Bank of Japan, in a Surprise, Adopts Negative Interest Rate
nytimes.com
nytimes.com
It's not impossible that we will look back in 20 years and see Japan not as some sort of failure but simply as the first society that had to learn to live without growth.
Why can't we just have...enough? Why don't we create things that last decades instead of years? We can scale down, consume less, pollute less. We could have fewer factories that produce higher quality products. We could pay people more. We could have a minimum income so we'd get more art and entertainment instead of useless plastic shit.
It's not possible because our current heavily capitalistic world view is ingrained so deeply in the minds of everyone in high income countries.
I've mentioned it before, but Debt: The First 5,000 Years is an incredible book that goes into the history of money, debt and slavery. It's a life-changing book.
https://en.wikipedia.org/wiki/The_General_Theory_of_Employme...
I'm not sure if that example is exactly equivalent to breaking windows and paying people to fix them (for example, maybe it matters a great deal for his view that it's the government which is paying for the demand stimulus).
Yes, I would agree that implementing a basic income is not a problem of technical feasibility or lack of resources but a problem of user buy in. I've read at least half of Graeber's book Debt: The First 5000 Years, pretty interesting stuff which points out some of the false assumptions at the heart of the mainstream sociopolitical game. For anyone interested, here is the pdf version:
https://libcom.org/files/__Debt__The_First_5_000_Years.pdf
It will definitely change the way you view "debt" which is such an ambiguous term in this day and age of trillion dollar debts.
Even without growth, you have a lot of social mobility -- downwards as well as upwards.
Surely Europe between, say 1760 and 1900 looks different than China in the same period. Perhaps 100 years from now, it will be decided that the Chinese Mandarins were right after all , but that's not consistent with how we look at the world today.
And given some of the posts I've seen here, maybe it will be like that. You didn't have to explain why growth was of value 20 years ago - outside a few odd cases, it was assumed.
There's a disconnect between how economists use certain terms as well-defined technical jargon and how non-economists adopt them colloquially.[0] This leads to a lot of confusion when people try to discuss economics without understanding the precise meanings of the terms at play.
For the rest of this comment, I'm going to use the economic meaning of these terms, because there is agreement among economists about what "growth" means (though not how to accomplish it).
> Or do we give up the expectancy of a better life for everyone if we give up economic growth as we know it?
Yes, by definition. It would be impossible to have "a better life for everyone" without economic growth. "A better life for everyone" is economic growth, by definition (the creation of more value - whether tangible or not - given access to the same limited input resources).
> Is is possible to have increased leisure/increased standard of living/increased health/decreasing cost of living over time
That is considered "growth" to an economist, yes.
> without having an incerase in GDP and an average positive return on capital?
In theory, yes, but it turns out that an increase in GDP is so highly correlated with economic growth empirically, as well as so intrinsically linked from first principles, that they are usually used interchangeably in most discussions.
There are a few degenerate cases in which an increase in GDP does not actually correspond to economic growth, but they're pretty esoteric and not broadly applicable.
[0] As an analogy, imagine a bunch of non-programmers debating a CS paper about 'complexity' of an algorithm, and using the term 'complexity' to mean by their ability to understand how it works. That may be a relevant metric, and it may even be related to the technical use of the term 'complexity' (complexity class), but it's not really comparing apples to apples even though it's using the same word.
Can you go in to this more - for example I have a better life now on half the wage I had before, less means but more of the non-material blessings of life (time with family primarily). It seems if there was wide scale emulation of this that outputs in the [UK] financial system would decline but happiness/fulfilment would increase.
>That is considered "growth" to an economist, yes. //
Is there a name given to such metric generally? If GDP goes down but leisure time increases and leads a increase in health (and reduced health spending) then generally economists would refer to that as "economic growth"?
So in other words, zero growth is very likely something we do not want, unless it happens to come with positive benefits that are currently not measured in dollars -- e.g. sufficiently strongly reduced long-term demand for fossil fuels that climate change will have a much smaller negative impact on people's well-being.
But GDP only measures value that gets traded for money, not all value created. For example, if I care for my child at home for free, I'm creating value that isn't measured in the GDP. If instead I send my child to a child care facility, that is measured.
My guess is a very emphatic yes. GDP goes up in a traffic jam; there's such a thing as "bad GDP" as well as "good GDP".
