Tag Archives: Inflation

Global Economic Growth Slows For 5th Month Running

The global economic recovery continues to lose momentum, according to Markit’s September Worldwide PMI Surveys. The global expansion has slowed down for five months in a row, ans is set to slow further in the final quarter of the year, meaning the probability of the global economy already being in a double-dip recession has risen significantlt – at least for the most vulnerable countries, the report shows.

“Financial market trends reflected the fact that governments are increasingly looking for ways to sustain economic recoveries.”

Chris Williamson


Markit’s PMI data indicated that global growth continued to cool in September. Global trade flows have dropped well below volumes seen earlier in the year and service sector growth has clearly failed to compensate in most developed economies. Worldwide employment trends meanwhile deteriorated close to stagnation.

“With many economies, especially in the developed world, saddled with persistent high unemployment and export demand weakening, the risks of a further slowdown in coming months have increased, Chris Williamson, director and chief economist at Markit says.

As a result, financial market trends reflected the fact that governments are increasingly looking for ways to sustain economic recoveries.

The report is put together of a series of analysis:

* Worldwide economic growth slows for fifth month running
The global economic recovery continues to lose momentum, according to September’s worldwide PMI™ surveys. What’s more, although the surveys provided some glimmers of hope that the recovery will not completely lose traction, the overwhelming view from the forward-looking data is that the global expansion looks set to slow further in the final quarter of the year, meaning the risk of double-dip recession has risen for the most vulnerable countries.

* Global trade flows grow at weakest rate for over a year
Worldwide export growth hit a 14-month low in September. Asia ex-Japan, which has led the global cycle, points to further slowing in trade flows in coming months, with exports from bellwethers Taiwan and South Korea falling sharply. Signs of some stabilisation are becoming evident, but the downshift in trade volumes since earlier in the year is likely to add to woes in countries tackling budget deficits. UK exports, for example, fell for the first time in over a year.

* Weak labour markets pose increased risks for economic recovery
The recovery continued to be characterised by disappointing job creation, which slowed to near-stagnation in September. Employment has even begun to fall again in some countries, and fell worldwide in the service sector. High unemployment looks set to subdue growth of domestic demand in developed economies in particular. This is a concern given the simultaneous deterioration in the global trade cycle.

* China’s manufacturing sector revives further in September, but faster growth brings surge in price pressures
The HSBC China Manufacturing PMI™, compiled by Markit, rose for the second month running, adding to signs that growth in the world’s second-largest economy is picking up again following a slowdown in the first half of the year. However, the survey also found price pressures to have risen sharply, fuelling worries that the authorities may seek to cool inflationary pressures. State-owned firms reported that selling price inflation had shown the largest jump since the survey began in 2004.

* Emerging market growth loses momentum in Q3
Despite the upturn in the manufacturing PMI for China, the HSBC Emerging Markets Index (EMI), compiled by Markit, showed that the emerging market economic recovery slowed for the second successive quarter. The latest increase in output was the weakest since Q2 2009, when emerging markets recovered from a two-quarter recession, and also fell below the average seen in the three years prior to the financial crisis.

* Euro zone recovery slows as renewed contraction is evident outside of French-German core
The growth trend is less clear cut in the Eurozone. Some resilience is still evident in France and Germany, but an increasing number of peripheral countries (including Greece, Spain and Ireland) appear to be sliding back into recession. Whether the strength of the core nations will be sufficient to sustain growth for the region as a whole remains unclear.

Markit’s Eurozone Retail PMI added to evidence of slower growth, with retail sales falling in the single currency area for second month running in September.

* UK growth slowed sharply in Q3 and outlook darkens
Economic growth slowed sharply in Q3, down to perhaps 0.4%-0.5% compared to the 1.2% surge seen in Q2, according to the PMIs. Signs of a return to payroll- and cost-cutting by private sector companies means even weaker growth is anticipated for Q4. PMI data relating to investment goods orders, for example, suggest that – after a much-lauded initial strong recovery earlier in the year – investment spending growth has already begun to wane.

*Japan’s woes intensify as manufacturing PMI signals renewed contraction
The Bank of Japan announced new stimulus measures as its economy took a further downward lurch in September. The latest PMIs showed the country’s service sector remaining in recession and the Manufacturing PMI showing the first deterioration in business conditions for 15 months. Job losses accelerated as firms grew worried about the outlook.

