Economy: Policymakers have run out of tools to boost economies

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Economy: Policymakers have run out of tools to boost economies

These requirements to prevent an economic crash highlight a second new aspect of the fear of a double dip now gathering among investors: that developed-world economies are close to stalling at a time when policymakers are close to running out of tools to support them.

 

Ben Bernanke: Last year QE2, this year silence 

Ben Bernanke: Last year QE2, this year silence

The sovereign debt crises leave developed-world governments running high annual budget deficits and debt-to-GDP burdens, with little remaining capacity to intervene this time around. None of those European governments now reluctantly pushing through austerity measures to protect their ratings and preserve market access has seemed capable of also articulating a convincing strategy for growth.

Central banks will no doubt keep rates low but it’s not clear what else they can do. A year ago in August, at Jackson Hole, Federal Reserve chairman Ben Bernanke paved the way for the second round of quantitative easing. This year in Wyoming, he said nothing. Financial markets loved it but persistent high unemployment and weak business confidence raise questions over how much QE2 actually did for the US economy anyway.

When the world stared into the pit of a 1930s-style depression at the IMF/World Bank meetings in Washington three years ago, governments and central banks pulled together to prevent this with a powerful combination of fiscal expansion, including recapitalization of failing banks and companies and provision of sovereign guarantees for the liabilities even of healthy financial institutions.

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