Bid­ding a hard farewell to cheap money

China Daily (Canada) - - LIFE -

The first rise inUS in­ter­est rates in al­most a decade has been long over­due. Af­ter lead­ing the world econ­omy into seven years of su­per cheap money, it is ur­gent that the world’s largest econ­omy as­sume its duty to blaze a trail out of the dan­ger­ous life­style of zero in­ter­est rates.

The lost two decades of the Ja­panese econ­omy, once the world’s sec­ond largest, have only proved the in­ef­fec­tive­ness of ex­ces­sively loose mon­e­tary poli­cies in tack­ling fun­da­men­tal struc­tural prob­lems. If theUnited States can man­age to main­tain ro­bust growth with nor­mal­ized in­ter­est rates in the com­ing years, it will give a huge boost to the con­fi­dence of pol­i­cy­mak­ers in many other coun­tries who have also re­sorted to cheap money as eco­nomic painkillers.

But if theUS econ­omy fails to cope with a grad­ual rise in its in­ter­est rates strongly enough, other coun­tries may need to not only pre­pare for in­creas­ing un­cer­tain­ties but also re­think the cost of cheap money.

Ris­ing in­debt­ed­ness, de­pressed en­ergy prices and slug­gish global growth have made 2015 a year of great anx­i­eties. Af­ter the In­ter­na­tion­alMone­tary Fund cut its global growth forecast to 3.1 per­cent this year, theUnit­edNa­tions last week also cut its forecast for global eco­nomic growth in 2015 to 2.4 per­cent, largely due to lower com­mod­ity prices, in­creased mar­ket volatil­ity and slow growth in emerg­ing mar­ket economies.

But the most un­cer­tain of all is where the hike inUS in­ter­est rates will take not only its own econ­omy but also the global fi­nan­cial and com­modi­ties mar­kets.

Some ar­gue that, as a re­sult of the di­ver­gence ofUS mon­e­tary pol­icy and that of other economies with zero in­ter­est rates, a strongUS dol­lar­may hurtUS ex­ports and slow its over­all eco­nomic growth.

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