* PMIs signal looser monetary policy
Calls for renewed economic stimulus in the US and UK are supported by Markit’s PMI survey data, which show business conditions have turned down sharply since the spring. The Markit Eurozone PMI is meanwhile moving closer towards levels which in the past would have triggered a rate cut by the European Central Bank. With inflation below target, the ECB’s insistence that current policy is ‘appropriate’ is starting to look questionable.

Here’s a copy of the full report.

A free chart-based PowerPoint overview of Markit’s latest economic indicators is available for download.

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In The Mind Of Jean-Claude Trichet

Governor Jean-Claude Trichet of the European Central Bank is considered one of the most powerful and influential people in the world, alongside the US FED chief Ben Bernanke. But there are big differences in their fundamental way of economic thinking; Trichet being a product on the European anti inflation policy, Bernanke a traditional US FED banker who don’t hesitate to use the money supply to manage conjunctures at the expense of the possible inflation threats. Jean-Claude Trichet don’t give many interviews. But last week he sat down with two reporters from the Financial Times. Here’s a full transcript of the interview.

“We have permanently to be in a state which I call credible alertness.”

Jean-Claude Trichet

Jean Claude Trichet gestures before his conference in Madrid.

The following interview was conducted by Messrs Lionel Barber and Ralph Atkins from the Financial Times, and published on September 10th. Until now the rare interview has only been available to FT subscribers. However, by the courtesy of Bank of International Settlements, here’s a full transcript:

Financial Times: After the events of the past few years, are you confident that the euro can survive, and if so, why?

Jean-Claude Trichet: Yes, I am confident, of course! You know how much skepticism there was in the run-up to the setting-up of the euro. The best way to measure how much has been done is to conduct a thought experiment and place ourselves at the beginning of 1998 or, perhaps even more boldly, in 1994, and imagine hearing somebody say the euro would be launched on time in January 1999, that it would start with 11 countries, that very rapidly there would be 16 countries. And that after 11 ½ years, for these 16 countries and more than 330m people, not only would the stability of the euro be in line with our definition of price stability – below but close to 2 per cent – but that the level of price stability would be better than that obtained in the previous 50 years by major currencies before the euro. Over the 11 ½ years, euro area inflation has averaged 1.97 per cent. That would certainly have been considered much too bold, much too optimistic, perhaps totally unrealistic – but that is what we’ve been doing. So “yes, sir”, the euro is there. The euro area faces a lot of challenges, as is the case for all major advanced economies. All their central banks have a lot of challenges today, and this is no time for complacency for any of us, but the success of the euro, measured as I just suggested, is obvious.

Financial Times: What would you describe as the main challenges facing the euro today?

Jean-Claude Trichet: I would say that we have all the challenges of major central banks in the advanced world. There is the challenge of coping, in terms of our own responsibility, with the “turbulent episode” in which we find ourselves since three years. We have to cope with the challenge of globalization. We have to cope with the challenges of science and technology, which is developing so rapidly that it creates for the central bankers a lot of additional challenges, in particular in terms of assessing correctly productivity and the impact of IT on the financial sector. Population aging is also a big challenge for all central banks. We have two other challenges that other major central banks do not have. One is them deepening and overall implementation of the single market with a single currency, which has been Europe’s ambition since the very beginning. We are the only central bank which is transforming, by virtue of its own activity, the economy under its jurisdiction. The second challenge is enlargement. We were 11 countries at the beginning. Next January we will be 17, with Estonia joining. This highlights the challenge of permanently strengthening and deepening the governance of the euro area, with new economies coming in.

Financial Times: Before we talk about governance, let me ask you some specific questions about the crisis management measures. How are you going to reduce the dependence of the likes of Greece, Portugal, Spain, Ireland on extra liquidity provided by the ECB?

Jean-Claude Trichet: As you know, the European economy relies very much in terms of financing on commercial banks. So it’s not surprising that our own “non-standard measures” concentrate much more on bank refinancing than on intervening in markets, in comparison with the Fed. As markets gradually stabilize, our non-standard measures, which are fully consistent with our mandate and, by construction, temporary in nature, will continue to be 2 BIS Review 115/2010 progressively phased out. So we are accompanying the market as it progressively goes back to normal. But, as I said already, it is a process which takes time.

Financial Times: Do you have in mind, though, a need to phase out “non-standard” refinancing and do you have a sort of time horizon for this?

