Japan - Unlimted Easing?

[scepticus]

Do you have figures for that?

In this rare instance I have to agree with Mirage. Japanese GDP/capita has slowly ground upwards:

Of course that doesn't have to mean one could find a yield. A stagnant or decling population combined with even tiny real growth can produce a growth in per capita GDP even if aggregate GDP is flat or decling.

[aa3]

I 100% agree with Shinzo Abe. However I've heard this before in Japanese elections that finally they were ready to break the deflation and put money out into the economy. Only to see the same old policies stuck with once the election is over.

This can be approached by a very simple scientific approach. You print a bunch of money and the government spends it broadly into the economy. Economists track the rate of inflation in the economy. If inflation still is at zero or below.. then the next month you print a bigger batch of money.

You keep doing this until the monthly rate of printing causes inflation to go to 2%.. which is a much better target than 1%. (I actually prefer more like 3% just to be safe).

Negative rates are near impossible with such a low inflation target of 1%. You need more like 3% to give yourself some room, so bank interest rates can be at say 0.5% but the inflation is 3%. Causing a negative 2.5% real rates. Then you also have to factor in the invariable bank overheads and spread for risk of default. So again the 1% simply does not allow enough room to actually get negative rates.

Let me make a long story short, if I was the bank of Japan governor and had unlimited power I could guarantee a 3% inflation rate within 6 months.

[aa3]

Another issue is how to spend the printed money. The favorite has been buying bonds, driving up the current value of the bond and down the yield. This makes indebted companies happy, but it doesn't seem to get money to actual consumers to buy things with.

A better plan is to have the government issue long term debt, print money buy the debt. Its the government job then to go and spend that money as widely as possible in the nation. My personal favorite is for the government to issue citizen's dividends to all citizens for the amount of the stimulus. I dont' see how things can be more fair than that.

So Britain has printed £300 billion since the start of the great recession. That works out to £5,000 per citizen, and £20,000 per family of 4.

Since the printing started 4 years ago that is 48 months. 20,000/48= £416 per month per family of 4.

[council dweller]

I 100% agree with Shinzo Abe. However I've heard this before in Japanese elections that finally they were ready to break the deflation and put money out into the economy. Only to see the same old policies stuck with once the election is over.

This can be approached by a very simple scientific approach. You print a bunch of money and the government spends it broadly into the economy. Economists track the rate of inflation in the economy. If inflation still is at zero or below.. then the next month you print a bigger batch of money.

How would they go about spending money broadly into the economy? And remember these are members of Japan's far right, they have nothing to gain and a lot to lose.

They wont do it.

[mirage]

Japanese living standards have risen because the Japanese govt has spent the past twenty years running up the country's national debt from ~60% of GDP in 1990 to ~230% today. As the debt has risen remorselessly so too has the cost of servicing it, even with ZIRP Japan's annual debt service is nearly 25% of GDP.

At no point since 1990 has the Japanese private sector economy proved capable of establishing a sustainable recovery, even though the naive Keynesianism of debt substitution and deleveraging insists this should have been the case. Instead, the country has been beset by numerous deflationary episodes with each successive govt fiscal stimulus or confidence-supporting measure providing only a temporary respite. In parallel with this demographic changes mean that Japan's social care budget has soared while its working-age population is beginning to contract making the task of sustaining the national debt progressively harder with every year.

I entirely agree. Don't get me wrong - Japan is screwed.

I just question the "20 years of non-existent growth" argument and "look how bad periodic mild deflation is" argument given that it has basically held its living standards and GDP ranking in purchasing power parity terms.

I guess the answer to that it is that the GDP "growth" that the other "better managed" countries have enjoyed has a large component of unadjusted-for inflation in it.

[mirage]

In this rare instance I have to agree with Mirage. Japanese GDP/capita has slowly ground upwards:

Of course that doesn't have to mean one could find a yield. A stagnant or decling population combined with even tiny real growth can produce a growth in per capita GDP even if aggregate GDP is flat or decling.

That's OK Sceppy, I often agree with you too!