Naturally it is growth per capita which matters as this is what improves the living conditions of people. There are many countries with high GDP growth but which also has higher population growth causing everybody actually to get poorer. That is not something anybody should want to emulate.
But of course low total GDP growth looks bad to business because the markets for their goods does not expand.
http://www.tradingeconomics.com/united-states/gdp-per-capita
http://www.nytimes.com/2012/01/08/opinion/sunday/the-true-st...
Japan was the "bad guy" in 1990, they had a lot incentive to downplay their position in subsequent years.
[ dang, is that you? chill, dude ]
The piece that many miss when discussing Japan's high quality of life despite lack of growth is that in order to maintain 0% growth over the last 20 years, the central government had to borrow and spend nearly 10% of GDP every single year.
I agree, we're not talking about an external default, but monetization is still likely to severely impact the wealth of the middle class.
What if capital loses its value and no longer earns interest? You can't say its not happening, when central banks are charging interest on capital.
I should've expounded! My apologies!
Eventually that large budget deficit versus GDP (nearly triple the US) combined over the years with even more taxation just sucks the life out of an economy. Throw in a shrinking population and an adverse look at immigrants and its not fun.
So you have their central bank playing with the quantitative easing game for nearly ten years and not getting anywhere. This is mostly because government is borrowing all the money leaving corporate investment to occur mostly as a product of spending their own profits.
Japan is simply proof government cannot buy its way out of a problem, they have been trying for years. Classic money trap that certain economist love to ignore or worse claim the opposite by saying if they just went further, spent more... etc etc.
Oh well, China is similar but the US is too, the difference is the US has quite a bit of immigration to take jobs the locals won't
Overall GDP growth is needed because it's the fundamental assumption behind both government and private debt.
The US has both had population growth and anemic growth since 2008. So it's not all population bust.
They still haven't learned, they're trying really really hard to force growth. Negative interest rates can be seen as a tax on inactivity, and while it's been talked about in the US, I think it comes too close to taxing assets for the rich to embrace it.
What's wrong with taxing assets (wealth)? I don't know the full economic implications, but I think it may be more fair than taxing income. Wealth is a much better measure of a person's financial strength. Consider:
* Because we tax income, a person with $1 billion in assets who makes $100,000 pays less tax than a person with $0 assets and makes $150,000.
* Because we tax income, a person who loses all their assets in the housing collapse but earns $100,000 pays more tax than the person whose assets appreciate $1 million but earns only $50,000 in income.
* If we tax wealth, future taxes are much more predictable, enabling more efficient long-term investment and planning. I could make a pretty good guess about what my tax bill will be next year, 5 years from now, etc. The billionaire can make much longer-term projections.
As a rough estimate of the wealth tax rate: One estimate of total wealth in the US is $80 trillion and the federal government takes in ~$3 trillion in revenue. By those numbers, the wealth tax rate would be 3.75% for the average American, if all that revenue were replaced by a wealth tax.
Do you really want to require someone to sell 3.75% of their stake in a start-up every year so they can pay the taxes on it?
i don't think that a person should be able to give things, after their death, tax free, to their children, with no limitations. i don't think the right to give gifts as you please trumps the right of newborns to a fairer playing field. i think both rights deserve consideration, but i don't think the former is anywhere near absolute. kids should have to earn a living, and shouldn't get huge financial advantages solely because of who they're born to.
besides, if you transfer gifts while you're alive, you're not subject to such high taxes, right? and only gifts over a certain threshold from person to person get taxed anyway, right? if you don't trust your kids to not take the money and run while you're alive, maybe they don't deserve it. i don't think society gets to let you have your cake and eat it too, in terms of both passing on wealth through your bloodline and staying secure yourself. i understand that sort of lineage building is a pretty basic human desire, but there are lots of basic human desires that society doesn't indulge, let alone bankroll.
also, it's not like steep inheritance taxes kick in unless the inheritance is of a decent size.
in the spirit of full disclosure, i don't expect to get any sort of appreciable inheritance, so i'm biased by not having anything to lose here. but this is a thing that seems quite obvious to me, and has seemed obvious for a long time now.
do you happen to know why that's the case? for example, that wiki entry says sweden abolished the inheritance tax in 2005 (retroactive to 2004). was the motivation that it was unnecessary? did constituents complain about its existence?
Yes. That's one of the many expected results.
Also, one unintended consequence of this policy would be that the MINIMUM interest rate you would have to pay would be 3.75% because below that it makes more sense to just buy a gold bar and bury it in the backyard vs. lend it out.
