By Steven K. Beckner

TOKYO (MNI) – When the finance ministers and central bank chiefs of
the Group of Seven industrial nations meet Thursday to discuss their
substantial economic problems, the latter can rightly say, “Don’t look
at us.”

The Federal Reserve, the European Central Bank and the Bank of
Japan, among others, have all taken aggressive action to boost the U.S.,
European and Japanese economies. But, as Christine Lagarde, managing
director of the International Monetary Fund, said earlier Thursday,
monetary stimulus alone is “not sufficient.”

Non-monetary measures, particularly in fiscal policy, are also
needed. But that’s easier said than done, and there is what economists
call “a time inconsistency problem.”

What is needed in the longer run — reduction of massive budget
deficits — is not what would be healthy for economies teetering on the
edge of recession in the short-run, in the view of the IMF and G7
policymakers.

The G7 meeting, at which U.S. Treasury Secretary Timothy Geithner
and Federal Reserve Chairman Ben Bernanke will discuss these issues with
their counterparts, is apt to be a kind of mutual lamentation society.

The U.S. economy slowed to a paltry second quarter growth pace of
1.3%, despite aggressive Fed moves to stimulate it, amid uncertainty
about the “fiscal cliff” of automatic tax hikes and spending cuts due to
hit in January if steps are not taken to avert them.

Unemployment ticked down three-tenths to 7.8%, but the reduction
was mostly due to an upsurge of part-time workers. A truer measure of
unemployment that includes discouraged workers and involuntarily
temporary and part-time workers stands at 14.7%. And the economy is
growing too slowly to produce enough new jobs to make significant
progress against joblessness — even at low levels of labor force
participation.

The 17-nation Euro zone is doing even worse as heavy debt burdens
drive up borrowing costs in Spain and other peripheral member countries,
forcing the ECB to take bold and controversial steps of its own. Outside
of Germany, much of the single currency union is in recession.

And slow growth in the U.S. and Europe is in turn dragging down
export-oriented Asian nations.

Bernanke can offer but little solace.

He convinced a majority of his colleagues on the Federal Open
Market Committee to launch a third, open-ended round of large-scale
asset purchases or “quantitative easing” to push down long-term interest
rates on Sept. 13. And the FOMC further delayed short-term rate hikes
until at least mid-2015.

Bernanke and other Fed officials have also left open the
possibility of increasing the size of “QE3″ from $40 billion per month
and including Treasury security purchases with buying of mortgage backed
securities when the Fed’s $45 billion per month “Operation Twist” ends
on Dec. 31.

But beyond that, even Bernanke has cautioned against expecting too
much.

While saying the Fed will do what it can with the tools at its
disposal in an Oct. 1 speech, Bernanke emphasized that monetary policy
is “no panacea.”

“Many other steps could be taken to strengthen our economy over
time, such as putting the federal budget on a sustainable path,
reforming the tax code, improving our educational system, supporting
technological innovation, and expanding international trade,” he said.

Still, Bernanke has a strong sense of mission and a commitment to
fulfilling the Fed’s statutory dual mandate to reduce unemployment,
which he has called “a grave concern.”

“Although monetary policy cannot cure the economy’s ills,
particularly in today’s challenging circumstances, we do think it can
provide meaningful help,” he said. “So we at the Federal Reserve are
going to do what we can do.”

That can be interpreted as meaning that the Bernanke Fed is quite
prepared to go on buying large quantities of securities, expanding its
balance sheet in the process, as far as the eye can see.

The ECB, the BOJ and others have also evinced a willingness to take
extrarordinary steps to support their respective economies, but the
central bankers might be quick to point out Thursday afternoon that the
onus is on the finance ministers and their political allies to make more
fundamental changes if stronger growth is to be sustained.

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