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May 03, 2007

Controlling inflation

It used to be said in elementary economic sources that inflation results from too much money chasing too few goods, but it today's global economy, it's accurate with a footnote or an asterisk, says N.C. State University economist Mike Walden.

"The old cliché was, I think, very accurate when we had essentially a closed economy," says Dr. Walden, an economist with North Carolina Cooperative Extension. When, for example, "most people in the U.S. bought things that were produced by U.S. manufacturers and producers and so we did didn’t have any outside influences.

"But now, of course, increasingly we are buying things from overseas," he explains. "So now the government has to not just watch the money supply vis a vis internal economic growth, they also have to watch it vis a vis external growth -- that is, in terms of the imports that we are getting from other countries.

"And the bottom line here is it’s made the government’s job, particularly the Federal Reserve’s job, much more difficult," Walden concludes. "So, for example, the Fed now not only has to watch U.S. factories and how much U.S. factories are producing but, they also have to watch factories in China and Europe and Japan. And that’s much more difficult and makes their job much more complex in setting the right amount of money growth in our economy."

Posted by deeshore at May 3, 2007 09:51 AM