In this week’s Wednesday column, Martin Wolf argued that the collapse of Lehman Brothers five years ago was merely a symptom of deep-rooted problems in the global economy. He suggests – rightly, in my view – that the underlying stresses stemmed from the global saving glut and excessively loose monetary policy – itself an inevitable response to the global savings glut.
It is odd, then, that while Mr Wolf admits the glut still exists, he concludes that policymakers today should persist with aggressive monetary stimulus. His “least bad” option is, however, precisely the approach which led to the crisis in the first place. Repeating the process could be regarded as no more than an act of folly. Continue reading »