Can money tightening is always the best solution to curb the inflation? In the latest Indian budget, more attention has been given to control the inflation. It seems some monetary action will be taken, too. But as the history shows, it hasn’t worked always. Here is the quote from the article “Privatisation: How such sacrifice should poor make?”:
Perhaps the most severe impact of high interest rates in recent monetary history was manifested when Paul Volcker, who was in India a couple of weeks back, was chairman of the US Federal Reserve. Thanks partly to high oil prices, inflation in the US had touched 14/15 per cent in the late 1970s. To bring it down, Volcker turned the monetary screw so tight, that at one time LIBOR had crossed 20 per cent, leading also to a relentless appreciation of the dollar.
The result was not only economic slowdown and increasing unemployment in the US: the high exchange and interest rates for the dollar triggered third world debt defaults and a series of crises in the 1980s. They took a decade to sort out — and inflicted misery on millions of the poor who lost jobs and, unlike their US counterparts, did not have access even to unemployment benefits.
It can be seen that it disturb whole ecosystem of citizens in disarray. There must be other better solutions to it, which can improve the livelihood of the poor, who get everything at affordable price. I’m looking forward to understand this problem to greater extent in near future.