.

Seven years af­ter the col­lapse of Lehman Broth­ers, aMin­sky mo­ment that forced ma­jor de­vel­oped coun­tries to print huge amounts of money to save their economies, the global re­cov­ery re­mains dis­ap­point­ingly frag­ile.

OnWed­nes­day and Thurs­day the Fed will hold a closely-watched meet­ing to de­cide whether or not to raise in­ter­est rates for the first time since 2006. The Fed has in­di­cated it will raise rates when it sees a sus­tained eco­nomic re­cov­ery, with em­pha­sis on jobs and in­fla­tion, in the US. But the com­plex eco­nomic scenes in the US, where the job mar­ket has im­proved some­what while in­fla­tion has been pulled fairly down by weak oil prices, os­ten­si­bly give no guar­an­tees, up or down. Not to men­tion the likely dire con­se­quences a change in the US mon­e­tary pol­icy will bring about, whose brunt will be borne by de­vel­op­ing coun­tries.

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