Jean-Claude Trichet: We of course have to consider all those measures as transitory. They are there to cope with a situation which is abnormal – to help correct those markets that are dysfunctional and thereby help restore a more normal transmission mechanism for our monetary policy. We have eliminated one-year liquidity, and we have also phased out six-months liquidity. The decisions we took last week take precisely into account, through three fine tuning operations in the last quarter, this progressive phasing out and its impact on liquidity.

Financial Times: Where do you think we are in this crisis? It’s a difficult question. I mean, if I’d asked Roosevelt in 1935 he would have had a hard time answering the question too…

Jean-Claude Trichet: I guess so, yes. I would say that the correct response is that we are in a situation where central banks in particular, and also other authorities, have to remain alert and have to know that we are in an uncertain universe. We always have to be prepared for new challenges that can not necessarily be foreseen and that might be in some respect unpredictable. We have permanently to be in a state which I call credible alertness.

Financial Times: How close did the euro area come to disaster in May?

Jean-Claude Trichet: No, I don’t think that the euro area was close to disaster at all – seen from inside. I know how Europe functions. I know how the constellation of authorities functions, at the level of the various nations and at the level of the European institutions,. Seen from the outside, I would say that it’s always difficult for external observers to judge and analyze correctly the capacity of Europe to face up to exceptional difficulties. There is no other model to which we can refer – either in history or in a fully fledged political federation such as the US, and certainly not in comparison with centralized states such as Japan or the UK. But I’m always confident. In May we had additional proof of the capacity of Europe to cope with new challenges.

Financial Times: Can you explain why [in May] the ECB changed its mind on government bond purchases? There was a lot of criticism in Germany especially.

Jean-Claude Trichet: When I talk of “credible alertness” I really mean it. When we decided on 9 August 2007 that it was appropriate to embark in an unlimited supply of liquidity in our own money market, and we supplied 95 billion euros for 24 hours, that was not a decision that was in the textbooks. We were criticized a little bit at the time, and then, after a while, it was recognized that this decision had been wise and lucid. So in May this year I would say that we were in a situation where it was considered appropriate by the governing council of the ECB to take the decision, as I said earlier, to help restore a more normal functioning of our own monetary policy transmission mechanism. We had previously purchased covered bonds and we had not excluded intervening in other markets.

Financial Times: What lessons do you draw in terms of euro governance from this crisis to date?

Jean-Claude Trichet: First of all, we are on the record as having always asked for full and decisive implementation of the governance measures that already exist. We combated very fiercely the position of the heads of government of the three major countries in the euro area when they wanted to weaken formidably the stability and growth pact, back in 2004 and 2005. It was a very, very fierce battle. They wanted to really unravel the pact. What I would sum up as our position today is very simple. We call for “a quantum leap” in the reinforcement of fiscal surveillance, with, in particular, what I would call the reversal of the BIS Review 115/2010 3 burden of the proof. We have called for the “quasi-automaticity” of procedures and sanctions. We have called for a reinforced independent way of assessing the fiscal situation and we have also called for a quantum leap as regard the surveillance of competitiveness and imbalances in euro area member countries. And, finally, we have called for decisive measures to enhance the quality of statistics. As regards the methodology, we consider that a change of the treaty would be appropriate, but we accept that this would involve a long or very long procedure at the level of 27 EU countries. That’s why we have called for the maximum use of secondary legislation as a first step, to exploit all the possibilities that secondary legislation can offer to go in the direction of the necessary goals. That’s the idea.

Financial Times: And what about temporary suspension of membership or even expulsion of a member that is systematically breaching this…?

Jean-Claude Trichet: No, I don’t call for expelling members, but a temporary suspension of voting rights is something that should be explored.

Financial Times: In retrospect, shouldn’t Europe have undertaken bank stress test earlier?

Jean-Claude Trichet: I think so. The ECB and the Bank of England were very much in favour of this stress test. Of course, we have a very complex institutional environment, involving cooperation in real time among 27 EU capitals. It was really essential to have this exercise undertaken on a unified basis, simultaneously. You know that we particularly welcomed the detailed publication of the results for the 91 banks involved.

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There’s more!

Download a copy and read the rest of the interview here.

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US Economic growth slows to 1,6% – Does Quantitative Easing Really Matter?

The economy in the US grew at a much slower pace this spring than previously estimated, mostly due to the largest surge in imports in 26 years and a slowdown in companies’ restocking of goods. The revision follows a week of disappointing economic reports. Former NY FED, Richard Alford, now raise the question if another round of quantitative easing are going to have any effect at all?

“Perhaps it is time to expect less from monetary policy and demand more from other policies and policy makers.”

