REUTERS POLL: 61 PCT OF JAPAN BIG FIRMS VERY WORRIED JAPAN MAY FACE EUROPE-LIKE DEBT CRISIS IN NEAR FUTURE
In case you thought those big firms understood the monetary system.
Category Archives: Japan
MMT to the ECB- you can’t inflate, even if you wanted to
With the tools currently at their immediate disposal, including providing unlimited member bank liquidity,lowering the interbank rate, and buying euro national govt debt, the ECB has no chance of causing any monetary inflation, no matter how hard it might try. There just are no known channels, direct or indirect, in theory or practice, that connects those policies to the real economy. (Note that this is not to say that removing bank liquidity and national govt credit support wouldn’t be catastrophic. It’s a bit like engine oil. You need a gallon or two for the engine to run correctly, but further increasing the oil in the sump isn’t going to alter the engine’s performance.)
Lower rates sure doesn’t do the trick. Just look to Japan for going on two decades, the US going on 3 years, and the ECB’s low rate policies of recent years. There’s not a hint of monetary inflation/excess aggregate demand or inflationary currency weakness from low rates. If anything, seems to me the depressing effect on savers indicates low rates from the CB might even, ironically, promote deflation through the interest income channels, as the non govt sector is necessarily a net receiver of interest income when the govt is a net payer. (See Bernanke, Reinhart, and Sacks 2004 Fed paper on the fiscal effect of changes in interest rates.)
And if what’s called quantitative easing was inflationary, Japan would be hyperinflating by now, with the US not far behind. Nor is there any sign that the ECB’s buying of euro govt bonds has resulted in any kind of monetary inflation, as nothing but deflationary pressures continue to mount in that ongoing debt implosion. The reason there is no inflation from the ECB bond buying is because all it does is shift investor holdings from national govt debt to ECB balances, which changes nothing in the real economy.
Nor does bank liquidity provision have anything to do with monetary inflation, currency depreciation, or bank lending. As all monetary insiders know, bank lending is never reserve constrained. Constraints on banking come from regulation, including capital requirements and lending standards, and, of course credit worthy entities looking to borrow. With the ECB providing unlimited liquidity for the last several years, wouldn’t you think if there was going to be some kind of monetary problem it would have happened by now?
So the grand irony of the day is, that while there’s nothing the ECB can do to cause monetary inflation, even if it wanted to, the ECB, fearing inflation, holds back on the bond buying that would eliminate the national govt solvency risk but not halt the deflationary monetary forces currently in place.
So where does monetary inflation come from? Fiscal policy. The Weimar inflation was caused by deficit spending on the order of something like 50% of GDP to buy the foreign currencies demanded for war reparations. It was no surprise that selling that many German marks for foreign currencies in the market place drove the mark down as it did. In fact, when that policy finally ended, so did the inflation. And there was nothing the central bank could do with interest rates or buying and selling securities or anything else to stop the inflation caused by the massive deficit spending, just like today there is nothing the ECB can do to reverse the deflationary forces in place from the austerity measures.
So here we are, with the ECB demanding deflationary austerity from the member nations in return for the limited bond buying that has been sustaining some semblance of national govt solvency, not seeming to realize it can’t inflate with its monetary policy tools, even if it wanted to.
Post script:
The only way the ECB could inflate would be to buy dollars or other fx outright, which it doesn’t do even when it might want a weaker euro, as ideologically they want the euro to be the reserve currency, and not themselves build fx reserves that give the appearance of the euro being backed by fx.
Japan’s Hidden Jobless Hits 4.69mn, Worse Than After Lehman Shock
Japan’s Hidden Jobless Hits 4.69mn, Worse Than After Lehman Shock
November 16 (Nikkei) —The number of Japanese that want to work but are not actively seeking employment has surpassed levels from after the global financial crisis erupted, according to government data released on Tuesday.
Some people have given up searching for work because they believe that the jobs they desire are not available. Known as hidden unemployment, such individuals are not reflected in official unemployment statistics, which cover those actively hunting for jobs by going to employment centers, for example.
The hidden jobless in Japan jumped by 190,000 from a year earlier to 4.69 million in the July-September quarter, excluding the three prefectures hit hardest by the March 11 disaster, the Internal Affairs Ministry said.
The figure is nearly 70% larger than the number of officially unemployed people. It is also higher than the 4.61 million in the July-September quarter of 2009, when the employment market deteriorated sharply after the financial crisis.
