So now we have to reverse the initial error by tightening credit. This logic is likely to be no more successful than US Federal Reserve actions in the early 1930s or the IMF program for rapid transition in Eastern Europe. Both led to prolonged and unnecessary suffering. Asking everyone to reduce personal consumption by half can hardly be called a remedy for high prices. The same error is being repeated today in East Asia where credit is so tight that productive economic activities are being strangled, including the export oriented business that experts say will enable these countries to work their way out of the crisis.
Monetary policy is an extremely crude and clumsy instrument.
It does not distinguish between the speculator and the producer. It is a partial instrument that can be used to control money supply but cannot be used to effectively guide or direct the whole economic system. Money is only a part of economy, which is itself only a part of society. Exaggerated reliance on a partial instrument will destroy as much as it preserves. The focus must shift from the part to the whole.