IMF chief: Beware of global deflation
IMF chief Christine Lagarde says governments should beware of the global deflation "genie" coming out of its bottle.
I'm very happy that growth is consolidating. And it's uneven. It's imbalanced. It's not as good as it should be and sadly not as good to create enough
jobs. But it's back and that's good. We are simply saying that we still have work to do and there are still risks on the horizon. One of those risks is
potential deflation.
If you are right, deflation is a far worse risk than inflation.
Yes. It's a far worse risk because it's very difficult to put it back into the bottle if you will. Once deflation is out, economists are hard-pressed to
find ways to get out of deflation. As Japan is trying to do it at the moment after ten years' of deflation.
But if we've already got this vast monetary stimulus and quantative easing and low interest rates and we are still worried deflation, what do you want the
current governments to do?
First of all, the central banks should continue to do sensitive, reasonable, accommodative monetary policy. They need not tightening too quickly and they
need to let liquidity and insistence so that, you know, money flows. Second, the bank balance sheets have to, you know, be solid and that has to be tested
which will likely happen in 2014 so that banks can actually lend to the economy, investents can be made, jobs created and on and on.
But this is all assuming we don't all become complacent. You've warned about complacency. Are you seeing complacency out there yet?
For the moment I think policy makers are sensible. They have a mix of sensible fiscal policy, not too much austerity yet consolidation, growth friendly
policy,ok, more of it. Where we have to see than being on the job is structure reforms that they have to do more and in most places around the world,
advanced economies and developing countries as well.