BoJ preview: http://www.zerohedge.com/news/2016-04-27/what-if-boj-disappoints-tonight-how-trade-it Trial balloon floated on 22 April 2016 about additional stimulus: http://www.bloomberg.com/news/artic...to-eye-possible-negative-rate-on-loan-program .
Richard Koo of Nomura on Helicopter Money: http://www.zerohedge.com/news/2016-...er-money-succeeds-it-will-lead-1500-inflation Also my journal has a few links: http://www.elitetrader.com/et/threads/m22aus-journal.21451/page-39#post-4303252 .
I don't think Japan will spiral into bankruptcy: 1. Of all the debts the Japanese Government owes (about U$10 trillions), only ~9% are owed by foreign investors, the rest are owed by Japanese banks, corporations, pensions, individuals and the BOJ. So, as a "family" it is like the father owes money to the sons, and a zero sum game. As a country, Japan is a net creditor nation. Looking at it this way, the 9% of the total debt amounts to ~U$900 billions, not a significant crushing debt like other countries (considering the Japanese GDP is about U$5 trillions) about 18% of GDP. 2. As a country, Japan is getting richer by the day. It registered Current Account surplus every year since 1985 meaning as a country, it can easily pay off any debt it owes to foreigners. Japan Current Account 1985-2016: Japan recorded a monthly Current Account surplus of 1809 JPY Billion in May of 2016. Monthly Current Account in Japan averaged 1082.21 JPY Billion from 1985 until 2016, reaching an all time high of 3360.40 JPY Billion in March of 2007 and a record low of -1456.10 JPY Billion in January of 2014. Current Account in Japan is reported by the Ministry of Finance Japan. 3. Better still, the BOJ has the printing press and even when printing like mad, others still accepts the currency. It is countries like Greece, Spain, Italy etc. who owe most of their debts to foreign entities and do not have the ability to print money that have to worry about bankruptcy.
ironchef, I agree with you that Japan (like most countries outside the Eurozone) will not default in nominal terms. However if they do engage the printing press to pay out their substantial burden, then it is possible that they 'default' in real terms, following a large depreciation of the JPY. .
I agree with you m22au. But I am not an economist/finance guy so I really don't understand why all the money printings did not create inflation in Japan. Recently I read an article on The Economist which to a certain extend explained the puzzles I had about Japan's QE: http://www.economist.com/news/finan...ave-failed-live-up-hype-it-has-not-failed-and Regards,
Nobody understands it properly... But maybe we're getting closer: http://www.bloomberg.com/view/articles/2016-07-28/answering-the-hardest-question-in-economics
I skimmed both the Economist article and the Bloomberg View articles above, but have not yet read them properly. Related to what I wrote previously (and apologies if this is covered in either of the two articles), one important observation about quantitative easing - and possibly other unconventional monetary policies - is that if there are no negative consequences, then it would follow that there is no need for governments to ever collect any taxation revenue. They could just finance 100% of government expenditure with central bank bond purchases. Obviously such a proposition is silly. Japan is just slightly better than "silly" because government expenditure is partially funded by tax revenue. But I find it hard to believe that there will be no negative consequences to the current economic situation in Japan. .
Martinghoul/M22au Interesting bbg article, looks like the quasi religious views of the macro establishment are taking some well deserved heat. There's one sentence I would take exception to: "But in reality, economies that experience very low rates for many years -- first Japan, and now the U.S. -- seem to grow slowly and have low inflation, but not crash." Mais voyons, at least not for now... n'est-ce-pas? They only seem that way, at present but a crash is a very real possibility for Japan, given the size of the BOJ's balance sheet, the nation's indebtedness and the coming crash in JGBs. The problem with Gabaix's theory is that while it seems to resolve a number of macro paradoxes, it fails to address the underlying fundamental flaw of the religious establishment: that the market's natural rate of interest is neither the impetus to save or invest, nor is set by the central bank, but instead is a function of people's valuation of present vs future consumption. Contra Gabaix, the primary mechanism through which low interest rates eventually depress inflation is not the bounded rationality of economic actors (although that does play a role in the process), but rather the gradual decline in the originary interest rate caused by the central bank's constant depressing of the market rate of interest below the natural rate of interest. This intervention distorts consumer and producer evaluation of the value of future to present goods. And so we can booms and busts and everything in between. Intervention stinks. So do flawed paradigms, like those present in today's academia.
Well, similar to you, I would be the last person to suggest that it's all been perfectly understood. Gabaix's paper is just a starting point, but I am just sympathetic to the idea that behavioural aspects have a place in macroeconomics.
I dunno. "it's not all been perfectly understood" reminds me of "there's more work to do", a standard by which the goalposts are forever shifting wider. Can you imagine showing up in 5th grade to Mrs Smith back in the 70s and 80s without having done squat on your homework and saying "But Maam, don't hold to me to this! I got more work to do!" That would go over well. How about something subtle like, "Wow, we've been really wrong for decades on this and need to own up to the mess we've created"?