Basically, the way you can imagine the impact of that is that your mortgage interest would (today) essentially double. Again, no thanks.
[1] http://guides.wsj.com/personal-finance/retirement/what-is-a-...
I don't quite follow. I have to pay a tax of 3.75% of the gold bar's value whether I keep it or lend it. Even if I only can lend it at 2%, that's still better than nothing.
Is that somehow impossible? Would it make the market illiquid? Are there laws concerning the required volatility caps for the securities backing savings accounts that would have to be relaxed?
Japan needs to bite the bullet and accept immigration as part of its economic strategy.
"Poor Fiscal policy" is likely a better explanation.
If they need to "bite the bullet"; how about balancing the budget?
As suggested by previous commentators, social policies could possibly play a larger role in the long term Japanese recovery than fiscal stimulus. Opening the country to immigration may help rejuvenate the workforce, but would require significant upheavals of xenophobic Japanese culture. The government could use economic measures to encourage childbirth, but at a population density of 869 people per square mile, one must wonder how many more citizens the island can accommodate.
The rational assumption that Japan should "bite the bullet ... [and] balance the budget" is not what the country will do, as the circumstances of its plight encourage irrationality.
Because with immigration, you didn't solve the underlying cause of why people don't have kids. You just muddled the observable status for a while.
Exactly. And the cause is the mutually reinforced effect of capitalist consumerism and feminism.
One of the causes why people postpone having children is financial insecurity. In their mid-twenties they cannot afford to have a home, they are unable to secure the costs of first few years of raising child, when they don't know if they will have a job in three months and they have zero savings. Add student loans to the mix, popular desires to travel the world, to "live" and it's obvious why the developed countries have problems with natality.
One of the reason of population boom in Czechoslovakia in 1970's was the policy of support of young families. Newly wed pairs were were provided security, they got their own homes, they had job security[1], they got financial support for raising children. It wasn't a luxury, you couldn't lead a lavish life, but you knew that if you have a child, everything will be OK.
[1] we are abstracting from the fact, that in socialist countries it was unlawful to be jobless. You were provided a job, but it didn't have to be a one you would like.
Otherwise, thank you for the explanation and I do apologize for my ignorance.
(Also, I'm still confused about the feminism thing)
Immigration isn't going to solve anything, immigration from where ? Japan isn't the US, they aren't talking English nor their society is build in a way it can accept huge immigration waves.
Japan needs to work on techs that will solve its problems, not resort to a massive immigration wave that will only kick the can down the road.
Edit: A lot of people saying "immigration won't work" but not offering alternative solutions.
I hope the insularity ends up being worth it for them, but history is not on their side.
No, this is literally the post-WW2 boom dying off. Occupied Japan underwent a period of extreme population growth in the few decades after WW2 ended. They currently have 125mm people living in a land area the size of California which is 75% uninhabitable (mountains).
Japanese is not an easy language to learn, but its not impossible to learn. If people are allowed in then they will learn Japanese
http://www.nytimes.com/2009/04/23/business/global/23immigran...
It would still be tricky because as a society Japan is famously homogeneous, so the idea of diversity would have to be phased in slowly.. but it could be a starting point. In the end it's about adaptation to ensure a future for the country.
I think that most Japanese would believe that a future Japan that wasn't majority Japanese was no future at all.
From the nationalist perspective, you're essentially saying "to save Japanese society we must destroy Japanese society." To these people Japan is more than just an island, it is Japanese.
But you've hit the nail on the head - and it is something many foreigners have little to no concept of. Being proud of one's cultural heritage and history. Even if that means recognizing the bad stains on the tapestry.
I've recognized the ones who have the worst problem with nationalism are those who are completely full of guilt of their own culture/history.
Making people miserable is rarely a good strategy unless you're building ISIS.
Meanwhile there's a weird undercurrent of racism, if we just take Japan 2016 and person for person swap out for obviously superior foreigners (imperialism?) then magically everything is supposed to be better. However, in reality, that would obviously not be the case. If an Asian guy is sitting in a broken car, and the driver is removed and replaced with a foreigner, the car is still going to be just as broken. Likewise if the Japanese abandon their land and culture, that doesn't mean anyone else will necessarily do a better job of running the place. Or if there is a better way to run the place, they could save everyone a lot of bother, and implement it themselves.
