The illness is the same but the treatment diametrically opposite.

After the near collapse of the global economy in 2008 central banks in the west have had to grapple with similar problems. Recession, a collapse in house prices, rising unemployment and high debt levels in some countries. However, the response of governments have been diametrically opposite. While the US chose to stimulate the economy with the Federal Reserve buying bonds worth $85 billion every month to increase money supply Europe and Britain have chosen austerity by cutting government spending, reducing salaries and pensions of civil servants and cutting government jobs. One would think that government policies would be dictated by economic logic so how can opposites be right? Asian countries are widely different. While China is growing at around 8% but has a huge property price bubble Japan has been suffering deflation for over a decade. Prices fell 0.4% in April, the 6th straight month of decline. Prime Minister Shinzo Abe won elections by promising a huge stimulus which will continue until Japan has an inflation of 2%. Bank of Japan Governor, Haruhiko Kuroda has promised to inject $1.4 trillion into the economy in less than 2 years. One result of loose money has been a fall in the value of the Yen which has fallen to 101 to the dollar from 76 to the dollar last year. This has helped Japanese exports by making them cheaper compared to those of other countries leading to a danger of tit-for-tat devaluation of currencies leading to a currency war. Switzerland, New Zealand and Japan are openly intervening in foreign exchange markets. Livemint, 29 May. Central banks around the world have cut interest rates around 515 times since 2007. With interest rates at near zero levels and commodity prices low because of falling growth funds have poured money into stocks which have been rising all over the world. At some point banks will have to start tightening monetary policy again. But easy money is addictive. Stock markets all over the world fell sharply on 23 May when Fed Chairman, Ben Bernanke told lawmakers that the stimulus will be stopped once the Fed was sure of the economic recovery. One thing all these countries have in common is very low inflation which allows central banks to ease monetary policy without fear. Not so in India. Here the CPI was 9.39% in April from 10.2% in March. Even so the RBI is cutting interest rates because of political pressure. Property prices are sky high, growth is falling, government spending is out of control because of wasteful social programs to win elections and industrial production is falling because of falling demand. Does anyone know what he is doing?