The strategy for the world economic recovery must be nurtured with the right paradigm.
The first paradigm concerns the need for balance in managing the two
sides to the economy: real economy and the financial markets. It is
undesirable to promote the financial markets in ways that harm the
interests of the real economy.
I pose two examples to clarify this thesis. The first example is
the Jobo bills of 1984 with interest rate as high as 43% which led to
closure of businesses, high unemployment and the exodus of OFW in the
The second takes the opposite action – the Fed Reserve’s close-to-zero
interest rate. The decision by the Fed in keeping and prolonging this
rate fuels speculative fever in stock markets, promotes the so-called
“currency carry trade”, develops global asset bubbles, raises oil
prices in the futures markets and gas pumps.
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The writer is an entrepreneur, and author of books “The Peso
Exchange Rate: Why Are We So Poor?” and “The Philippine Economy: Do Our
Leaders Have A Clue?” His piece was published in the November 30, 2009
edition of the Business World, page S4/3.