That reeks more of Japanese xenophobia than of some "Western imperialist racist conspiracy" to destabilize Japan.
That's no problem of the Japanese, but of the immigrants. They're the newcomers, they're the ones who should be putting all the effort to assimilate into the host culture.
And it isn't happening, not even with descendants of Japanese. Imagine what would happen with a radically different culture (no need to imagine, just look at Europe).
This rigidity and inflexibility is going to be the biggest problem facing Japan when they inevitability reach the population cliff. What you are asking for is unreasonable. There is no way immigrants can ever completely assimilate to that degree. The cultural gap and linguistic distance is simply to big. It doesn't help that Japan has historically been isolationist and based on anecdotal evidence, still seems to be pretty xenophobic. At best, you could hope for a compromise, where the immigrants do their best to integrate, and hosts make compromises and try to be more accomodating. You could try taking immigrants from nearby regions where the gap is conceivably smaller, but politics and history will get in the way.
Ultimately there seems to be no good solutions on the horizon. You will just have to pick the least worst from a selction of poor ones:-
1. Ignore the problem and see what happens. 2. Begin a reasonable program of immigration that suits Japan (there are number of ways to go about this), and deal with the problems that will come with it. 3. Try and hope for some technological breakthrough.
That's an alt-right white nationalist shibboleth.
The culturally (and racially) homogeneous state is a myth. Even the Japan you might perceive as homogeneous is the result of many waves of migration stretching to pre-history (Jomon, Ainu, Yayoi, Chinese...)
Places that have relatively open borders (EU, US) aren't experiencing anything like "cultural mass suicide" - unless you buy the nationalist rhetoric coming out of right wing and neo-nazi camps.
All cultures are evolving, including Japan. Sometimes it is gradual, and sometimes it is faster (your example of WWII). Healthy societies accept that change is natural, and try to make sure that it happens in a constructive way.
What strategy?
Getting replaced?
If you swing the value of holding just currency to where it grows relative to goods without doing anything, then people won't do anything. This spirals. Since nothing is being done, there's no work. You might have a black/grey market economy spring up but don't tell anybody about it.
Specific to Japan, I am not sure. Depends on whether the demographic slack is permanent or temporary.
That statement doesn't necessarily assume people are just socking their money away in a savings account while working. The goal of saving for retirement is that you need your money to outlast you. If your can expect much lower income during retirement, you'll need to have a bigger pot at the beginning of your retirement (i.e. you'll need to save more while working).
Why? Faith in the financial services industry has been utterly shattered.
The only exception is for tax purposes, eg: Roth IRA/TFSA, 401k/RRSP, etc.
Until equities and other securities no longer provide the return needed for long term wealth accumulation.
Japan imports almost all of its oil and commodities. Shouldn't low price of oil and commodities result in a massive surplus for a country that sells high value added goods ? Buy iron for cheap and sell robots for a high price.
Now the argument many people will make is that the people who are buying the high-value added goods won't have money anymore - but the argument can be made in the opposite way too - high prices of oil and commodities will result in lower surplus - meaning growth will be most in countries who produce oil and commodities.
Citing "low price of oil" as a reason for economic woes just seems like bad science - I though economists were better than this ?
Yes, cheap commodities should benefit Japan but when they're cheap because demand is weak, Japan suffers from that too.
Saudi Arabia has saved up a large stash over the past few decades & it would not like its regional power states to be taken away in wake of the removal of Iranian sanctions. At least not for a while.
The Saudi oil ministry intentionally lobbied for increased production as soon as they became aware Iranian oil sanctions could be removed.
If game theory is used to analyse the situation, it serves them best to encourage the oil price to stay low & everyone else is incentivised not to cut production either.
How is the growth of inflation threatened? The BoJ thinks business confidence in Japan will drop because of recessions in trading partners.
This is why it is responding with a policy that will hopefully be more aggressive in pursuing higher inflation and GDP to offset the foreign developments.
In BoJ's own words in point two in the press release: http://www.boj.or.jp/en/announcements/release_2016/k160129a....
Yes it is, no they aren't
Especially "specialists" commenting in the press.
The problem with Japan is the complete stagnation of their economy. China makes it cheaper, internal consumption is decreasing.
Trying to "create inflation" is pretty much as effective as trying to defibrilate a dead corpse.
Cut taxes, especially in the lower brackets, you will find your inflation eventually. Japan just doesn't want to do that.
We should have state issued money that tracks wealth created instead of debt that tracks boomer sentiment.
