“Forceful And Timely Action” To Nowhere

Wolf Richter's picture

Wolf Richter   www.testosteronepit.com

“Japan’s experience is a sobering real-world reminder of why forceful and timely action is appropriate,” Boston Fed president Eric Rosengren said in his desperation to rationalize the Fed’s QE3 decision. It would restart the printing press in a massive way. It would be a flood of money—in contrast to the “muted” response from Japan to its two decades of economic stagnation.

And it has already been successful, he said: “I would say in sum that regardless of the event window chosen, stock prices are up substantially, mortgage rates are lower, and exchange rates are lower.” Thus, he’d named the three goals of QE3: manipulate stock prices into the ether, repress yields on mortgages (and on everything from savings to corporate bonds), and demolish the dollar [read.... QE, Zimbabwe, And The Surreptitious 30% Haircut Every Decade].

Then he claimed that “appropriate fiscal policies”—namely even larger deficits—could “provide significant positive effects” to battle Japanese-style stagnation.

Alas, no country has done that better, for longer, and to a greater extent than ... Japan. Two decades of deficit spending haven’t had any lasting success in stimulating the economy, though they goosed various sectors temporarily. And they left behind a political culture of deficits-don’t-matter and an insurmountable pile of debt.

Japan perfected the art of ZIRP (zero-interest-rate policy) years before it became a noun. The 10-year Japanese government bond (JGB) has yielded less than 2% for many, many years. Currently, JGBs yield 0.81%, less than half of the 10-year Treasury note’s 1.78%. Yields on short-term Japanese debt, savings accounts, time deposits, etc. have been at practically zero for just as long.

And Japan plowed into “quantitative easing” before that euphemism was even invented. The Bank of Japan’s balance sheet is stuffed with over ¥80 trillion (well over $1 trillion) in JGBs, in addition to other assets it bought along the way. That’s about 25% of Japan’s GDP, while the Fed’s balance sheet holds assets that amount to “only” 22% of GDP.

Rosengren, having kept an eye on the housing market, must have been agog at its recent “recovery.” OK, there were prior “recoveries” that crashed, but this one is different. Japan too had a real estate bubble. After it burst in 1990, there were several “recoveries.” Yet it just marked 21 consecutive years of declines.

Culturally, the Japanese are attached to land, not houses. A house is usually a “one-generation” structure designed to be torn down by the next generation. Hence, the Ministry of Land, Infrastructure, Transport, and Tourism reports land prices. As of July 1, residential land prices dropped 2.5% from last year—after having dropped 3.4% in 2011 and 3.7% in 2010. Commercial land prices dropped 3.1%.

But there are two scourges that Japan has not inflicted on its people: high unemployment and inflation. By US standards, unemployment is phenomenally low: 4.3% in July. However, Japanese society approaches work differently, and unemployment numbers may not be comparable to US numbers. By all accounts, it is currently much harder for young people to enter the workforce as jobs have become scarce—and less remunerative. More work for less pay. Same as in the US [read.... Calamity Economy Strikes Again, But Hope Is Back In Vogue].

And Japan has enjoyed price stability for the last 15 years. Periods of minor inflation alternated with periods of minor deflation—though the numbers hide painful price increases in a variety of items, including gasoline, cars, doctor copays, or services like water.

So I wonder what Rosengren was thinking when he said, “Japan’s experience is a sobering real-world reminder of why forceful and timely action is appropriate.” The Fed’s four-year frenzy of “forceful and timely actions” coincided with the greatest stimulus frenzy in Congress where annual deficits of over $1 trillion have become the norm. Yet, they accomplished little in the real economy. Same thing in Japan. But they did get Japan into a mess from which there is now no good exit.

Here’s the funniest video of Bernanke getting tangled up in contractions about printing money, mixed with elements from “The Caine Mutiny,” a biting parody that says it all in less than 2 minutes.

And here’s my book about Japan: “funny as hell nonfiction about wanderlust and traveling abroad,” a reader tweeted. “What a fantastic finish,” another tweeted. Reviewers wrote, “Super enjoyable, great antidote to everyday life,” “hilarious, thrilling in many ways,” “an incredible climax,” “full of cultural complexity, passion, and shock.” Read the first few chapters for free.... BIG LIKE: CASCADE INTO AN ODYSSEY, at Amazon.

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suteibu's picture

"However, Japanese government approaches work differently, and unemployment numbers may not be comparable to US numbers."

Fixed it for you.  With 35%+ of Japanese working part time (most underemployed), the government data on unemployment is designed to make those with any kind of job feel gratitude for the great job the government is doing.  Just like the US government dropping any official reference to U6 data, the Japanese government is all about presenting the rosiest and most optimistic view of how well politicians and bureaucrats are doing their jobs.  It does not reflect the continued decline in lifestyle nor the growing discontent among the population which is merely stuck in a society designed specifically for control.  Other than Koizumi, the average term in office for Japanese prime ministers is about one year since the early 90s.  As changing government is about the only way the public can make their voices heard (they don't really protest and when they do, the protests are taken over by a different set of control freaks), this average is the best indication of Japanese discontent.  Only government tools make serious reference to Japan's low unemployment rate even with your lame qualifier.

