Another speaker at the July 12th Rocky Mountain Economic Summit in Jackson Hole will be William Dunkelberg, of the Global Interdependence Center. He has recently written
“We are to heal the damage done by a credit binge by making even more loans and encouraging ‘risk taking.’ The Fed has done all it can to encourage more borrowing, forcing interest rates as low as possible, flooding the banking system with liquidity, and accumulating a balance sheet of terrifying size. This cloud hangs over the economy, a wet blanket of uncertainty that prevents private sector participants from making bets on the future.
Compared to the 1983 recovery when GDP grew 8 percent, this has been a very weak recovery, not even reaching trend growth. The Fed is committed to purchase $1 trillion in government back[ed] assets while the CBO projects the deficit to be only $650 billion. Just how this will help is becoming less and less clear.”
Putting this together with the previous post, one possibility is that because of the "wet blanket of uncertainty", investors are loathe to invest in real capital, likely because of the regime risk. As a result they keep putting their lendable funds into financial assets even though they expect negative real returns.
My attendance at the summit is supported by several sponsors, including the Department of Economics at The University of Regina.