IMF advises the Fed

I wrote about the IMF’s bizarre (in my mind) advice to the Federal Reserve Board to postpone any rate hike from 0.0% (after six years) to 2016. The world simply cannot take it, they felt. Here is a thought experiment that would, hopefully, explain why I felt that their advice was bizarre:

The following thought-experiment would show the heights of stupidity that IMF had scaled with its advice: Imagine a drug addict who had suffered a big stroke or accident and was mentally open to coming out of it, even though he was in terrible pain. His doctors decided to provide him relief from the pain and resumed the supply of drugs to him. Every time he experienced more pain, the dosage of drugs was increased and his addiction became entrenched. Now, his addiction has become worse than it was last time. Some doctors get conscience attacks. They feel that they should, at least now, stop feeding him drugs. An expert from the outside warns doctors that he might suffer a big shock if the drug dosage were even marginally reduced because his addiction and dependence on drugs is too big to be rolled back. Hence, the best thing is to keep the drug supply going and let him face the consequences. Perhaps, some other doctor will be in charge when something fatal happens.

This analogy of a druggie and his supplier is not particularly original. Gilian Tett of FT had deployed it in 2013 when the Federal Reserve (then under Ben Bernanke) did not come through on tapering in September after having threatened it in June.

A more elaborate version of my MINT article has been published in Pragati. You can find it here.


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