Category: Think Tank

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4 Responses to “It Takes a Regime Shift: Japanese Monetary Policy Through the Lens of the Great Depression”

  1. Petey Wheatstraw says:

    The Japanese are net savers. Inflation will hurt those who have dutifully and diligently stuffed their mattresses with yen.

    We are net debtors AND we have committed to borrowing from the banker class as the One True Way Forward. Inflation will make our debt more manageable, but only if we are willing to take on more of it, albeit at a lower interest rate (and, only if the banks play along). It is more likely that adding more liquidity to our system will serve to exacerbate the structural imbalances already present in our debt-based economy.

    The structural differences couldn’t be more profound.

    I believe that inflationary monetary policy could work, but only if the currency pumped into the system is used to retire debt at the consumer level, as opposed to stimulating more borrowing (i.e. rolling-over existing debt).

  2. b_thunder says:

    To her credit, C. Romer finally shows some guts and, in the very last sentence, admits The Truth: “I don’t know if the Japanese experiment with monetary regime change will work. But I am confident that we will learn a great deal because they had the nerve to try.”

    The academics DO NOT know whether massive QE programs will help or hurt the economies and, more importantly, help or hurt the civil societies where 99% of the people who do not have access to the “Fed window” in any shape or form.

    She doesn’t even bother to calculate the odds of success vs odds of catastrophic failure. For instance, would We, The People, approve a program while aware of 50/50 chance of success where successful outcome is a reduction of the unemployment from 8.5% to 6.5% and the failure resulting in a mini-Weimar inflationary episode or a 20-year old stagflation?

    This is a Grand Experiment with unknowable outcomes, which a few selected economic professors are conducting in which all of us are the subjects. I am however very thankful that this time the lab rats are the citizens of Japan, not the Americans.

    To QEinfinity And beyond!

  3. victor says:

    Let’s not forget that ever since England banned debtors’ prisons, the debtor has had the upper hand, witness when Yeltsin nonchalantly declared on the Russian TV: we wont pay any of those bonds! what can they do to us? We’re a nuclear power!

  4. With respect, Christina Romer suffers from an affliction of tunnel vision. Many in the American economics arena fail to grasp the magnitude of their recent downturn and thus cannot appreciate the extraordinary measures which were taken by Congress & the FOMC. The latter plays a very small part mainly providing liquidity and confidence to re-ignite the private sector.

    The heavy lifting really came via Congress and its bold and unprecedented fiscal policy of five massive trillion dollar deficits.

    When one peels away the influence of these Deficits via fiscal multipliers, it is seen Structural GDP has avg’d -8.4% over the past six years. This compares to -9.7% during the four year period 1930-1933. Conversely, soft fiscal policy back in the Depression resulted in a -13% contraction in its worst year (1932).

    And the need for healing from the Structural Greater Depression entered March 2007 continues: SGDP was -3.3% last month.

    That said, Keynesianism has its limitations as seen via empirical example. An Austerity Crisis and Severe Recession will be induced if Congress continues its path toward a record $1.4 trillion Deficit and $26 trillion Debt by 2023.

    SGPD chart: