Then read Andy Xie's latest opinion piece over at Caijing, Can interest rate adjustments, currency devaluation and zigzag policymaking help unwind economic stimuli? It depends. Something's brewing over at Caijing, but Mr. Xie will always come up with something interesting to write.
The stimulus for the article seems to be Australia's increasing its interest rate by 25 basis points, and Andy Xie carves out what he thinks is the best case global scenario if the central banks manage policy competently. And he thinks that central banks should make his scenario their goal.
The goal for the global economy? 2% growth and 4% inflation. "Mild stagflation."
In the US, he sees interest rates climbing 4.5% through 2012, with an inflation rate of 4-5% by 2012. He sees the current devaluation of the dollar as a down payment for the this future inflation.
Despite the EU's difficult internal economic problems, he doesn't see the European Central Bank allowing the euro to decline in value because the bank "was structured solely to maintain price stability." He thinks that this will result in lower real economic growth rates than in the US.
He sees the same thing happening in Japan because of the "strong yen psychology."
And in China? Well China and the rest of the developing world still have asset bubbles according to Xie and others (according to yet others, including the Economist, there is just a serious potential for asset bubbles in China). This means that China's central bank will pursue a zigzag policy in which the yuan will likely remain pegged to the dollar resulting in similar interest and inflation rates as in the US, and credit controls, through the expansion and curtailing of lending, will be employed by the state to heat up or cool down asset markets as the need arises.
Cheery, isn't it?