Japan has free floating currency with inflation-targeting framework.
Japan's import-export balance adjusts more or less automatically because the currency floats relative to other currencies. Japan has very little foreign debt, so the huge national debt is not creating inflationary pressure trough exchange rates.
Japanese yen suffering from long period of low inflation and deflation (lost decade) is caused by the lack of structural reforms and demographics. Japan is getting old fast and people are saving for their retirement. Domestic consumption is not taking off
To put things into perspective:
Household consumption makes 61% of the Japanese GDP
Exports of goods and services is just 16.2%
There is evidence that shows over the long run a currency's exchange rate will be favoured against those with a positive inflation rate differential.
Too much inflation is usually sign of problems in the economy. Too low inflation is also sign of problems. The optimum rate of inflation is usually somewhere 1-4%.
Strong currency is not good thing in itself. It hurts exports and makes foreign goods cheaper.
Just substitute them. Economists are not this bad.
Isn't this just proof that Japan needs to let go of it's biggest barrier to growth? By which I mean it's non-existing immigration?
I've been recently to Japan and despite my fears Tokio was a really affordable place (leaving out the hotel prices of course). I thought this was due to the lack of growth and the recent quantitative easing and other government measures. Measurements that seem to be failing at the moment (thus the negative rates).
So cheap Tokio-Sushi is nice for European tourists, sure, but just a sign of how much growth Japan has lacked over the past years/decades that it suddenly becomes a tourist destination.
In contrast to that: I could imagine Japan, with its still high quality of living and modern, orderly society as a real draw for young and skilled talent from abroad if it were to open it's borders (and society).
Think about it in the terms of Gentrification: It's an artificially undervalued "part of town". One which value and (currently) cheap prices would sureley be appreciated by the pioneers this country needs.
If you are thinking of poorer individuals. Why? Their business is doing well and what exports are not are likeky not solvable through a domestic workforce outside of marketing and/or tech.
If you want more babies in a country, I believe denmark had a much better idea than to enable immigration, do it for mom. The pioneers the country seem to already there. http://www.theguardian.com/environment/2016/feb/01/japanese-...
That's not a bug, it's a feature. Japan enjoys the advantages of having a civilized, educated, homogeneous, high trust society, and they're not willing to abandon that in exchange of what, low skilled workers they don't need and ethnic conflict?
But from an economical standpoint, it doesn't make much sense to stay "cut off". It never did in history. That's why even the other homogenity-friendly countries periodically had to ease their grip.
And because of economics, if the japanese really care about their nation's idntity and culture, they should make sure that their Numbers of growthless years do not climb too much higher than that of the other Nations. Because at some point even the nicest, Most harmonic society will crumble if some foreign spring break tourist can bend any rule because he can buy anything and anybody because of the decades-Long incompetitiveness. If you're looking for examples of this, I'd say "colonializm", "imperialism" or with regards to japan "convention of kanagawa" or "sakoku".
At some point non-growth will become harmful to what you try to save by avoiding growth: culture, norms, national identity or Even the nation itself.
Growth but at the risk of it not being Japan on its own terms (importing culture)
No growth but at least it's their own no growth (no imported population).
Japan being the nation and a people seeking harmony, I don't think they'd make the deal and risk losing their wa.
And you know what, good on them and good for the test of the world. I'd like to see how a country tackles no growth while maintaining a first world economy, without the subsidy of immigration because one day we'll all be there and we'll need some guidance. Perhaps Japan will offer that guidance if they figure things out.
I get the impression the media are always talking about an imminent financial catastrophe because eventually they'll be right and we'll forget how many times they have been wrong.
Only in the long term will I know how I faired.
My hope is that I am buying in the down market and the producers are optimising for the next decade.
Expensive oil - costs more as you'd expect.
Cheap oil - good but leads to falling prices so savers leave their money in the bank waiting for discounts so spending in the economy falls.
The second one is an odd thing that only happens in a deflationary environment.
[0] Don't take my word for that, it's in the words of nobel laureate Paul Krugman: http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hig... "Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."
What is needed to have a strong, growing economy with increasing prosperity for more than the one percent isn't high or low inflation, but stable price levels that makes it possible to plan for the long term and make investments into productivity and efficiency. When witch doctors in the Fed, ECB and BoJ arbitrarily manipulate interest rates and thereby inflation, they promote speculation over investment and move wealth to the 0.01%.
