The real question is, when does the music stop? There are reasonable arguments that suggest Japan could hang on another 10 or even 20 (!) years. When does the fear start? Once it starts and the powers that be fail to contain it, the end will come swiftly. But it is hard to gauge that moment in advance.
Paul Krugman economics: Deny, deny, deny!
- Thread starter Max E.
- Start date
The real question is, when does the music stop? There are reasonable arguments that suggest Japan could hang on another 10 or even 20 (!) years. When does the fear start? Once it starts and the powers that be fail to contain it, the end will come swiftly. But it is hard to gauge that moment in advance.
Perhaps, but we sure as hell can look at how much has been done thus far. I'm not pulling these numbers out of my ass, you know. They're widely available. Just look at the Federal Reserve's balance sheet.
It may not end all up as inflation, but it is already monetization. If, at a later date, the Fed is able to pull back (and even some Fed members have expressed doubt that this can happen orderly), then we'll talk. Until then, money has entered the system out of thin air. Call it whatever pithy phrase turns you on.
Again, you're hiding behind semantics. As I have said several times now, just because we have a second step where the Fed requires primary dealers to buy debt it then buys from them, is just bullshit on paper. We're already buying debt with newly created money.
Great. So while you continue to offer opinions, I'll stick to hard data, if you don't mind. That's what a true debate is.
Aaaand here we go back into this again. You'll pardon me if I stop responding to this, and the rhetorical - yet highly opinionated - statement that followed it in your last post. What I know, is that you know very little about this subject. Words are wind.
Ah, I was wrong. There was one thing left commenting on. That's the thing about history - it takes time to happen. But to say "Keynesians have not been wrong yet" is silly. We're going through what we're going through because Keynesians have had their way the last few decades. They seek to perpetuate it endlessly. The reason they don't change is because they don't know what else to do. The textbooks aren't working anymore. Again, math doesn't care what they do. It just is.
Okay, let me put it you then, how much longer can they away with ZIRP?
Wednesday, March 13, 2013
Fed Watch: The Importance of Printing Your Own Currency
Tim Duy:
" The Importance of Printing Your Own Currency, by Tim Duy: Quick post - running to the final classes of the term....
" Jim Hamilton is defending his recent work calling into question the sustainability of the US debt load. Brad DeLong takes a first shot at Hamilton's post here. I take issue with this paragraph:
" Whether a country is able to borrow in its own currency is completely irrelevant for the above calculation. Yes, it means the country likely won't technically default on the debt, and could always create new money to pay off the creditors. But as Reis (2013) and Leeper (2013) have recently explained, printing money does not generate any magical resources with which to resolve a real fiscal shortfall. The central bank could create some more inflation, but anticipated inflation does nothing to alter the above determination of the limits on government debt. Anticipated inflation would just cause the nominal interest rate R and the nominal growth rate g to both increase by the same amount, and therefore would do nothing to change the net growth rate r = R - g which is the key parameter in our equation for sustainability (see for example equation (2) in Econbrowser March 6 or equation (8) in our paper).
" This ignores the possibility of financial repression - meaning that the government can force yields on its own debt lower, thereby ensuring that inflation, even anticipated inflation, decreases real interest rates. Back to another post by DeLong:
" ...and (e) even if we start to tip over into an unsustainable debt-path scenario, we can handle it, because that is why God made financial repression.
" Let me spell (e) out a little bit. If investors start to fear that the U.S. debt trajectory is truly unstable, the immediate consequence is a fall in the dollar and an export boom, with somewhat higher domestic inflation. Because the U.S. government regulates the financial system, it can set reserve requirements where it likes--it can thus use its reserve requirements to force banks to hold Treasuries, and if it doesn't like the interest rate at which banks are holding Treasuries, it can up reserve requirements some more.
" No, financial repression is not ideal. But it is not a disaster like a collapse of confidence in the debt and the currency....
" Arguably, we are currently witnessing a real-time example in Japan's Abenomics policy mix. The Yen has depreciated significantly, consistent with expectations of inflation. And there is even growing evidence that wages are responding as well. From FT Alphaville:
" One of the big determinants of whether âAbenomicsâ manages to pull Japan from its deflationary spiral is through wage growth. Inflation canât really kick off or arguably even begin without rising wages. One can argue about how important wage growth is, or where it fits in causality-wise â and weâll come to that later. But it is â or will be â an important signal as to whether this three-pronged approach of the new-ish Japanese government is working.