Richard Alford


“The first hint that the FED is flying blind is the fact that QE has numerous operational definitions. It is broadly defined as a form of monetary policy used by central banks to stimulate the economy when the policy rate is at or close to zero,” Richard Alford writes in a commentary.

The US gross domestic product – the broadest measure of the economy’s output – grew at a 1,6 percent annual rate in the April to June, the Commerce Department said Friday.

That’s down from an initial estimate of 2.4 percent last month and much slower than the first quarter’s 3.7 percent pace.

Investors will now turn their attention to a speech by Federal Reserve Chairman Ben Bernanke, scheduled for 10 a.m., that will address what the FED may do in response to the weakening economy.

Economists expect many other supports for economic growth to fade.

Federal government spending and the housing sector bolstered the economy last quarter, but housing has slumped again and will likely drag growth down in the third quarter.

The impact of the federal government’s $862 billion stimulus package is also projected to taper off this year.

The big question is if the US Federal Reserve will launch another round of massive quantitative easing to get the US economy going again.

The second biggest question is: Will it work?

Do They Even Know What They’re Talking About?

Former NY FED official Richard Alford have just published a commentary at the Institutional Risk Analysts website, in where he raises several critical question about the monetary policy, currently ruling the world, known as quantitative easing. (A derivative of traditional Keynesian theory).

Quantitative refers to the fact that the central bank is targeting a specific size for its balance sheet while easing refers to reducing the pressure on financial markets by increasing the willingness of lenders to lend and the willingness of potential borrowers to take on debt,” Alford points out.

“However, when Chairman Bernanke, a proponent of QE, began the rapid expansion of the FED balance sheet in 2008, he argued that the FED was not engaged in QE, but in something distinctly different: credit easing (CE),” Alford writes.

The Federal Reserve’s approach to supporting credit markets is conceptually distinct from quantitative easing (QE), the policy approach used by the Bank of Japan from 2001 to 2006.

“Our approach-which could be described as “credit easing”-resembles quantitative easing in one respect: It involves an expansion of the central bank’s balance sheet. However, in a pure QE regime, the focus of policy is the quantity of bank reserves, which are liabilities of the central bank; the composition of loans and securities on the asset side of the central bank’s balance sheet is incidental. Indeed, although the Bank of Japan’s policy approach during the QE period was quite multifaceted, the overall stance of its policy was gauged primarily in terms of its target for bank reserves. In contrast, the Federal Reserve’s credit easing approach focuses on the mix of loans and securities that it holds and on how this composition of assets affects credit conditions for households and businesses. The absence of a general consensus on the operational definition of QE is also reflected in the plethora of “names” attached to the current stance of FED policy: QE, QE1.1, QE2.0 and QE-lite.”

“The debate over the proper characterization of the current policy resembles theologians debating how many angels can dance on the head of pin. It is possible that the differences are substantive and have policy implications, but there is little evidence to support this view. Assume that CE worked as Bernanke suggested that it would: it helped repair dysfunctional credit markets. Given that assumption, even if you are convinced that the asset purchases that doubled of the FED balance sheet between December 2008 and today improved economic performance or at least prevented further deterioration, that success is not evidence that QE (the buying of Treasuries) will enhance future economic performance.”

US money supply (M2)

The Calibration Problem

“The absence of any basis upon which to calibrate or chose the target size for the FED balance sheet is another revealing issue that supports questions about the efficacy of QE,” the former NY FED official continues.

“Monetarism employs estimates of the money multiplier and the income velocity of money to determine desired reserve levels and stance of monetary policy. Keynesians employ estimates of the Keynesian multiplier to choose the size of fiscal stimulus packages. What will drive and limit the scale of QE? If doubling the size of the FED balance sheet again doesn’t result in trend or better economic growth should the FED just keep doubling the balance sheet until it does?”

(The BOJ’s balance sheet target increased more than six-fold during the QE episode in Japan.)

“How can economists assess the effectiveness of QE in the absence of some defined and quantified link to the ultimate policy targets?” Alford rightfully asks.

The Problem of Expectations Management

“Proponents of QE argue that it can be effective at the zero bound. They believe that QE can still stimulate economic activity by engendering expectations of higher inflation and interest rates in the future. They argue that QE can achieve this if it includes a commitment to maintain QE until a specified rate of inflation is achieved. They also argue that QE can be unwound before it leads to an inflationary spiral. However, discussions of the channels by which some proponents of QE assert that QE will stimulate the real economy are at variance with the standard understanding of the role played by monetary policy and the assumption that the FED can control inflationary expectations.”

