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Keep Spending, We Are In Economic War: Blanchflower

Wednesday, 28 Oct 2009 | 7:56 AM ET

While more and more voices warn about inflation, David Blanchflower, the US academic and former member of the Bank of England’s monetary policy committee, worries that governments will pull back from fiscal and monetary stimulus too early.

After the Wall of Money
Economist Nouriel Roubini thinks assets are being inflated up by a wall of money. David Blanchflower, professor of Economics Dartmouth College, and Neil MacKinnon from VTB Capital discuss the outlook for the global economy.

Blanchflower is no stranger to controversy. His time at the UK central bank saw him fall out with Bank of England governor Mervyn King, as they argued about when to cut rates as the credit crisis hit.

“In a war when someone’s just invaded your country you don’t say we can’t fight because we can’t pay for it. We are in an economic war," Blanchflower told "Europe Tonight."

"The debt is not what is killing us, it’s the financial shock that is killing us," he added. "And anyone who knows anything about economics knows you don’t cut spending in one of the worst recessions you’ve seen. You wait for the growth phase and then do something.”

Watch the first part of Blanchflower's appearance on Europe Tonight above, the second part here >>> and the third part here >>>

Blanchflower believes inflation is simply not an issue and is far more worried about deflation. He points out that whilst hyper inflation is something we have experienced a few times in the last century, there has been no hyper deflation.

This, the former Bank of England Policy member points out, is why central banks like the Federal Reserve, the European Central Bank and the Bank of England are throwing so much money into the system via historically low rates and quantitative easing.

With debt levels so high in the UK and US for both government and consumers Blanchflower believes a little bit of inflation would actually be a good thing as it would help ease the debt burden.

Contact Europe: Economy

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