Tuesday, November 4, 2008

Hungarian Hard Times

"On Wednesday, it was Hungary's turn to take desperate measures. As the financial shock that began in the U.S. reached deeper into emerging markets, Hungary's central bank took the dramatic step of raising interest rates by a steep three percentage points in order to prevent a run on its currency", Marcus Walker at the WSJ, 23 October 2008.

This is what central banks did under the pre-1914 gold standard, i.e., raise interest rates to avoid devaluation. Hungary bears watching.

3 comments:

printfaster said...

They need to let their currency run. Trying to stop the run is a formula for disaster.

Hungary needs to balance its accounts with its import partners and to do that they need to stop importing. Nothing else will work. Stopping their economy by starving it for capital is like whacking off your arm because it buys too much.

Countries like Zimbabwe try very hard to hold up their currencies, all the while bleeding to death.

Sorry Hungary. You need to devalue and recognize your folly. Do it quickly.

W.C. Varones said...

Hungary bears watching?

Hungry bears watching.

Independent Accountant said...

WCV:
Good catch! Them too!