Uneasy Fiscal View from Jackson Hole

The weather has been great in the Grand Tetons.  Sunny, highs in the 80s, lows in the 40s with a chance of thunderstorms (always a possibility when central bankers gather).  Grand Teton, Mt. Owen, and Teewinot look down in all their majesty on Jackson Lake Lodge, where the world top financial officials can try to spot moose feeding in Willow Flats below, sip a merlot on the Sunset Terrace, and contemplate the limitations of their tools to manipulate the world’s financial problems while meeting in the Explorers Room.

One thing the central bankers will be unlikely to do – mingle with the millions of people around the world who have become unemployed because of their policies. Theoretically, they will be looking ahead to a better more, prosperous world.   Fat chance. "When Kansas City Fed leaders decided months ago on the topic of this year's conference — "Achieving Maximum Long-Run Growth" — they did so advisedly," wrote the Washington Post's Neil Irwin. "The implicit message was that the focus of the world's economic policymakers was no longer about financial crisis firefighting, but about laying the groundwork for a stronger global economy over the longer run. It's not about growth in the next quarter but in the next decade, or three. In hindsight, the topic seems almost aspirational. If only the world were in position to worry about the long term, rather than the short term!"

Jackson Hole - Ben Bernanke Fed PolicyFor Fed Chairman Ben Bernanke, the annual conclave offers him the opportunity to give a sort of “State of the World Economy” address. In advance of his speech Friday, the markets gave a thumbs down to what he might say and the dollar fell against the euro and the yen. Friday morning, Bernanke announced essentially a wait-and see approach to monetary policy without closing the door to the quantitative easy that has flooded the world with U.S. dollars: “We will continue to consider those and other pertinent issues, including, of course, economic financial developments, at our meeting in September.”

Unhelpfully, Bernanke observed: "Fortunately, the two goals of achieving fiscal sustainability — which is the result of responsible policies set in place for the longer term — and avoiding the creation of fiscal head winds for the current recovery are not incompatible." But he batted the ball for fiscal recovery to Congress and the Executive branch for them to devise "policies that support robust economic growth in the long term."

A bit more clearly, he said of the problems of European governments and banks: "It's difficult to judge how much these developments have affected economic activity so far, but there seems little doubt that they have hurt household and business confidence and that they pose ongoing risks to growth."

So, while the East Coast battened down for a hurricane, out west it was policy as usual, the same ones that got us in this mess. Have another merlot. Thunderstorms predicted for Saturday.

Image courtesy of: http://www.ecotripadvisor.com

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In Memoriam
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(1896-1978)

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