Wednesday, July 28, 2010

Let's hope they're right

Following on from the recent debate about public spending cuts, Mervyn King's appearance yesterday offers us a more rounded view of where British macroeconomic policy is going. Unlike Claude Trichet, King is quite happy to maintain ultra-loose policy, even suggesting a return to quantitative easing is necessary. All this in spite of inflation being well over half a point higher than target.

If things go well, the government can reduce the deficit and let monetary policy take the strain. All that of course depends on demand being sustainable at current interest rates. If not, we're ****ed.