[aa3]

How would they go about spending money broadly into the economy? And remember these are members of Japan's far right, they have nothing to gain and a lot to lose.

They wont do it.

Ya the east Asian democracies are economically very right wing.

In Japan it kills them the idea of giving people money for nothing. So I thought of a possible Japanese solution. Giving the printed money as a tax rebate for hours gainfully employed. Something like £2 an hour 'matching pay'.

[aa3]

230% of GDP debt is not that troublesome depending on some other factors. One factor is the rate of interest they are paying on it. I believe they are paying less than 2% a year interest on the debt. At 1.50% this would be 3.45% of GDP to service the interest. Servicing the interest is not as bad as it sounds, considering Japanese debt is held by Japanese people, so its another way to get money to the people.

Its not like they are taxing the people and paying the interest. Japanese printing is probably around 10% of GDP for the last several years. I believe they should be printing at least 3 times that amount, or 30% of GDP.

You could have a nation with national debt at 500% of GDP. But if 9/10ths of that debt is held by the central bank its a different story.

[scepticus]

At no point since 1990 has the Japanese private sector economy proved capable of establishing a sustainable recovery, even though the naive Keynesianism of debt substitution and deleveraging insists this should have been the case.

Which is because the "keynesian" prescrption is wrong. I used quotes there because it is not what keynes would have reccomended in the current japanese plight.

He would have advocated using negative nominal rates instead of deficit expansion.

Deficit expansion was part of his programme for overcoming temporary panics in a private sector that was otherwise reasonably healthy. He wouldn't have proposed a programme of deficit spending to fix the unfixable problem of inevitable demographically induced private sector shrinkage. The reason I say this is because keynes, near the end of his General Theory ork, states that the future hs more to learn from Gesell than from Marx.

What is needed to revitalise Japans private sector is for the government to return to a moderate deficit and for the private sector to be handed a below zero interest rate, as Shinzo Abe is suggesting, so they can make their own decisions about investment rather than them all sucking off the teat of never ending JGB issuance. There really is no other way for them.

That said, Abe seems to think a negative rate would increase lending, which is wrong. What it would do is direct what remaining lending there is, to the best places. The japanese don't need more lending, they merely need to shrink gracefully in a manner which keeps japanese GDP/capita steady or even increasing. That can't be achieved by more JGBs, and it can't be achieved by positive nominal interest rates.

[aa3]

There seems to be a limit of how negative rates can go. Because if they were say -5%.. you would take out a 100 billion dollar loan, put all of the future payments into a locked account, and transfer the difference to your personal account.

What I do think is possible is negative real interest rate. Eg.. you can borrow money on a secured property for say 1%.. and the inflation rate is 3%.

To go further negative I think the inflation rate would have to be increased. Say a negative real 5% rate was needed, inflation might need to be 7%.

[scepticus]

There seems to be a limit of how negative rates can go. Because if they were say -5%.. you would take out a 100 billion dollar loan, put all of the future payments into a locked account,

Nope, because the locked account would offer you a -ve rate of interest. Anyway, my point wasn't to discuss the mechanics of negative interest rates, but to point out that this is what is required to hand back control of Japan's economy to its private sector, an outcome which is 20 yers overdue.

[aa3]

Nope, because the locked account would offer you a -ve rate of interest. Anyway, my point wasn't to discuss the mechanics of negative interest rates, but to point out that this is what is required to hand back control of Japan's economy to its private sector, an outcome which is 20 yers overdue.

Hmm very good point. Maybe interest rates can go negative afterall.

I hope that the next prime minister tries going to negative interest rates, so we can get a live test on a massive economy.

I sort of viewed the zero interest rates as the lowest possible bound, so if faced with deflation at 0%, the next step to hit inflation targets must be creating more debt through the state through QE. (or bringing up the ratio of high powered debt free money).

I guess if rates went negative enough, capitalists would be searching for investments that lost the least each year. Like if you borrowed at negative 4%, you would be doing well to find an investment that was declining at 2% a year.

[easy2012]

Hmm very good point. Maybe interest rates can go negative afterall.