Of the hidden jobless, the number of women grew by 60,000 while men surged by 130,000. Asked why they are not seeking work, more people replied that there are no jobs that match their skills or their desired conditions such as pay and work hours. The strong yen and concerns over power shortages are seen as factors resulting in a dearth of openings for good jobs.
The number of unemployed people fell 430,000 on the year to 2.77 million for the July-September quarter, excluding the three disaster-hit prefectures. Of this figure, those that have been out of work for at least a year declined by 190,000 to 1.03 million, down for the second straight quarter. While this suggests that fewer people are without work over the long term, some may have exited the employment market by giving up on the job search.
CNBC’s John Carney on Krugman and MMT
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> (email exchange)
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> On Sat, Nov 12, 2011 at 2:19 PM, Stephanie wrote:
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> John Carney loving on us again
Yes!
Paul Krugman Goes MMT on Italy
By John Carney
November 11 (CNBC) — It seems pretty clear that the school of thought known as Modern Monetary Theory has made a big impact on Paul Krugman’s thinking.
As Cullen Roche at Pragmatic Capitalism points out, just a few months ago the spread between bonds issued by Japan and Italy, which have similar debt and demographic issues, was perplexing Krugman.
“A question (to which I don’t have the full answer): why are the interest rates on Italian and Japanese debt so different? As of right now, 10-year Japanese bonds are yielding 1.09%; 10-year Italian bonds 5.76%.
…I actually don’t have a firm view. But it seems to be an important puzzle to resolve.”
But today’s column is basically right out of MMT.
“What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of Third World countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.”
Payrolls and a Fed rant
Utter failure of policy.
The Fed was certain it knew what Japan had done wrong and wasn’t going to make THOSE mistakes.
So it
Cut rates much more aggressively.
Said it would do whatever it takes.
Figured out how to do its job as liquidity provider after only 6 months of alphabet soup programs.
Did heaps of Quantitative Easing.
Did the twist.
And now, realizing its done about all it can do, says monetary policy can’t do it all.
And still fails to recognize publicly the actual problem is the budget deficit is way too small.
And doesn’t directly inform Congress that
there is no such thing as a solvency problem,
the Fed controls government interest rates, and not the market,
there is no long term deficit problem with regards to finance,
the only thing we owe China is a bank statement,
Quantitative Easing and rate cuts remove interest income from the economy, which allows the deficit to be that much larger,
etc.
as we continue to go the way of Japan.
Karim writes:
Some improvement around the edges but the larger narrative is employment rising only at a rate fast enough to keep the unemployment rate stable (not higher or lower)
- NFP 80k with net revisions 102k
- Unemp rate down to 9% from 9.1%
- Average hourly earnings 0.2% and aggregate hours 0.1% barely ok for labor income once adjusted for inflation
- Weather may have played a small role as construction employment turned from +27k to -20k
- Diffusion index improved from 56.7 to 60.7; while encouraging in that the majority of industries are adding jobs, doesn’t say or mean they are necessarily adding jobs at an increasing rate
- Other positives are median duration of unemployment falling from 22.2 weeks to 20.8 weeks and U6 measure falling from 16.5% to 16.2%
- Don’t think this would have a big impact on the new Fed forecasts we saw the other day
Noda Makes Consumption Tax Hike Pledge At G-20 Summit
The world’s poster child for losing decades looks to stay a step ahead:
(Nikkei)–Prime Minister Yoshihiko Noda vowed Thursday to gradually raise the nation’s consumption tax to 10% by mid the 2010s during a summit meeting of the Group of 20 leading economies in Cannes, France.
The announcement at the summit has effectively made the tax hike an international pledge, and is expected to be included in an action program due out Friday.
Noda stressed the importance of rebuilding debt-ridden Japanese finances and told G-20 leaders that fiscal consolidation is a must “for Japan to be put back on a sound economic growth path, regardless of the debt crisis in the euro zone.”
He also spoke to reporters that a Diet dissolution should be carried out before implementing the tax hike. “If we go to the people in a general election (to seek a mandate on the consumption tax hike), we should do so after passing related bills but before implementing them,” he said.
As to Japan’s participation in the Trans-Pacific Partnership free trade pact, Noda told reporters he will accelerate efforts to iron out differences within the Democratic Party of Japan, which he leads. “We have to close ranks and shouldn’t be split,” he said.