" And actually, it might be catching on. The FTâs Ben McLannahan wrote in early February that the decision by convenience store chain Lawson Inc to raise wages of two-thirds of its staff by 3 per cent could be quite significant..
" According to Hamilton, if we have higher anticipated inflation, we should see higher nominal interest rates on government debt, thereby debt sustainability is deteriorating. But alas:
<img src="http://economistsview.typepad.com/.a/6a00d83451b33869e2017ee94545e4970d-500wi">
"Time and time again, Japan sticks out like a sore thumb that those preaching the unsustainability of government debt want to sweep under the rug with the "Japan is a special case" story (a country fixed effect). But it seems more likely that Japan's economy is behaving exactly as you might expect given that it issues debt in its own currency. In other words, Japan is just a normal case pushed to the extreme. "
Fed Watch: The Importance of Printing Your Own Currency
Tim Duy:
" The Importance of Printing Your Own Currency, by Tim Duy: Quick post - running to the final classes of the term....
" Jim Hamilton is defending his recent work calling into question the sustainability of the US debt load. Brad DeLong takes a first shot at Hamilton's post here. I take issue with this paragraph:
" Whether a country is able to borrow in its own currency is completely irrelevant for the above calculation. Yes, it means the country likely won't technically default on the debt, and could always create new money to pay off the creditors. But as Reis (2013) and Leeper (2013) have recently explained, printing money does not generate any magical resources with which to resolve a real fiscal shortfall. The central bank could create some more inflation, but anticipated inflation does nothing to alter the above determination of the limits on government debt. Anticipated inflation would just cause the nominal interest rate R and the nominal growth rate g to both increase by the same amount, and therefore would do nothing to change the net growth rate r = R - g which is the key parameter in our equation for sustainability (see for example equation (2) in Econbrowser March 6 or equation (8) in our paper).
" This ignores the possibility of financial repression - meaning that the government can force yields on its own debt lower, thereby ensuring that inflation, even anticipated inflation, decreases real interest rates. Back to another post by DeLong:
" ...and (e) even if we start to tip over into an unsustainable debt-path scenario, we can handle it, because that is why God made financial repression.
" Let me spell (e) out a little bit. If investors start to fear that the U.S. debt trajectory is truly unstable, the immediate consequence is a fall in the dollar and an export boom, with somewhat higher domestic inflation. Because the U.S. government regulates the financial system, it can set reserve requirements where it likes--it can thus use its reserve requirements to force banks to hold Treasuries, and if it doesn't like the interest rate at which banks are holding Treasuries, it can up reserve requirements some more.
" No, financial repression is not ideal. But it is not a disaster like a collapse of confidence in the debt and the currency....
" Arguably, we are currently witnessing a real-time example in Japan's Abenomics policy mix. The Yen has depreciated significantly, consistent with expectations of inflation. And there is even growing evidence that wages are responding as well. From FT Alphaville:
" One of the big determinants of whether âAbenomicsâ manages to pull Japan from its deflationary spiral is through wage growth. Inflation canât really kick off or arguably even begin without rising wages. One can argue about how important wage growth is, or where it fits in causality-wise â and weâll come to that later. But it is â or will be â an important signal as to whether this three-pronged approach of the new-ish Japanese government is working.
" And actually, it might be catching on. The FTâs Ben McLannahan wrote in early February that the decision by convenience store chain Lawson Inc to raise wages of two-thirds of its staff by 3 per cent could be quite significant..
" According to Hamilton, if we have higher anticipated inflation, we should see higher nominal interest rates on government debt, thereby debt sustainability is deteriorating. But alas:
<img src="http://economistsview.typepad.com/.a/6a00d83451b33869e2017ee94545e4970d-500wi">
"Time and time again, Japan sticks out like a sore thumb that those preaching the unsustainability of government debt want to sweep under the rug with the "Japan is a special case" story (a country fixed effect). But it seems more likely that Japan's economy is behaving exactly as you might expect given that it issues debt in its own currency. In other words, Japan is just a normal case pushed to the extreme. "