Sean O'Grady: Shoot out at Jackson Hole - the world's central bankers take aim at deflation

Economic Life: Nouriel Roubini, sage of our time, wants more concerted action for fear of something much worse. He says the US faces a revival that is sub-par for many years

It reads like a particularly unpromising joke. Charlie Bean, deputy governor of the Bank of England, Ben Bernanke, chairman of the US Federal Reserve, and Jean-Claude Trichet, president of the European Central Bank, are walking in the magnificent mountains of Wyoming.

They're at the annual get-together of global central bankers and external economists this weekend, held at the Kansas Fed's retreat, which happens to be in Jackson Hole, Wyoming, a beautiful spot for hiking (their tubby little bodies, that is, not necessarily interest rates).

Admiring the view, the three lords of finance stop for a moment to catch their breath. Ben asks Charlie how the UK recovery's going. "Choppy," he replies. He then turns to Jean-Claude, and asks him the same. "Very bumpy," says the Frenchman. Ben then thinks for moment and declares: "I just wish I could be as precise as you guys."

OK, I did warn you that it wasn't very funny. Central bank-based humour is unlikely to supplant sex or booze as a comedic resource, but you take my point, I hope.

Of all the world's major economies, the US is the one where the most acute dilemmas are being felt, if only because it is pretty much the only one where the full range of policy options are being kicked around in a lively public debate.

While the British and Europeans know what they want to do (even if they happen to be wrong), the Americans are still in a state of some flux. For now, at any rate, the British and Europeans have turned their backs on further fiscal action to sustain their choppy, bumpy recoveries and, if needs be, will rely on monetary policy to do the heavy lifting if a double dip hoves onto the horizon. In the US, thinking is more flexible.

It needs to be. Only a few months ago the US seemed to be fulfilling its usual role of economic locomotive, dragging the rest of the world out of the worst slump in three-quarters of a century.

Taking maximum advantage of the US Treasury's advantage of a seemingly infinite appetite for its paper, the Americans borrowed and spent their way out of trouble, complemented by an unprecedented monetary stimulus from the Fed.

Lately, however, the news has not been so good, and there is an unmistakable link between the withdrawal of specific federal subsidies and unwelcome economic developments. Nowhere is this clearer than in the world of real estate, where the last few days have seen some shocking numbers on sales of new and existing homes (the Americans still build sufficient new property for it to command its own index). Indeed the July figure for new home sales was an all-time low, and down about a third on last year.

The reason is that the $8,000 tax break available for first-time buyers expired at the end of June, with predictable consequences. Much the same goes for the aftermath of the end of the cash-for-clunkers scheme and the lay-off of temporary staff hired for the US Census. And it also goes, more generally, for the gradual fading of the government's $814bn stimulus plan.

The message is that the American economy is unable to flourish without the life-support offered by fiscal action. A realisation of that was behind Congress' decision, after a Republican filibuster, to extend the federal subsidy for unemployment pay of 99 weeks' cover.

"Are we going to engage in fiscal child abuse and borrow the money, principally from the Chinese, to pay for this? Or are we not? That's the question," asked Representative Jeb Hensarling, a Texas Republican at the end of the debate last month. A startling sort of remark, but it is the question.

Not that the Republicans want an end to the tax concession for the wealthy enacted by George W Bush that will expire at the end of this year. So, yes, the debate is confusing and hypocritical, as well as lively.

So should Americans postpone the inevitable contraction again? And if so, who should take action – the White House, the Fed, or both?

Nouriel Roubini, sage of our times, apparently thinks some sort of concerted action is needed, for fear of something much worse. He predicts that the respectable 2.5 per cent annualised rate of growth for the US in the second quarter will be downgraded to around half that by the official statisticians later today. Growth in the third quarter, he believes, will slow to "well below" 1 per cent in the third quarter. He puts the odds of a renewed recession at 40 per cent, which will give them something to talk about at Jackson Hole. Mr Roubini says Americans face a revival that will be "anaemic, sub-par, below-trend for many years given the need and process of deleveraging.

"With growth at a stall speed of 1 per cent or below, the stock markets could sharply correct, and credit spreads and interbank spreads widen while global risk aversion sharply increases. Thus a negative feedback loop between the real economy and the risky asset prices can easily then tip the economy into a formal double dip." A classic debt-deflation cycle, then.

Whether the Obama administration will pursue some further stimulus – and Treasury Secretary Tim Geithner and adviser Larry Summers appear keen on more support for small business and the extension of Bush's tax cuts for the middle classes only – the Fed will probably be the main immediate force fighting any renewed downturn.

Even by the usually intense standards of Fed-watching, Mr Bernanke's speech today will be weighed, parsed and dissected minutely. In modestly extending its "quantitative easing" programme – directly injecting money into the economy – a few weeks ago, the Fed has signalled in actions as well as words that it stands ready to rescue the US economy. But within the Fed there is also a lively debate.

Like the Bank of England's Andrew Sentance, the Fed has its own lone hawk, Thomas Hoenig, arguing for a tightening of monetary policy. Mr Hoenig just happens to be the head of the Kansas City Fed, and thus the host at Jackson Hole. No one will want to be rude to the hand that feeds them but it appears likely that Mr Hoenig will be in a minority of one once again.

