Rehab World

CAMBRIDGE – Perhaps we should call 2013 the year of Winehouse economics. As the late English chanteuse Amy Winehouse sang: “They tried to make me go to rehab, but I said ‘No, no, no.’” In 2013, the singers were the world’s most important central banks, led by the Federal Reserve.

In the summer, both the Fed and the People’s Bank of China signaled their intention to normalize monetary policy. Fed Chairman Ben Bernanke talked openly of “tapering” the Fed’s policy of open-ended bond purchases, also known as quantitative easing (QE). PBOC Governor Zhou Xiaochuan actually did try to rein in his country’s runaway credit growth. But when markets in both countries reacted more violently than expected – with bond yields soaring in the United States and inter-bank lending rates spiking in China – the monetary authorities backed off.

It is a problem many a pop singer has encountered: After years of stimulus, rehab is just not that easy.

True, there remain strong intellectual justifications for continued economic stimulus of one sort or another. In November, the man who once seemed poised to succeed Bernanke, Larry Summers, suggested that the US economy might be in the grip of “secular stagnation.” Other economists continue to fret that in Europe, if not in America, the benign disinflation of recent decades could yet turn into malign deflation.