The field of microeconomics has many names.

While many practitioners call it “Price Theory”, none call it “Quantity Theory”.

“There is a very simple reason,” Alford writes.

“It is changes in prices that drive economic agents to change their behavior. Once the price for a good is zero, is there any reason for an increase in the supply of that good to induce economic agents to change their behavior? Apparently the members of the FOMC believe that there is.”

“The argument in favor of QE has a number of other shortcomings. For one thing, tt assumes that the Fed can control inflationary expectations. However, economic agents are unlikely to credit the FED with ability to control either inflation or inflationary expectations like water from a faucet. The track record to justify that assumption just isn’t there. The FED did not see the housing bubble. The FED did not forecast the recent (assuming we are out of it) recession until we were in it.”

In 2002, Bernanke set the goal for US monetary policy: to avoid a Japan-like lost decade experience.

“But Bernanke and the FOMC caused a real estate bubble and the near destruction of the financial system. Given this performance, why should economic agents already troubled by debt levels and/or over capacity increase their debt load in response to an assertion by the FED that will generate inflation or growth in the near future? QE relies on inflationary expectations as the transmission mechanism. This suggests also that if the expansion of the balance sheet does not have an immediate effect on aggregate demand, the chances are that it never will have an effect. Economic agents will learn that QE is of no consequence.”

Evidence from the Japanese Experience

Outside of stabilizing financial institutions and markets, the evidence that QE changed macroeconomic variables in Japan is mixed at best.

In 2006, the Bank of Japan (BOJ) published a working paper titled “Effects of the Quantitative Easing Policy: A Survey of Empirical Analyses.” The paper broke “QEP” down into 3 separate components:

1. A commitment to maintain zero interest rates until the policy goal of sustained inflation was achieved,

2. setting the policy with an aim of achieving a targeted range for the size of Bank of Japan’s balance sheet, and

3. a change in the composition of the Bank’s balance sheet.

The paper surveyed the results of a number of efforts to identify and quantify the effects of QEP.

The effects of QEP on financial institutions, financial markets, the real economy and inflation are presented in the Executive summary.

First, the effects on financial markets and institutions:

“Looking at the contents of the macroeconomic impact,  these macroeconomic analysis verify that because of the QEP the premiums on market funds raised by financial institutions carrying substantial non-performing loans shrank to the extent that they no longer reflected credit rating differentials. This observation implies that the QEP was effective in maintaining financial system stability and an accommodative monetary environment by removing financial institutions funding uncertainties, and by preventing further deterioration of economic and price developments resulting from corporation’s uncertainty about future funding,” Alford says.

On the effect of QEP on macroeconomic variables:

“Granted the positive above effects of preventing further deterioration of the economy reviewed above, many other macroeconomic analysis included that the QEP’s effects in raising aggregate demand and prices were limited. In particular, when verified empirically taking into account the fact that the monetary policy regime change under the zero bound constraint of interest rates, the effects from increasing the monetary base were not detected or smaller, if anything, then during periods when there was no zero bound constraint. The studies generally show that the QEP, had a greater monetary easing effect than that stemming from merely lowering the uncollateralized overnight call rate to 0%, while the effects in raising aggregate demand and prices nevertheless turned out to be limited, Many of these analysis present analytical results and interpretations indicating that in addition to the zero bound constraint of the interest rate, the substantial decline in responsiveness to monetary easing on the part of corporations and financial institutions resulting from the deteriorated core capital due to a plunge in asset prices played a major role.”

“Most relevant to the current US situation is the BOJ finding that while QEP (especially the commitment to maintain zero interest rates) had strong effects on the expected path of short-term interest rates and help stabilize financial markets, the effects Of QEP on aggregate demand as well as on expectations of economy recovery and inflationary expectations were uncertain/small.”

“One of the studies cited in the working paper concluded that the QEP did not have the effect of reversing the financial markets expectations that deflation would persist.

“In short; the research summarized in the BOJ working paper suggests that the FED, by using near zero interest rates (ZIRP), the commitment to ZIRP until deflation fears abates, and steps (CE) that it has already taken to restore the functioning of the financial market, has already taken the steps that achieved most of if not all the benefits Japan enjoyed as a result of QEP.”

Richard Koo has characterized the failure of QE to promote recovery in Japan as “the greatest monetary non-event.”

