Economics & Global Affairs

Mohammad Tabaar analyzes Iran's strategy to weaken Israel and divide the Middle East.

Belfer Center experts on the U.S.-China relationship and Middle East issues shared thoughts on the significance of the unexpected Iran-Saudi Arabia agreement brokered by China. 

 Stephen Walt decided to look back to see if 2022 had gone according to his expectations. In his last column of 2021, he had described "Biden’s 2022 Foreign-Policy To-Do List." What did he get right, what did he get wrong, and how well did the Biden administration perform?

Stephen Walt provides A realist POV on the war in Ukraine, competition with China, COVID, and more in the second part of an interview with Foreign Policy Editor-in-Chief Ravi Agrawal.

The US dollar is up 12% against the euro over the last year.  Having moved from 1.21 $/€ in May 2021 to 1.07 $/€ today, the exchange rate seems to be approaching one-to-one parity for the first time.  Europeans are not happy about it. If you think that prices for oil and other commodities are high now in terms of dollars, you should see what they look like in terms of euros.  Get ready for “reverse currency wars.”

With elevated global inflation likely to persist for some time, the prospect of competitive exchange-rate appreciations is looming larger. Instead of a race to the bottom in the currency market, there may be a scramble to the top – and poorer countries will likely suffer the most.

The surprising potency of the multilateral sanctions imposed on Russia has been exceeded only by that of Ukrainians’ resistance to Russia’s invasion of their country. True, it is difficult to imagine that sanctions will bring the Russian economy to its knees faster than Russian troops are able to capture Kyiv or lay waste to the country. But, ultimately, Russia will lose much in this war.

 

When Fed Chairman William McChesney Martin delivered his famous line about central banks, his key point was that it is their job to take away the punch bowl just when the party really gets going, rather than waiting until revelers have turned drunken and raucous. In the aftermath of the 1970s inflation, it became an item of faith that monetary authorities shouldn’t wait until elevated inflation shows its face, before reining in an overheating economy.  They are currently developing a renewed appreciation for the wisdom of this old metaphor.

During the decade that began with the Global Financial Crisis (GFC) in 2008, some central bankers arguably followed this time-honored practice into episodes of unnecessarily tight monetary policy.  In retrospect, they at times over-estimated the dangers of inflation.  [More on this below.]  They were “fighting the last war.”

In 1955, then-US Federal Reserve Chair William McChesney Martin famously said that the Fed’s job was to take away the punch bowl “just when the party was really warming up,” rather than waiting until the revelers were drunk and raucous. Decades later, in the aftermath of the 1970s inflation, it became an article of faith among monetary policymakers that they should not wait until elevated inflation showed its face before reining in an overheating economy. Today, with inflation surging, they are developing a renewed appreciation for the punch-bowl metaphor.

Are the US and other advanced countries experiencing stagflation?  Stagflation is the unfortunate combination of high inflation with low growth in output and employment that characterized the mid-1970s.  Are we back in that decade?