As nominal growth has failed to accelerate, the supremacy of monetary policy and further accommodation is being put into question. This has led to renewed calls for “helicopter money” or monetary finance as a serious policy prescription. The implementation of such a policy would be contentious and concerns about any unexpected consequences to broader public confidence have kept even Japan’s more adventurous policymakers away from it. The fear that governments could use monetary finance to spend irresponsibly has some justification, but governments can just as easily spend irresponsibly in normal times as well. In fact, they do and they have. Monetary finance is one way to repair balance sheets and bring back new growth. The other is systemic default. Pick your poison carefully. Policy makers also need to concentrate on reforms of regulations and tax rules that currently favour shorttermism over longterm capital stock building and higher productivity growth. There is a need for incentives to encourage real investment opportunities in both the private and public sectors. This will add to the tax base, reduce government expenditure and create more consumers. Despite the outperformance of traditional reflation plays Emerging Markets (EM), commodities and the modest uptick in the performance of financial stocks, I do not believe that reflation is afoot for investors to stay overweight equities. I continue to advise to sell equities in a rally. The letup of the USD rally is the key factor driving EM and commodity assets.
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