Wednesday, December 1, 2010

Make this crisis also misunderstand

Nobel laureate (Economics) and Professor Michael Spence says:

  • …….they don’t understand what they are doing. If they are trying to protect the housing market, pump up asset value to get a little more energy. But people are not stupid. On the whole, it does not make any sense to me. Really, I think the housing markets are fragile and mortgages are expensive. Emerging economies have begun to start thinking of it as a kind of nuisance.

  • I am not a central banker but If I was, I would target the additional credit or credit terms at the housing markets. But, that’s meddling with the market. There could be an asset bubble. Inflation is already a problem in China. In India, you have a current account deficit so you can do with importing capital for a while because it makes sense with the overall growth scenario. But, things could go out of hand very quickly. I would certainly manage the exchange rate. There are variety of ways to do that, and you probably use them all. You can accumulate reserves but they can be a pain and not a good investment and so you can rescue the reserves or tax hot money inflows.

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