Cheap oil is bad news for the economy, because it's an indicator in a fall in production, if the reason it's cheap isn't because of new fields, but because of lower demand.
Even if it is due to new sources (e.g. fracking) the perception that it's an indicator of global production may be sufficient to override any realistic benefits.
During $100+ oil the problem was that supply couldn't satisfy the market (mostly due to Chinese growth and demand for energy). This raked the price up not just for the Chinese, but for everybody. Which was bad if your factory needs oil to produce your widgets: higher production cost leads to either thinner margins (and hence less future investments) or higher prices (and hence lower demand and ultimately - thinner margins).
So ok, the oil companies invested in expanding capacities, built refiners, oil rigs, etc. to satisfy demand. But now the world doesn't need as much of it as it used to. Well, shit. That means you still have to pay off loans for your new and shiny oil rigs, but you can't sell as much oil as quickly. What does that mean? Thinner margins.
Ad nausem.
From the global perspective, cheap oil is a very good thing. Cheap commodities in general are an unmitigated good thing. Cheap oil means that people spend less money to move vehicles around and heat homes, and can spend it elsewhere. Cheap oil means trade is cheaper, allowing goods to be produced in more-efficient places and then shipped instead. Cheap commodities mean that investors spend less money building oil rigs and mines, and can invest it elsewhere. Final goods and services where oil or other commodities are an input become less expensive, allowing other economic activity to be pursued.
The reasons cheap oil could be linked to bad stuff in the world economy are not because the oil itself is cheap, though. Cheap oil could be bad because it is a sign that no one wants to buy oil, which is a sign that people aren't shipping goods and other economic activity is depressed. (This is a cause of cheap oil, though, not an effect.) The other big reason it could be bad is that it is a sign that people have invested too much money drilling for oil and building oil-extracting machines and training people to be oilfield workers and the like. Too-cheap oil suggests that this investment was a bad idea and should not have been made, or at least not made yet, and now that effort has been at least partially wasted. But that's another cause of cheap oil, and not an effect.
The people who suffer from cheap oil are those who are involved in the production of oil: oil companies themselves, companies who provide services to oil companies, pipeline companies, railroad companies involved in shipping oil, workers out on the oil fields, companies involved in providing services in those regions (e.g. real estate firms in the right parts of the Dakotas)... and investors in any of those companies (including pension funds).
The US is involved in a lot more oil production than it used to be, so some of that suffering partially mitigates against the awesomeness of cheap oil to the rest of its economy. (Partially. Most of the US is not involved in producing oil.)
Because negative interest rates make no sense, right?
So yes, negative interest can make sense. And maybe you coded a bug into your application instead o a feature, based on wrong assumptions...
Given 0% interest rates haven't led to desired economic investment and stimulus the approach of the ECB and BOJ seems like wishful thinking that "more of the same" will somehow create different results.
While it's clear the stock market benefits from the increased investment, it's not clear that this addresses the lack of aggregate demand in the economy (which as mentioned seems highly influenced by demographics).
Then again this is probably more about lowering currency value than stimulating domestic demand.
Many interest rate models had been in the past either criticised for theoeretically allowing negative rates, or specially developed to avoid them.
https://en.wikipedia.org/wiki/Cox%E2%80%93Ingersoll%E2%80%93...
So, while negative yields on savings accounts are pretty new and strange thing, negative yields on bonds aren't entirely unexpected.
The zero lower bound problem refers to a situation in which the short-term nominal interest rate is zero, or just above zero, causing a liquidity trap and limiting the capacity that the central bank has to stimulate economic growth" https://en.wikipedia.org/wiki/Zero_interest-rate_policy
http://www.thedailybell.com/exclusive-interviews/35987/Antho...
They recommend this measure only if combined with structural reform (especially labor reform), observing "Japan’s rigid labor system has led firms to refuse to hire more “regular” workers, whom they cannot lay off during slack times. Instead they hire “nonregulars”" and do not invest in training and human capital and doing little for these workers' futures. After that they suggest fiscal stimulus, but observing that past "fiscal stimulus" has been mostly handouts to inefficient farms in rural districts to buy votes they instead recommend measures like making public high schools free (!!) and getting sewage systems to the 40% of the population that doesn't have them (!!!).
http://www.wsj.com/articles/negative-rates-wont-save-japans-... (usual paywall dance applies)
Gas is one of those things I have no control over. If it's expensive I have to pay, if it's cheap I have to pay. I'm dependent, and in a city like Los Angeles the alternative is impossible. They raised the price of public transport to a point where it is not even convenient.
