What should have been done?

At the FT, Andrew Smithers, the man who strives to “(mis)inform and amuse” has a facetious piece which he ends thus:

In 1982 the US economy was in far better shape to withstand a shock increase in interest rates than it is today. As the table shows, the market was undervalued rather than overvalued and debt levels were well below those of today.

I do not think that we are in much danger of either deflation or inflation in the US or the UK this year, but inflation will become a danger if the Fed and the Bank of England fail to respond adequately if unemployment continues to fall.

At the moment markets are wondering what central banks will do. They may soon need to ponder on what they should have done.

Any doubts about what Mr. Smithers thinks should have been done?

Interestingly, long-term inflation expectations notched-up in May 2013, when the “taper talk” began!

Smithers2

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