Keynes Noted This 80 Years Ago

John Maynard Keynes wrote about the dangers of destructive speculative capital flows, and now even the IMF is beginning to warm to capital controls:

Advanced economies have delivered a decade of woeful economic growth since the global financial crisis. The last thing the world needs is for emerging economies to be dragged down, too.

Such thinking is taking hold in some parts of Washington, where the IMF is rethinking the once rigidly “neoliberal” advice — stressing open markets and free-floating currencies — that it doles out to economies great and small.

David Lipton, first deputy managing director of the IMF, says one of its primary concerns is that low inflation in the developed world may, through capital flows, be “spreading in an undesirable way to emerging countries and causing them to stagnate”.

“Many of these countries are concerned about how spillovers from advanced world policies cause them to lose some degree of control over their domestic economies.” He questioned whether policies such as currency intervention could be used to “offset this transmission mechanism”.


Developing countries run the risk of becoming overindebted as a result of capital inflows reducing borrowing costs. For some such countries, she said, the IMF’s preliminary modelling suggested “capital controls are the appropriate instrument to tackle this overborrowing problem, and they should be imposed as prudential policy in normal times before debt limit shocks strike”.

The use of the phrase “in normal times” suggests that, for some countries at least, the IMF is moving towards endorsing capital controls on a semi-permanent basis, not just in an emergency.


One EM economist at a leading bank, who backs the rethink but asked for anonymity given the sensitivity around the subject, said that for decades the IMF “has been guilty of capital account fundamentalism”.

It only took them 74 years for them to get a clue about this sh%$.

One wonders just how many people died before they got a smidgen of a clue.

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