So when I go to the gas station and it's cheap I'm happy. I fill it up and have a smile on my face. Am I doing it wrong?
In the more general case, rapid price swings cause trouble all round (they make it hard for everyone to plan) even when the price adjustment is "correct". For the economy as a whole, low prices are better than high prices, but a stable price would be better than a volatile price even if the volatile average price was lower.
It may be bad if you're in an energy-intensive business that's just made investments in reducing its fuel costs, because now the payoff for those investments is worse.
The US was just starting to transition to an oil exporter due to unconventional oil, but now the price has collapsed the boom in North Dakota etc goes away.
http://useconomy.about.com/od/glossary/g/yen_carry_trade.htm
> Definition: The yen carry trade is when investors borrow yen at a low interest rate. They exchange it for U.S. dollars or any currency in a country that pays a high interest rate on its bonds. They receive a low-risk profit when they receive high interest on the money invested, but pay low interest on the money borrowed. The broker pays the difference into the account each day the trade is open
>The yen carry trade is alive and well in 2015, but not with the U.S. dollar. That ended in 2008 when the Federal Reserve dropped the Fed funds rate to near zero. It continued with high-yield currencies such as the Brazilian real, Australian dollar, and Turkish lira. For example, many forex traders borrow near-zero yen to buy Australian dollars which have a 4.5% return.
This is where all the money lent out is going to go, from the Japanese negative interest rate to the new slightly above zero U.S bond yield. Keeps the party going for a little while longer. Follow the money.
Dollar will appreciate against the yen. This will be advantageous to imports from Japan and disadvantageous to U.S. exports.
I can't speculate on the intensity though.
Demand needs to pick up with credit availability or it just leads to asset bubbles.
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip...
>To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.
The American economy loves a good asset bubble.
1. The general population doesn't want to spend money because of the lack of/slow income growth. So savings appear safer.
2. Aging population means fewer youths and more elderly people every year. The elderly population would be living off of savings/pension so they are essentially on a fixed (and slowly depreciating due to inflation) income. Spending cannot increase here.
3. Youths, meanwhile, are faced with entering an economy that isn't expanding (direct result of companies not wanting to spend). So you aren't exactly boosting the number of spenders in the economy.
Then there is the very quiet startup economy which is not helped by Japan's hiring system. Salaries are seniority based and there is far less jumping between companies because of that. Also, if a graduating student misses out on the annual hiring season, they are very much unlikely to get hired for a stable job until the following year at which point they will have to compete with a fresh batch of graduates. So if you choose to go the startup route, every year you do so results in worse earnings and a far more difficult road to stability should your startup fail (which most do no matter what country you live in).
So what I'm wondering is: How is the negative interest rate supposed to fix the borrower side of the equation?
Supply means nothing if there is no demand. I haven't read much about Abenomics, but the couple of things I have looked into all point to Abe focusing only on the lending side. There doesn't seem to be anything that is promoting confidence on the borrower & buyer side. What have I missed here?
As a lender (ie, giving out loans that only need to be paid back in part), they mean the gov is essentially giving away money (which constitutes an incredibly corrupt bargain with the banking establishment, but is obviously distortionary on face regardless of who's getting the deal).
As a borrower (ie, charging to hold money at the fed) they're essentially collecting a fee for various regulatory and quasi-seigniorage services. For instance, if you require assets to be held in certain forms (central bank deposits, government bonds...), a negative yield is basically charging for providing an asset that satisfies those regulatory requirements.
http://blogs.wsj.com/marketbeat/2008/12/09/three-month-bill-...
1. R&D AND ROBOTS
2. TAX AUTOMATION
3. BASIC INCOME FOR ALL, growing as tax revenues grow
This will let a shrinking population be more productive and align the resources more usefully for everyone - including old people - to spend on their needs.
I just don't understand how lending to banks at negative interest rates is tried before basic income. Or better, I can imagine a few reasons, none of them good.
Really, I don't get how people even accept bank settling rates that are smaller than the short term government bonds. That's just taking money from the people, and sending it for free to banks - no strings attached.
How was that done exactly and why it didn't work?
"[...] ,in a Surprise, [...]"...riiiiiiight.
Lord help us if we're not interested in things from 3 days ago.