##b governors last friday, it was clear that recent data suggest the worst may be over. meanwhile, in japan, “ abenomics ” seems to be succeeding in ending the decades - long deflation, though progress on structural reforms – crucial to restoring long - term growth – has been disappointing. there is an important lesson here, one to which i will return later : monetary policy can only do so much. in the case of japan, monetary policy can end the deflation that has characterized the economy since the late 1990s, but can do little to infuse bis central bankers ’ speeches long - run expansion unless it is accompanied by fiscal policy that implements structural change. but the biggest problem the u. s. confronts is homegrown : political failure in washington to act on the key issues holding the recovery hostage. fiscal and regulatory uncertainty is a powerful deterrent to business investment. going back to the earliest days of the current recovery, my business contacts have regularly complained of the fog of uncertainty emanating from washington. they have consistently cited fiscal and regulatory uncertainty as major impediments to capital investment and expanding payrolls. uncertainty comes in many forms. in some cases it is major legislation such as the health care reform or financial regulation as in the dodd frank [ wall street reform and consumer protection ] act. fiscal issues have regularly constrained the recovery – the debt ceiling debacle in summer 2011, the last - minute resolution of the fiscal cliff in december 2012, the brute force sequester of 2013 and so on. most vexing is not knowing how businesses will be taxed or how the federal government will shape future spending. this makes budgeting and planning capital outlays and payrolls into the future an uncertain process. it is my personal opinion that the fed has bought time for fiscal authorities to get their house in order, but four years later i am not sure we are much closer to that goal. it is true that washington politicians stopped bickering long enough in december to pass a budget, the first budget in four years. and the projected budget deficit is just 3 percent of gdp this fiscal year, down from 4. 1 percent in 2013 and 7 percent in 2012. after five years of outsized deficits, the u. s. is finally on par with mexico, whose deficit throughout the recovery never exceeded 2. 8 percent of gdp. you might think that agreeing on a budget means the u. s. government can go about its business, taxing and

in 2012. imagine that : the country that many americans look down upon “ california auto parts company moving to texas, ” by steve brown, dallas morning news, feb. 4, 2012. bis central bankers ’ speeches and consider “ undeveloped ” is now more fiscally responsible and is growing faster than the united states. what does that say about the fiscal rectitude of the u. s. congress? here is the point : as demonstrated by the relative and continued, inexorable outperformance by texas – which is affected by the same monetary policy as are all of the other 49 states – the key to harnessing the monetary accommodation provided by the fed lies in the hands of our fiscal and regulatory authorities, the congress working with the executive branch. as demonstrated by the fiscal posture of mexico, a nation can effect budgetary discipline and still have growth. one might draw two lessons here. the first comes from germany ’ s finance minister, wolfgang schauble, who from my perspective was spot on when he said, “ if you want more private demand, you have to take people ’ s angst away ” by having responsible and disciplined fiscal and regulatory policy. 7 clearly, there is less angst involved in conducting business in texas. the second is a broader, macroeconomic truism : that fiscal and regulatory policy either complements monetary policy or retards its utility as a propellant for job creation. mexico is proof positive that good fiscal policy enhances the effectiveness of thoughtfully conducted monetary policy, which is what the banco de mexico – whose independence, incidentally, was enshrined by a constitutional amendment in 1994 – has delivered under its single mandate of inflation control and by applying the tool of inflation targeting. i should be injecting some levity into the event, though it is hard to do so when one talks about our feckless fiscal authorities. but there are witty people who have found a way to do so. take a look at this parody of congress that my staff found on youtube : www. youtube. com / watch? v = li0no7o9zme. there you have the prevailing modus operandi of our fiscal authorities : pass the bill rather than the american dream to our children. what a sad tale! you asked me to talk about the economy. in a nutshell, my answer is this : monetary policy provides the fuel for the economic engine that is the united states. we have filled the gas