88efae0246f86fc00bbdde0c_px2149c.jpg Pedro Molina

The G-20’s Empty Promises

When the heads of the G-20 countries gather in Pittsburgh, they will promise not only to reverse the explosive monetary and fiscal expansion of the past two years, but that they will do it neither too soon nor too late and in a coordinated way. These are the right things to promise, but what will such promises mean?

CAMBRIDGE – Talk about “exit strategies” will be high on the agenda when the heads of the G-20 countries gather in Pittsburgh a few days from now. They will promise to reverse the explosive monetary and fiscal expansion of the past two years, to do it neither too soon nor too late, and to do it in a coordinated way.

These are the right things to promise. But what will such promises mean?

Consider first the goal of reversing the monetary expansion, which is necessary to avoid a surge of inflation when aggregate demand begins to pick up. But it is also important not to do it too soon, which might stifle today’s nascent and very fragile recovery.

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