THE DIRECTION IS DOWN

Monetary polycemakers the world over are used to difficult dilemmas. But the current international crisis has left them in unusual agonies. There are risks to cutting interest rates too far to head off a crisis: witness the events following the 1987 stock market crash. But the risks of failing to act can be far greater: remember 1929. With Japan and most of the emerging world in or heading towards recession, current account adjustment in the United States and Europe must take the strain if a global slump is to be avoided. If countries in trouble are to export their way out of recession, demand in the United States and Europe will have to grow faster than output. To achieve this, lower interest rates are required. The Federal Reserve and the Bank of England have made a start, but European central bankers remain. unduly complacent.