I hope that the next prime minister tries going to negative interest rates, so we can get a live test on a massive economy.

I sort of viewed the zero interest rates as the lowest possible bound, so if faced with deflation at 0%, the next step to hit inflation targets must be creating more debt through the state through QE. (or bringing up the ratio of high powered debt free money).

I guess if rates went negative enough, capitalists would be searching for investments that lost the least each year. Like if you borrowed at negative 4%, you would be doing well to find an investment that was declining at 2% a year.

Have you consider a titanium safe and convert your 100 million yen into paper money ?

The lower bound of the monetary policy is - (0% + cost of storage and insurance of paper money). That is going to be around -20bp in large scale. Once that happen, central bank will have lost control over money (i.e. cash only economy).

[FIGGY]

Hmm very good point. Maybe interest rates can go negative afterall.

I hope that the next prime minister tries going to negative interest rates, so we can get a live test on a massive economy.

I sort of viewed the zero interest rates as the lowest possible bound, so if faced with deflation at 0%, the next step to hit inflation targets must be creating more debt through the state through QE. (or bringing up the ratio of high powered debt free money).

I guess if rates went negative enough, capitalists would be searching for investments that lost the least each year. Like if you borrowed at negative 4%, you would be doing well to find an investment that was declining at 2% a year.

Should negative rates not be viewed in the same ways as ta breaks and rises that are designed to drive investement into or out of certian sectors. The neg move would be driving people out of cash into productve investment whilst at the same time encouraging investemnt from those companies that dont have a cash buffer (new start ups)

[200p]

Negative rates is just like putting your car into reverse. Its another gear to use. You dont want people hoarding money in a positive rate world so you stimulate inflation so the value of money goes down. This isn't happening quickly enough. If you try negative rates it might work as the value of your savings effectively has an expiry date before being worthless as soon as it is deposited, relying on no external factors such as inflation (harder to control).

Its like paying everyone in cheese coins. You have to spend it before the mice eat it or it goes off.

How you turn a human into a zombie economy back into a human again? Try reverse gear.

[Guest_FaFa!_*]

I'm not into food and was more than satisfied with the meals at the minshuku we stayed at....raw fish mainly. Yum yum as they say in Japan. We drove right around in a rented car, 3,000km. Btw, even our honeymoon period was no honeymoon period...

Cheers for that. She's been an argumentative nutter from the start, eh?

Hokkaido is famous for its crabs and ramen. Butter ramen in particular, which is rich and warming.

But Hokkaido has really only been widely populated since the early 20th century, so do not expect too much. Japanese people are eager to big up relatively minor differences in cuisine from one region to another and happy to make a 2hr television spectacular about some random town called Dokodarou or something which has noodles a tiny bit thicker than elsewhere. Bless 'em.

This blog has some great photos that will really make you want to eat ramen noodles in Hokkaido: http://www.dannychoo.com/post/en/25696/Hokkaido+Food.html

Yes, I love Japanese food programmes (or rather am forced to love them as it is all Mrs Fafa ever appears to watch)

With regard to this thread:

The basic working assumption then is that an LDP-New Komeito-Third Pole coalition will be in nominal charge of the country as of December 17 -- nominal because the negotiations on a common policy program are likely to be protracted. A person wishing to offer a guess as to the plan of action for the next government would be advised to find the points of commonality in between the policy platforms of the LDP, the Your Party and the Japan Restoration Association, with the LDP defering to its coalition partners in three key areas: subsidies, trade liberalization and the reduction of bureaucratic control over policy.

http://shisaku.blogspot.jp/2012/11/thoughts-on-post-election-landscape.html

[council dweller]

Cheers for that. She's been an argumentative nutter from the start, eh?

Yes.

At that time she was a nutter 5% of the time, now she's a nutter 95 to 100% of the time. Of course I'm not attached anymore, this makes her angry.

She said the other day "I never get any energy from you these days" Yeah right...that's what I intend.

I believe that it's her 'pain body' (see Eckhart Tolle- pain body on youtube)