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Securing global economic security

Securing global economic security

May 6 2011 12:01AM

Inflation as a significant factor of global economic security has the innate capacity to upend carefully laid plans

Sir, Further to the article by Sam Fleming, “Incomes will plummet as inflation soars, report claims” (May 3), I agree that the erosion of earnings by inflation should move higher on the economic agenda. In fact, the issue of inflation is hardly limited to the UK alone: the developed economies are still faced with the threat of stagflation, while the rapidly developing economies, such as China, Brazil and India, are showing signs of overheating.

Inflation is a significant factor of global economic security and has the innate capacity to upend carefully laid plans and further upset the efforts to bring the global economy back into equilibrium. In that regard, the risks to recovery associated with higher interest rates should be carefully considered, as ultimately the choice may be between the lesser of two evils: slower recovery or rampant inflation over the longer term.

In effect, the inflationary pressure is exacerbated by various aspects of government intervention and the aftermath of the bailouts of the too-big-to-fail banks and companies in a number of the developed economies.

With that in mind, the policies put forward by the governments of the UK and other developed economies that revolve around mechanisms such as austerity measures or quantitative easing, continue to focus on liquidity, rather than the core of the economic malaise — solvency.

Alexander Mirtchev
President, Royal United Services Institute for Defence & Security studies (RUSI) International, Washington DC, and Vice-President, RUSI, London