Koo has also emphasized the unwillingness of policymakers to concede that QE might be ineffective:

“Even though QE failed to produce the expected results, the belief that monetary policy is always effective persists among economists in Japan and elsewhere,” Mr. Koo concludes. Adding; “To these economists, QE did not fail – it simply was not tried hard enough. According to this view, if boosting excess reserves of commercial banks to (1) 25 trillion has no effect, then we should try injecting (2) 50 trillion, or (3)100 trillion.”

The FED on the Japanese Experience with QE

In 2006, the Federal Reserve Bank of San Francisco published a “Pacific Basin Note” titled: “Did Quantitative Easing by the Bank of Japan work”?

“While it discussed the effect of QEP on interest rates, financial institutions and markets, there was no discussion whatsoever of any effect on the real economy or inflation. In 2008, the Federal Reserve Bank of Cleveland published a short survey piece which also attempted to assess the effectiveness of the BOJ’s QEP. The piece offered the following observation regarding the effect of OEP on real economic activity and inflation,” Mr. Alford points out, and refers:

“… Most observers believe that because the quantitative easing policy aided the banking sector, economic activity at least did not deteriorate further. The pace of economic activity did pick up, with contributions from consumer spending and investment, but exports, which benefited from growth among Japan’s trading partners, spurred much of the improvement. Although deflation ended in 2006, along with the quantitative easing policy, it returned after a very short hiatus in 2007, and continued until the recent commodity price boom.”

Recently, the former FED Vice Chairman Alan Blinder opined in the Wall Street Journal:

“Chairman Ben Bernanke has told the world that the FED is not out of ammunition. The good news is that he’s right. The bad news is that the FED has already spent its most powerful ammunition; only the weak stuff is left.”

“Blinder, it seems has reached the conclusions that the FED is approaching the limits of the effectiveness of monetary policy. He has also concluded that it would be best for the FED to go out guns blazing no matter how small the effect. There was no mention of any empirical analyses of the effectiveness of QE, although he stated that he thought that a return to CE would be preferable to adopting QE. There was no discussion of whether the expected return from QE had erode so much that it would fail a risk return test even if it passed in the past,” Alford writes.

Should the FED Further Expand Its Balance Sheet?

“The FED, either by design or chance, has already implemented those aspects of QE which the analysis cited in the BOJ study indicated had “strong effects” on interest rates and financial institutions. The FED is now faced with signs that the economy is slowing and the fact that QE had uncertain/small effects on output and inflation in Japan. Hence, the size of the potential upside benefit to QE or renewed CE is probably rather small. This raises the question: What is the downside, if any to QE? It might, given the commitments to both low interest rates and inflation) precipitate s dollar crisis which would be very costly for the US and the world. It could further damage the reputation and standing of the FED which has suffered as a result the housing bubble, its failure to exercise its regulatory responsibilities, it role in the AIG fiasco, etc. This would in turn further erode the FED’s future ability to use “talk as policy.” QE will also increase financial institutions incentives to leverage up and run large maturity mismatches.”

However, many proponents of QE appear to be highly confidence in its effectiveness despite the absence of supporting evidence.

“It is likely that many supporters of QE do so because to do otherwise would be to admit that we have reached or are very near the limits of monetary policy. Unfortunately, while QE may enable the FED to finesse the zero “bound”, the only existing evidence strongly suggests the effectiveness of unconventional monetary policy is waning. It should not be surprising, if we have reached the limit of monetary policy. It has been the go to policy to stimulate growth. US tax policy is best explained as an effort to garner campaign contribution despite deleterious effects on growth, fairness and efficiency. It has also encouraged the buildup of debt and leverage, while discouraged saving and equity financed investment. The expenditure side of fiscal policy has been reduced to partisan-seniority-determined allocations of pork. Regulatory policy has become a means of placating valued constituencies and expanding moral hazard incentives. Trade policy is non-existent. Energy policy is non-existent,” Richard Alford replies.

“Perhaps it is time to expect less from monetary policy and demand more from other policies and policy makers,” he concludes.

Original post at the IRA homepage here.

Related by the Econotwist:

Full transcript of Mr. Bernanke’s speech at Jackson Hole, August 27th.

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USA Could Be Forced Into Another Trillion Dollar Bank Rescue

The US FED Launch The QE2 – Beta Version

Goodbye Keynes – Hello Ricardo!

Albert Edwards Sees S&P500 Returning To 1982-Level at 450 Points

El-Erian: Economy Losing Momentum For Recovery

Morgan Stanley: Governments WILL Default

Signs Of Depression In The USA

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