The Japanese are printing money hand over fist, faster than pretty much anyone else. So how is it in their case, "not that bad" or "evil"?
Bundesbank´s Weidmann:"ECB intervention would be violation of laws."
- Thread starter ASusilovic
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I think his point was that everyone is fighting off a potential recession, when a recession isn;'t the end of the world. The Japanese printed and STILL got a recession, and it wasn't the end of the world.
Yet.
The problem is that the recession the Japanese have still comes with all the debt. If a country could accept that recessions are part of the natural cycle without taking on all the debt (and currency devaluation) to try to fight it, it would be ahead of the game.
Well, I'd argue that Japan is fighting something a bit bigger and more fundamental than a recession. Maybe the same in Europe. Nobody knows what the right answer is, but, arguably, we have all sorts of precedents that taking on debt at the right moment and/or ccy devaluations kinda work.
Well, for the US, for one, a long time back... For Iceland, which appears to be everyone's favorite recent example of how to deal with a crisis. Worked exceedingly well for the Scandis during their crisis in the early 90s. There's a whole slew of other examples.
Currency devaluation wasn't what saved Iceland. Telling it's creditors to piss off is what allowed them to start fresh. As a result, their economy tanked for a period (currency, etc) and now they're beginning to show signs of life.
When I asked "for whom" I meant what class of people. Ie, currency devaluation is not helping the US - at least not the people. We're all paying higher costs as a result, higher oil and food, etc. For the seniors on fixed income payment pegged to an artificially bullshit low CPI the government "Creates" it is a living hell.
So I ask again, for whom does it benefit? The bankers? The issuers of debt (the bloated government)?
When I asked "for whom" I meant what class of people. Ie, currency devaluation is not helping the US - at least not the people. We're all paying higher costs as a result, higher oil and food, etc. For the seniors on fixed income payment pegged to an artificially bullshit low CPI the government "Creates" it is a living hell.
So I ask again, for whom does it benefit? The bankers? The issuers of debt (the bloated government)?
Well, firstly, a devaluation and a default are, in many ways, similar (certainly to a local ccy bond investor). Secondly, again, you *think* it's not the ccy devaluation that saved Iceland. The fact of the matter is that trade-weighted ISK is now almost 50% less than it used to be before 2008. How do you know that it's the default and not the ccy that really allowed the Icelandic economy to get back on its feet? Again, if Iceland doesn't float your boat, there's a lot of other examples.
As to what class of people it benefits, it's easy enough to look at what sector of the economy performs best after a devaluation. All else being equal, banks normally get killed, 'cause they inevitably suffer runs, etc. The govt suffers, 'cause normally they're locked out of the bond mkt for a while (although with Iceland, it was quite a short hiatus). Property mkt probably benefits, 'cause property becomes cheaper to external investors. Manufacturing is what really kicks off, like, for example, it did in 2009-10 in the UK after the pound depreciated 30%.
In your example(s), you're referring to a one-off large devaluation. That's not what we're talking about here. We're talking about steady, long term practices resulting in a devaluation over time. Aka, printing or monetization. And in the case of the US, we're talking about doing it with a reserve currency (with all commodities priced in it).
And all it takes to stymie the "Manufacturing benefits" argument is to have a large manufacturing nation peg to your currency, and that whole devalue to prosperity goes right out the window leaving you (or the US, as the case may be) with all the negative effects of the lower currency, and none of the positive.
"Natural recessions" are small, shallow, short-lived. They are due to temporary excesses which capitalism itself corrects. (Too much of something? Price goes down.. people stop making it because it's so cheap, can't make a profit. To little of something? Prices go up. People jump into that market thinking they can make a bundle.. soon, production brings down prices.)
In a matter of speaking, we wouldn't even HAVE recessions of any consequence if it weren't for governments and central banks.
In the US.. what has been accepted as "cyclical economy" is really just Fed manipulation to create inflation... followed by Fed-induced recessions to cool the inflation they created.
Except for one thing... it REALLY IS "different this time".
Indeed, that's what I am talking about... I am not suggesting a sharp one-off devaluation is always and everywhere the right answer, but, I am pretty sure, the weight of precedent is sufficient to not dismiss it out of hand. Moreover, it all depends on your starting point, which is different for every crisis.
Indeed... But that's the result of the unique historical "arrangement" that the US has with its main trading partner.