A question

>   
>   (email exchange)
>   
>   On Thu, Feb 7, 2013 at 1:06 PM, wrote:
>   
>   There was an almost sensible article by Samuelson in the WP today. What caught my eye
>   was this comment that claims Japan failed at using Keynsian over the years. Can you
>   clarify this:
>   
>   Here is the comment:
>   

The problem is that economists have not recognized the failure of Keynsian economics. I think the uniform failure of deficit spending to promote growth has to be recognized.

They just didn’t run large enough deficits.

If the model worked, we would not be talking about Japan’s lost decade, or more accurately lost generation. Japan’s debt is now over 200 percent of GDP.

So?

Their growth rate in response to an ocean of deficits is uniformly poor.

Because they aren’t large enough to cover their savings desires.

The story is similar in Europe, particularly Southern Europe. There is no way Uncle Sam can continue to borrow 40 cents of every dollar spent.

Why not?

When governments get this far behind, they usually pay off the debt with hyper inflation.

Usually? hardly!

This never ends well. The usual outcome is social disintegration followed by dictatorship. For example, the hyper inflation of Weimar Germany after WWI lead to Hitler.

That was due to deficits of 50% of GDP to sell marks for fx and gold to pay war reparations. Any other examples???

The Federal Reserve’s constant quantitative easing in search of economic growth is going to lead to increasing inflation and interest rates.

Japan’s been doing it for over 20 years and still has no inflation and a strong currency.

They are buying 70 percent of the debt the Federal Governments incurs this month. Once Once interest rates go up, the deficits will balloon, 160 billion dollars a year for each percentage point.

So?

We have got to cut spending and stop the coming train wreck.

What train wreck? The train wreck is the current state of affairs from a deficit that’s too small.

Note that every move towards deficit reduction in Japan made things worse, and every supplementary budget made things better. they just haven’t ever done enough

>   
>   Its a typical RW comment, but what am I missing. How can you keep stating Japan did this
>   wrong for the other reason?
>   

UK Daily | U.K. Jobs Grow Fastest in Almost 2 Years

If they just wouldn’t add to the austerity measures the deficit is plenty high enough for a reasonable recovery, albeit from unconscionably low levels caused by their fiscal policies.

UK Headlines:

Bank of England Leaves Interest Rate Unchanged at 0.5 Percent
U.K. Fourth-Quarter Construction Increases More Than Estimated
Carney Plays Down Talk of Radical Policy Change
U.K. Jobs Grow Fastest in Almost 2 Years
Cameron Demands EU Budget Cuts as U.K. Tories Grow More Restive
U.K. Manufacturing Rises Most Since July on Machinery Output

Posted in UK

Draghi Signals Euro Strength May Hurt ECB’s Recovery Efforts

The problem is there’s nothing he can do about it short of backing off on supporting fiscal austerity.

Buying fx is not an option ideologically, as it would give the appearance that the fx reserves are backing the euro.

Late addition:
One more thing, Japanese buying of member nation euro bonds necessarily weakens the yen.

So does Draghi want that to stop/rates to go up?

Draghi Signals Euro Strength May Hurt ECB’s Recovery Efforts

By Matthew Brockett and Stefan Riecher

Feb 7 (Bloomberg) — “The exchange rate is not a policy target, but it is important for growth and price stability,” ECB President Mario Draghi said at a press conference. “We want to see if the appreciation is sustained, and if it alters our assessment of the risks to price stability.” Draghi noted that the ECB will publish new economic projections next month and stressed that officials will “maintain our accommodative monetary stance.” Draghi said economic weakness will prevail only “in the early part” of this year and “later in 2013, economic activity should gradually recover, supported by our accommodative policy stance.” Still, risks to the economic outlook remain on the downside, he said. Draghi said if monetary policies produced “consequences on the exchange rate that do not reflect the G-20 consensus, we will have to discuss this.”

Aso: Yen Has Weakened More Than Intended

Now they give the nod to their life insurance companies and pension funds to back off?

Aso: Yen Has Weakened More Than Intended

Feb 8 (Reuters) — Japanese Finance Minister Taro Aso said on Friday that the yen has weakened more than intended during its recent decline to around 90 per dollar from around 78 yen a few months ago.

The dollar fell about 1 percent versus the yen shortly after Aso comments, as traders pared bets on further declines in the Japanese currency.

Since November, the yen has fallen around 16 percent versus the dollar in anticipation that new Prime Minister Shinzo Abe will push his agenda of aggressive monetary policy easing to weaken the currency.

The finance minister’s comments indicate some surprise within the government at how quickly those expectations among traders translated into declines in the yen.

“It seems that the government’s policies have fueled expectations and the yen weakened more than we intended in the move to around 90 from 78,” Aso told lawmakers in the lower house budget committee.

Recently, Aso has reacted strongly to criticism from German and other European officials that Japan is intentionally trying to weaken its currency with monetary easing, so his comments on Friday could cause some confusion about Japan’s currency policy.

The dollar fell 1.3 percent on the day to 92.29 yen. The dollar hit an almost 3-year high of 94.075 yen earlier in the week on expectations the Bank of Japan will pursue aggressive monetary easing to shore up the economy.

Abe, while campaigning for an election last year, repeatedly said his economic policy had three arrows: monetary policy easing, fiscal spending and structural reforms to increase competitiveness.

Abe, since taking office in December, has put the central bank under relentless pressure to do more to lift the economy and made it clear he wants someone in the job who will be bolder than the outgoing BOJ chief in loosening monetary policy.

Current BOJ Governor Masaaki Shirakawa will leave his post on March 19.

Last month,the BOJ signed a joint statement with the government adopting a new 2 percent inflation target as a sign of its commitment to fighting deflation. It also announced a shift to “open-ended” asset buying.

Officials from the Group of 20 economic powers say that although top economic policymakers are likely to discuss how Japan’s new monetary stance is weakening the yen when they meet next month, they will stop short of calling it a competitive devaluation.