Policy Statement

At our first meeting, ten years ago, we offered a medium-term strategy for ending inflation and restoring productive growth to its long-term average. The rate of inflation for the previous three years was, then, about 5 1/2%. The average rate of money growth -- currency and checkable deposits -- for the previous three years was then reported as 6 1/2%. Currently, the corresponding numbers are, respectively, 61/2% and 9%. We warned, then, that unless the Federal Reserve adopted a disciplined, medium-term strategy to end inflation, inflation would rise and economic instability and unemployment would increase. Looking back, we see a record of failed policies, fiscal and monetary indiscipline and growing trade restrictions in many countries. Recent mismanagement of the international debt problem has led governments and central banks to seek short-term stopgaps to delay, but not avoid, the consequences of mistaken policies. For the past year, money growth in the United States, Canada, Germany, Holland, France, Italy and the United Kingdom has been between 10% and 15%. These policies are short-sighted. There is no reason to doubt that the combination of these monetary policies, accompanied by contractive trade and debt policies, will produce renewed inflation, slow growth and low investment. They will fail to produce sustained real growth with low or falling inflation. Discretionary monetary policy has failed in the United States and in most other countries. Most central banks and governments have shown themselves incapable of maintaining financial discipline long enough to restore economic growth with low inflation. The lack of discipline is, currently, a cause of the short-sighted policies that are a major reason why the world economy faces severe problems