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Banks or consumers?

Banks or consumers?
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First Published: Sat, Jun 28 2008. 12 45 AM IST
Updated: Sat, Jun 28 2008. 12 45 AM IST
Ben Bernanke’s refusal to raise US interest rates has pushed the Fed into a solitary corner, where it stands in opposition to most other important central banks in the world.
Global interest rates have to rise to prevent inflation running amok. Bernanke has talked about the threat. He said earlier this month that the US Fed would “strongly resist” inflation. But he has not walked the talk.
The rest of the world is suffering from the negative effects of this. Oil has leapt further, to record highs. This will add fuel to the inflation fire. Global markets have dropped, extending their losses over the year.
There are two important implications of the US Fed’s determined attempt to keep flooding the global economy with money. One, it shows that the US is exporting new inflation to Asia. Two, the policy choice is between providing succour to global consumers, on the one hand, and keeping crisis-hit US banks solvent, on the other.
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First Published: Sat, Jun 28 2008. 12 45 AM IST