The Global Economy in Turbulent Times

CHAPTER 25 Commodity and Asset Prices Are Up; Can Inflation Be Far Behind?¹

In a previous essay in The Star, I wrote on how ironically the sovereign-risk “shoe” is now on the other foot (reproduced in Chapter 76, “The Kiss of Debt”). Historically, sovereign-risk concerns reflected profligacy in emerging market economies: Russia, Argentina, and Pakistan were notable examples. Today, the money-printing machines in the United States, the eurozone, the United Kingdom, and Japan are running overtime to assume the “crown.”

We all know there is no such thing as a free lunch. This time, severe crises took their toll on those with a history of high living and fiscal indiscretion, ignoring reforms in good times. What a difference a generation makes. The contrast is provided by BRIICs (Brazil, Russia, India, Indonesia, and China). A year ago, with their fiscal and financial houses in good order, BRIICs were busy stimulating their economies. Their main worry then was to push for a fairer global economic order. But, one year on, their situation is ironic: They share three things in common—they are big and growing fast; they have inflation; and they have strengthening currencies thrust upon them. These days, their concerns are on rising commodity prices, overheating, asset bubbles, and inflation.

Paradox of a Symmetrical Recovery

Now more than ever, the 2009 Greek debt tragedy points to gathering risks in the global economic outlook. As of now, global recovery remains anemic, uneven, and ...