At the end of the monetary magic road (we’re at the dead end), the economy needs structural reforms to grow.
These include breaking up of oligopolies and status quo preferences, jamming revolving doors between policy makers, regulators and corporations, closing tax loop holes, flattening the tax code, shifting of corporate incentives to ban share buybacks and boost wage growth, consumer debt write offs and restructuring, incentives to increase savings over borrowing, reduce the size of government, and target key infrastructure projects (along with spending cuts in other areas to pay from them, because as explained by Lacy Hunt in the Hoisington Q2 review–at present debt levels, further deficit spending has a negative GDP multiplier, resulting in lower GDP for each additional dollar of deficit spending).
Structural reforms require political consensus. Indeed, even the much fantasized ‘helicopter money’ requires congressional approval. With political campaigns raging in many countries this year, the likelihood of broad political action on structural reforms remains remote at present.
All of this sets up large opportunity for disappointment to hit presently delirious asset markets. I suspect, only then, will political action materialize. This clip offers a good summary of some key issues as finance gazers stare into the ‘Jackson hole’ this week.
A measure of global foreign-currency volatility matched its highest level in almost a month as traders speculated that Federal Reserve Chair Janet Yellen’s speech in two days may give clues on the path of U.S. interest rates. A gauge of the dollar held a three-day advance after futures traders priced in an increased probability of a rate increase by December. The Fed chief is slated to speak Friday at the annual monetary-policy symposium in Jackson Hole, Wyoming. Bloomberg View’s Mark Gilbert and World Economic Forum Head of Global Competitiveness Margareta Drzeniek-Hanouz. Here is a direct video link.