But when and how the Fed will begin tightening monetary policy remains unclear.

WASHINGTON, DC American foreign policy stands on the brink of substantial belt tightening.

If Greece still had its own currency, the authorities could devalue it while tightening fiscal policy.

The mix of Chinese policy tightening, however, needs to shift much more decisively toward higher interest rates.

The timing of the inevitable policy shift back to tightening depends on overall inflation, particularly house prices.

The good news for Asia is that most of the region s monetary authorities are, in fact, tightening policy.

The only effective anti inflation strategy entails aggressive monetary tightening that takes policy rates into the restrictive zone.

In the previous tightening cycle, which began in 2004, it took the Fed two years to normalize the policy rate.

Because of the lagged effects of monetary policy and the need to manage expectations, early tightening by the Fed would be appropriate.

Loosening monetary policy would increase significantly the risks stemming from local government debt and shadow banking, while tightening monetary policy would fully expose those risks, posing a serious systemic threat.

But the recent popular use of the term awash with liquidity dates to 2005, a time when many central banks were tightening monetary policy.

This includes restoring ties with Europe, tightening the nuclear nonproliferation regime and possibly a restoration of China as the centerpiece of US policy in Asia.

Will Fed Tightening Choke Emerging Markets?

As for fiscal policy, it is already in high gear and needs gradual tightening over several years, lest already troubling government debt levels deteriorate even faster.

But recipient economies are vulnerable to financial market sentiment and sudden capital flight as happened recently when investors anticipated monetary policy tightening in the United States.

A Cautionary History of US Monetary Tightening

But it is politically impossible for the Chinese government to alter its exchange rate policy under pressure without some concession from the US, and a tightening of US monetary policy could be sold as such a concession.

The Bundesbank is also tightening credit at home.

But monetary tightening would weaken already slow growth.

Monetary tightening was not the only major policy error of the 1930 s so was a retreat into protectionism, symbolized by the Smoot Hawley tariff increases at the beginning of that decade.

Indeed, if the shock is an increase in the dollar price of oil, an inflation target in theory dictates tightening monetary policy enough that the currency appreciates. But such a policy would mean that the adverse shock is reflected in a sharp fall in output.

But inflation remains high or rising, so more tightening is imposed.

At that time, both domestic investment and exports required immediate tightening.

To be sure, a country s domestic economic circumstances, and the tools available to policymakers, should guide policy. And, though monetary tightening may well be advisable in some economies, it might be inappropriate in others.

For example, many countries that were tightening their monetary policy when the first signs of turbulence emerged have either put interest rate hikes on hold, or, like Brazil, have already started to reduce rates.

Sound judgment is needed regarding the speed and timing of regulatory tightening.

Meanwhile, given the fragility and interconnectedness of the global economy, tightening monetary policy in the US could have negative impacts abroad (with consequent blowback at home), especially given the instability in China and economic malaise in Europe.

With Gazprom having already doubled gas tariffs for Georgia, the energy noose is tightening.

Financial markets appear to be expecting a good deal more Asian monetary tightening at least that s the message that can be drawn from sharply appreciating Asian currencies, which seem to be responding to prospective moves in policy interest rates.

Since then, Iran has responded to incremental tightening of international sanctions by building more centrifuges.

If central banks are tightening and long term rates aren t rising, one needs some explanation.

They defied their Lord 's messenger , so He seized them with an ever tightening grip .

They defied their Lord 's messenger , so He seized them with an ever tightening grip .

They have already been tightening the screws on credit growth for several months, with positive effects.

European leaders have so far offered no solution to the growth conundrum other than belt tightening.

For the Fed, it is important to ask whether the 1930 s, when its premature policy tightening precipitated a double dip recession, really is the best historical analogy to consider when contemplating how to time the exit from its current accommodating stance.

But, with budget tightening around the world, demand for Asia s exports is expected to continue to falter.

And they disobeyed the messenger of their Lord , therefor did He grip them with a tightening grip .

And they disobeyed the messenger of their Lord , therefor did He grip them with a tightening grip .

In exchange for this liquidity support, Greece will be forced to accept painful fiscal tightening and falling GDP.

Indeed, if the Fed makes an inadvertent mistake (the likelihood of this is considerable, given the country s complex situation and the unusually uncertain outlook), it is more likely to err on the side of staying accommodative for too long, rather than tightening monetary policy prematurely.

Little wonder, then, that the latest release of the closely followed minutes of the Federal Open Market Committee meeting points to a divided body, whose members anticipate divergent paths for monetary policy, with some expecting further accommodation and others expecting a round of tightening.

If there is no movement on these fronts, there will likely be pressure in the US for tightening sanctions.

But, given the large adjustment needs, it is not politically feasible to do everything, including painful fiscal tightening, immediately.

The government has taken a first step by tightening its own budget and spending less, especially on distortionary subsidies.