Lou Jiwei Warns Policy Space Shrinking as Reform Delayed

Former Finance Minister Lou Jiwei warned that China's policy space is shrinking. The use of monetary and fiscal policy, plus leverage is raising risk, shrinking policymakers room to act.
Coping with the financial crisis should be appropriate to increase leverage, and indeed all countries are in the appropriate plus leverage, including monetary policy and fiscal policy plus leverage, the general increase in aggregate demand, to prevent the rapid spread of the crisis, and make good use of this breathing time, Including improvements in financial regulation and structural reforms. To improve total factor productivity, that is, TFP. This will improve the overall supply capacity, promote structural reform, both the short-term crisis and the establishment of long-term benign growth mechanism, so that fiscal and monetary policy can gradually leverage, the economy into the recovery and sustainable growth.

However, monetary and fiscal policy plus leverage gives the illusion of economic stability, an illusion, do not want to endure the pain of reform, economic recovery is not routine. Monetary policy and fiscal policy to buy the time if the waste of the policy space will be smaller and smaller, and ultimately need to tight monetary, tight financial conditions under the reform, the pain will be more intense, it is more difficult to cohesion consensus, easy to slide to the left Or right-wing populism. The reality of the situation, from a global perspective, high leverage, and TFP stagnation or decline, the proliferation of populism, in this difficult time need more key politicians to play and wisdom, both to gather the people and can take the correct policy order to promote reform, Improve supply. This is my first point.

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