another hint from the austrian, if only by inference as he was discussing another topic
From: H
Sent: Tue, March 29, 2011 3:22:30 AM
Subject: Re: Comments - Week of March 28
If interest rates on JGB's were to begin rising, there would be nothing the BoJ could possibly do about that, except perhaps to adopt a very tight policy. Certainly it will be impossible for it to keep rates from rising by monetizing government debt (I offer the ECB's and the Fed's non-successes in these endeavors as recent empirical proof).
If JGB rates were rising because the market loses confidence in the government's solvency or in the conduct of monetary policy, it would probably be very late in the game with regards to adopting viable countermeasures. Chances are that fresh mistakes would be made.
Given the extreme size of Japan's outstanding government debt relative to its economy, one could also well argue that it is already in a debt trap. It's not a situation that is completely beyond redemption imo, but that would require a
major change in course.
However, regardless of Japan's debt problems due to its government's past mistakes, Shirakawa is correct that printing more money won't solve Japan's economic problems, but will instead achieve the exact opposite and make
them even worse. No wealth can be created by printing money. Absolutely nothing positive can be achieved for an economy by doing that, except for a brief illusion of prosperity that in reality consumes even more scarce capital.
This is why whenever inflationary policies are adopted in an effort to 'give commerce a shot in the arm' so to speak, recession immediately returns when the inflationary policies are abandoned again. In that sense there should be no
illusions regarding QE in the US either. The situation is very much analogous to that of revolutionary France with its inflation of assignats. The moment the inflationary push ends, one is back to square one, except for the fact that the
economy is structurally even weaker than prior to the inflation.
On Sat, Mar 26, 2011 at 2:31 AM, M wrote:
[Re what you mentioned,] Shirakawa has it exactly right of course. If the central bank buys government bonds with yen created from thin air, then it is actually misleading to call this activity 'funding'. At any given time, all economic activities are already funded, and what funds them is not money, but the pool of real funding. If the government now obtains a gob of counterfeit money via the BoJ, then it will disturb these pre-existing arrangements and plans by bidding for resources from the pool of real funding while effectively contributing nothing to it. This should be best termed 'stealing'. It can not possibly help the economy to create any additional wealth - it will achieve the exact opposite, further impoverishment.
I agree H, but if say interest rates on JGB's start to rise to near 3%, doesn't that simply put Japan into a debt trap? And if so, that means that they either have to default at some stage or simply monetize, tanking the currency? It appears that in the coming years, Japan is screwed either way.....no? |
