PATRICE RASSOU: A painful transition looms despite central banks’ assurances

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South Africa Headlines News

SA’s small, open economy will feel the effects of difficult global changes

By declaring inflation as transitory earlier in 2021, the Federal Reserve used a well-known central banking technique: open mouth operations. It aims to calm the market, which is nervously speculating as to when they will start reducing the purchases of securities and bonds.

But this massive liquidity injection requires countries to accumulate huge amounts of debt, which they have to service later. Monetarists will tell you, however, that this process is also inflationary, which erodes purchasing power if not kept in check.

Also, the transition to cleaner energy should be paid for by developed economies which have been responsible for the carbon emissions for decades. And there may be a more direct link to inflation, with the EU planning a carbon border tax on carbon-intensive imports. The Chinese government has embarked on its own transitory journey to achieve common prosperity in order to reduce income inequality by 2050.

Source: Financial Digest (financialdigest.net)

 

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