To Tame Inflation, Stop Spending, Says SCMP Columnist

Shanghai-based economist and South China Morning Post (SCMP) columnist Andy Xie offers a straightforward solution to inflation that no one wants to hear: Stop spending. Xie wrote in his SCMP column on July 20, 2022, that central banks are reassuring investors that they are dealing with rising inflation while doing nothing of the sort.

Photo Insert: Debt-fueled housing inflation has resulted from enormous fiscal deficits as a result of stimulus expenditure.

To put it another way, the only way out of this mess is to stop the flow of money, but neither the government nor the markets are willing to do so. The banks are employing psychological ploys in order to buy themselves some time.

Despite the fact that they are hiking interest rates, they are not doing anything to slow the flow of fresh money into the economy since Covid-19 struck.

Debt-fueled housing inflation has resulted from enormous fiscal deficits as a result of stimulus expenditure. Reversing course would result in a financial collapse much more severe than that of 2008.

Bondholders should be kept in the dark about central banks' plans to inflate their way out of debt. As the Chinese proverb goes, it's best to boil frogs slowly since they don't jump.

“If the West wants to contain inflation, it must cut the excesses built up during this free-lunch era. Fiscal deficits must come down quickly, and monetary policies normalize. Unfortunately, the long free lunch led to the build-up of economic and political practices that depend on free money, like government handouts and the rich getting richer on paper gains. Normalizing means, one, saying no to fairy-tale spending plans and, two, massive reduction in paper wealth. Politicians hate that. Their donors wouldn’t have the money to finance their careers, and the voters would throw rotten eggs at them. The pressure is all on central banks to keep the music going. That is why they must convince the market that they can handle inflation without actually meaning it,” Xie concluded.

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