Noda showed his flexibility in making concessions to a controversial redemption period of reconstruction bonds aimed at funding rebuilding efforts of the March 11 disaster, in hopes of enlisting support from the Liberal Democratic Party and New Komeito, the main opposition parties.
“Our policy chief said that we envisage a 15-year period (for the redemption of reconstruction bonds), but there’s room for concessions,” he said.
Early Holiday Cheer…
As discussed last week, the latest euro package just announced is unravelling quickly as markets again realize there is no actual substance, and no operational path with regards to carrying any of it out. So things will deteriorate as described until markets again force further ‘action.’
At the same time, the austerity continues to weaken the euro economies, with Q4 potentially going negative, driving deficits that much higher in the process.
The ‘answer’ remains the ECB writing the check, which they’ve sort of seemed to recognize, but they remain (errantly) concerned that reliance on the ECB is inherently inflationary, and thereby violates the ECB’s mandate for price stability. So it won’t happen until things again get bad enough to force it to happen.
The catastrophic risk remains a failure, when push comes to shove, to allow the ECB to write the check as they have been doing to allow it all to muddle through.
The range of outcomes couldn’t be wider. Write the check and not much happens, don’t write the check and there is unthinkable collapse.
Meanwhile, the 1% running the US looks to be trying to take the lead in the global austerity race to the bottom as the Democrats in the super committee on deficit reduction have led off by proposing a $4 trillion deficit reduction package.
Toss in West Texas crude prices heading to Brent levels of about $110/barrel as the strategic petroleum reserve release winds down over the next three weeks and the looks to me like the US consumer crawls back into his foxhole just in time for the holiday season.
Not to mention Japan now darning the torpedoes and buying dollars to take back a bit of the export market they lost by kowtowing to former tsy sec paulson’s demands to not be a ‘currency manipulator’ in the context of still weakening global demand in general.
The number one threat to world order remains a failure to sustain demand. The good news is sustaining aggregate demand is a simple matter once the monetary system is understood. The bad news is there seems to be no one of authority who doesn’t have it all backwards.
Japan’s Fujimura Says Japan May Boost Europe Bailout Bond Purchases
The modern day saga of the Trojan Horse continues.
as the euro debt crisis gives Japan the cover to do something
otherwise highly problematic.
Japan buying euro zone debt is a way to bolster the euro vs the yen
and thereby support Japan’s exporters.
Fujimura Says Japan May Boost Europe Bailout Bond Purchases
October 5 (Bloomberg) — Japan may increase its purchases of bonds to finance Europe’s debt crisis rescue fund, Chief Cabinet Secretary Osamu Fujimura said.
Fujimura told reporters today in Tokyo the government “would like to consider” buying more bonds from the European Financial Stability Facility to help stabilize the region. Japan bought more than 20 percent of the fund’s initial five-year, 5 billion euro ($6.6 billion) bonds in January, and purchased another 1.1 billion euros of 10-year EFSF bonds issued in June.
“Europe’s fiscal problem is also very important for Japan in terms of restoring market confidence, and the Europeans are grappling with this,” Fujimura said.
Japan- Government, DPJ Agree On Third Extra Budget
This spending does add net financial yen denominated assets to the private sector:
Japan DPJ Policy Chief Maehara: Government, DPJ Agree On Third Extra Budget
By Kosaku Narioka
September 27 (Dow Jones) — The Japanese government and the ruling Democratic Party of Japan agreed on the third extra budget, totaling about Y12 trillion, for the fiscal year ending March 2012, the DPJ policy chief Seiji Maehara said Tuesday.
Under the plan, non-tax revenue amounts to Y7 trillion, he said. The government is going to sell all Japan Tobacco Inc. (2914.TO) shares it owns to generate part of the revenue, he said.
The government is planning to issue reconstruction bonds and is going pay them off in 10 years or longer, he said.
From Japan’s Noda
Noda, who was finance minister in the previous Cabinet, said he is ready to intervene in foreign exchange markets if necessary and promised that tax increases to fund the rebuilding of the disaster-stricken areas will not take place before cutting more wasteful spending of taxpayers’ money.
But he said it would be inevitable to raise some kinds of core taxes if the government still finds that there is a shortage of funds for the reconstruction work after all its efforts.