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 twosides to the economy: real economy and the financial markets. It isundesirable to promote the financial markets in ways that harm theinterests 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 80s.
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, 2009edition of the Business World, page S4/3.
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