In the speeches that British audiences will find most relevant, from Ben Bernanke today and Mr Bean tomorrow, we may well find some broad hints about these central bankers' willingness to launch another round of quantitative easing – "QE2" – to boost growth. But it may be simply too much to expect of monetary policy alone. It's just a pity that, while the Obama administration is also thinking imaginatively, our own Coalition Government is determined to stick to their spending cuts no matter what. They, and more to the point the rest of us, may regret that stubbornness.

Voices
The Sumatran tiger, endemic to the Indonesian island of Sumatra, is an endangered species
voicesJonathon Porritt: The wild tiger population is thought to have dropped by 97 per cent since 1900
News
Gardai wait for the naked man, who had gone for a skinny dip in Belfast Lough
newsTwo skinny dippers threatened with inclusion on sex offenders’ register as naturists criminalised
Sport
Van Gaal said that his challenge in taking over Bobby Robson's Barcelona team in 1993 has been easier than the task of resurrecting the current United side
football
News
news
PROMOTED VIDEO
Arts and Entertainment
Beast would strip to his underpants and take to the stage with a slogan scrawled on his bare chest whilst fans shouted “you fat bastard” at him
musicIndie music promoter was was a feature at Carter gigs
Arts and Entertainment
Story line: Susanoo slays the Yamata no Orochi serpent in the Japanese version of a myth dating back 40,000 years
arts + entsApplying the theory of evolution to the world's many mythologies
News
Performers dressed as Tunnocks chocolate teacakes, a renowned Scottish confectionary, perform during the opening ceremony of the 2014 Commonwealth Games at Celtic Park in Glasgow on July 23, 2014.
news
Life and Style
Popular plonk: Lambrusco is selling strong
Food + drinkNaff Seventies corner-shop staple is this year's Aperol Spritz
Life and Style
Shake down: Michelle and Barack Obama bump knuckles before an election night rally in Minnesota in 2008, the 'Washington Post' called it 'the fist bump heard round the world'
newsThe pound, a.k.a. the dap, greatly improves hygiene
Arts and Entertainment
La Roux
music
Arts and Entertainment
Graham Fellows as John Shuttleworth
comedySean O'Grady joins Graham Fellows down his local Spar
News
people
News
ebookA unique anthology of reporting and analysis of a crucial period of history
News
Ross Burden pictured in 2002
people
News
Elisabeth Murdoch: The 44-year-old said she felt a responsibility to 'stand up and be counted’'
media... says Rupert Murdoch
Arts and Entertainment
tv
Extras
indybest
Sport
Arsenal signing Calum Chambers
sportGunners complete £16m transfer of Southampton youngster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Entry Level Fund Accountant (Edinburgh)

£17 - £20 per hour: Cameron Kennedy Recruitment: My client, one of the worlds ...

SQL DBA/Developer

£600 per day: Harrington Starr: SQL DBA/Developer
 SQL, C#, VBA, SQL Server, ...

Risk Analyst - VBA/EXCEL

£300 - £600 per day: Harrington Starr: Risk Analyst Access, EXCEL, VBA, RISK, ...

Market Access Analyst (FIX 5.0, Equities, Derivatives)

Negotiable: Harrington Starr: Market Access Analyst (FIX On-boarding, FIX 5.0,...

Day In a Page

The children were playing in the street with toy guns. The air strikes were tragically real

The air strikes were tragically real

The children were playing in the street with toy guns
Boozy, ignorant, intolerant, but very polite – The British, as others see us

Britain as others see us

Boozy, ignorant, intolerant, but very polite
Countries that don’t survey their tigers risk losing them altogether

Countries that don’t survey their tigers risk losing them

Jonathon Porritt sounds the alarm
How did our legends really begin?

How did our legends really begin?

Applying the theory of evolution to the world's many mythologies
Watch out: Lambrusco is back on the menu

Lambrusco is back on the menu

Naff Seventies corner-shop staple is this year's Aperol Spritz
A new Russian revolution: Cracks start to appear in Putin’s Kremlin power bloc

A new Russian revolution

Cracks start to appear in Putin’s Kremlin power bloc
Eugene de Kock: Apartheid’s sadistic killer that his country cannot forgive

Apartheid’s sadistic killer that his country cannot forgive

The debate rages in South Africa over whether Eugene de Kock should ever be released from jail
Standing my ground: If sitting is bad for your health, what happens when you stay on your feet for a whole month?

Standing my ground

If sitting is bad for your health, what happens when you stay on your feet for a whole month?
Commonwealth Games 2014: Dai Greene prays for chance to rebuild after injury agony

Greene prays for chance to rebuild after injury agony

Welsh hurdler was World, European and Commonwealth champion, but then the injuries crept in
Israel-Gaza conflict: Secret report helps Israelis to hide facts

Patrick Cockburn: Secret report helps Israel to hide facts

The slickness of Israel's spokesmen is rooted in directions set down by pollster Frank Luntz
The man who dared to go on holiday

The man who dared to go on holiday

New York's mayor has taken a vacation - in a nation that has still to enforce paid leave, it caused quite a stir, reports Rupert Cornwell
Best comedians: How the professionals go about their funny business, from Sarah Millican to Marcus Brigstocke

Best comedians: How the professionals go about their funny business

For all those wanting to know how stand-ups keep standing, here are some of the best moments
The Guest List 2014: Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks

The Guest List 2014

Forget the Man Booker longlist, Literary Editor Katy Guest offers her alternative picks
Jokes on Hollywood: 'With comedy film audiences shrinking, it’s time to move on'

Jokes on Hollywood

With comedy film audiences shrinking, it’s time to move on