LONDON – Loose monetary policy cannot fix every problem but it can help, former British finance chief Alistair Darling said recently.
Darling made the remark when asked to comment on the election pledges of Shinzo Abe, president of the conservative Liberal Democratic Party, to use unlimited easing measures to bring Japan out of deflation, including forcing the Bank of Japan to directly purchase government bonds.
Although many industrialized states have used the tactic to stimulate their economies, Darling said, “I don’t see any evidence to suggest it is getting out into the High Street and being spent.
“I am in favor of central bank intervention, but what a central bank can’t do is take over from what governments ought to be doing,” he said. “If you want to do fiscal policy, then do it, but don’t dress it up as a fancy way of hitting your inflation target.”
As for Japan, Darling said he is not in a position to “pass judgment” on what the government ought to be doing. But at the same time, he pointed out a central bank “can make a usual contribution but only if it goes hand in hand in what the elected government is doing because fiscal and monetary policy are complementary to each other.”
Darling expressed the view that expanding domestic demand in China and other emerging economies is indispensable for global recovery at a time when advanced nations are struggling with huge government debts.
Referring to a 2009 Group of 20 summit agreement made during the global financial crisis, he said that “international cooperation, which was evident in 2009 because of blind of fear, needs to be rediscovered.”
“In the olden days, when a country got into trouble and everybody else was doing OK, you could manage it. . . . This time, it is not even a regional crisis, this time it is a global crisis because the banking crisis fractured he world’s economic system,” he observed.
Noting degrees of economic stimulus taken by countries have varied since the financial crisis, Darling said “a country like China,” where an economic growth of 8 percent is quite slow, “will have to do a lot of adjustment both political as well as economic.”