Monday, November 3, 2014

Marshall Auerback — Why Should The BOJ’s ‘Shock And Awe’ Work Any Better This Time Around?

By 1998, the Japanese government began to realise the errors of their ways and started to spend again, with the result that the economy began to grow (and the deficits came down as tax revenue increased) until the US recession in 2002 contributed to an export collapse. Once exports recovered and public spending support resumed, the economy then grew relatively strongly despite the lower sovereign debt ratings. 
The same thing could happen today if Japan pursues a policy of growth, not fiscal consolidation. The bond buying program might be pleasing for the global stock market community, but it’s an irrelevance as far as Japan’s economy goes.
Macrobits by Marshall Auerback
Why Should The BOJ’s ‘Shock And Awe’ Work Any Better This Time Around?
Marshall Auerback

5 comments:

Matt Franko said...

"That might be good from a distributional point of view (reduces the corporate welfare that benefits mostly the rich and high income earners anyway) but from a macroeconomic perspective it requires an equal stimulus coming from fiscal policy to avoid a decline in growth."

why would we have to increase fiscal to offset a drop in interest income "to the rich" when that cohort just saves it anyways?

Ignacio said...

The wrecking of the yen is gonna bankrupt thousands of companies and increase cost-push inflation, while incomes will keep stagnant.

All this moronic clueless CB policy has to stop.

Unknown said...

I actually see QE as a worse subsidy than interest spending on T-securities. The reason being the difference in who holds the Govt liabilities.

For example, in a reserve only system with a 5% FFR implemented through IOR and reverse repos, the only institutions that receive that interest income would be banks. If the Govt doesnt allow non-banks to have interest bearing accounts at the Fed through T-securities issuance, than there is no way for non-banks to get that interest.

So in effect, we would have no securities accounts and ~$18 trillion in reserve accounts. 5% IOR on $18 T is $900 BILLION in interest spending that goes 100% to banks.

But, with $18T in securities and a 5% FFR, that $900 Billion would go to foreign Govts, pension funds, individuals, insurance companies who have those securities accounts, along with the banks.

Which is one of the reasons why I dont understand the banking sectors desire to not pursue this avenue. $900 billion every year in guaranteed interest income is a staggering amount of money. And I dont get why the banks would want to share that money.

Ryan Harris said...

When Hugo Chavez or Putin nationalizes assets to promote social issues, it is an affront to capitalism. When Japan nationalizes real estate, bonds and stock assets, it is stimulus to help capitalism.

*scratches head* Right then.

Matt Franko said...

Ryan , head scratching is a physical symptom of a lack of cognitive bias...

Go get yourself some political cognitive biases and your hair will always look perfect....