JamesBond's picture

houses... one generation...


That has not been my experience living in japan.   

Furthermore, renovation is all the vouge now  -   

GuyJeans's picture

True that reformed housing is popular, but you will not get out what you paid whether you buy new or reformed. Having looked at apartments and houses in Yokohama and Tokyo for the past few years, I learned that houses depreciate rather than appreciate like in other countries. Apartments near stations tend to hold value and may even appreciate if the station adds new lines. Check out a report by Nomura Reasarch Inst that shows housing value goes to 0 after 15 years in Japan and the reasons why. http://www.nri.co.jp/english/opinion/papers/2008/pdf/np2008137.pdf

LawsofPhysics's picture

Possession is rapidly becoming the law, your observations only further confirm this.  The depreciation is an illusion because it depends on a "market".  Once no one has any money or purchasing power, there is no market and hence that "market value" is zero.  But ask yourself, is that roof over your head or land with fruit trees really of no value?

Nothing changes until the moral hazard is addressed.

suteibu's picture

Spot on.  The construction and real estate industries in Japan like the idea of replacing a perfectly good house with a new one and this process was engrained into the social mindset during the post-war boom.  Declining lifestyle has begun to replace that mindset with some common sense.

q99x2's picture

Imagine getting the interest on 1 trillion dollars. I could retire with that and retire anyone that objects to my policies.

Aquarius's picture

And really what does all this so-called "Economic Theory" mean when the actions of these deluded merchants of money faith, just do what pleases them as the politcal expediency of their self-collective-agenda?; It is just "us or them" and they enforce their rules which they arbitrarily impose onto us.


We are not going to nowhere, we are being driven to helplessnes, desolation, to despair, to utter desperation and with that we will then enter a new Dark Age. Your mileage will vary.


"And the men who loan money to governments, so called, for the purpose
of enabling the latter to rob, enslave, and murder their people,
are among the greatest villains that the world has ever seen.
And they as much deserve to be hunted and killed
(if they cannot otherwise be got rid of)
as any slave traders, robbers, or pirates that ever lived."
-- Lysander Spooner
(1808-1887) Political theorist, activist, abolitionist
Source: The Constitution of No Authority (Boston: 1870); available on the Lysander Spooner website at www.lysanderspooner.org

"If all the bank loans were paid, no one could have a bank deposit,
and there would not be a dollar of coin or currency in circulation.
This is a staggering thought. We are completely dependent on the
commercial Banks. Someone has to borrow every dollar we have in
circulation, cash or credit. If the Banks create ample synthetic money
we are prosperous; if not, we starve. We are absolutely without a
permanent money system. When one gets a complete grasp of the picture,
the tragic absurdity of our hopeless position is almost incredible, but
there it is. It is the most important subject intelligent persons can
investigate and reflect upon. It is so important that our present
civilization may collapse unless it becomes widely understood and the
defects remedied very soon."
-- Robert Hemphill
Credit Manager of Federal Reserve Bank, Atlanta, Ga.
Source: In the foreword to a book by Irving Fisher, entitled 100% Money (1935)

"The bank hath benefit
of interest on all moneys
which it creates out of nothing."
-- William Paterson
(1658-1719) Founder of the Bank of England in 1694, the privately owned central bank for the Kingdom of England.


"Everything that needs to be said, has been said." verbewaarp


Aquarius's picture

A few pages from the following book "Introduction" and "Foreward"    http://mises.org/document/3041
http://library.mises.org/books/Andrew Dickson White/Fiat Money Inflation in France.pdf
"But the attempts failed. They left behind them a legacy of moral and material desolation and woe, from which one of the most intellectual and spirited races of Europe has suffered for a century and a quarter, and will continue to suffer until the end of time. There are limitations to the powers of governments and of peoples that inhere in the constitution of things, and that neither despotisms nor democracies can overcome."

apberusdisvet's picture

And that's not even including the radiation which will kill half the population in 20 years.

hannah's picture

japan didnt suck the big one because for the last 20 years the usa consumer has still bought their products. that is finished now and their economy is finally collapsing. no one is buying our shit so i dont see the similarities. we are collapsing right now....we dont have 20 years.

Colonel Klink's picture

The red giant, collapses into a white dwarf.

Buy, buy, Japan!

Arnold Ziffel's picture

"QE Supernatural Mythology for Dummies"

Aquarius's picture

There is no 'random',

there is only spontaneous.

But not by the hand of man intent upon looting for his own sake,

within his status quo,

but by the awful Grace of God.


"To combat depression by a forced credit expansion is to attempt to cure the 

evil by the very means which brought it about; because we are suffering from a 

misdirection of production, we want to create further misdirection -- a 

procedure which can only lead to a much more severe crisis as soon as the 

credit expansion comes to an end."

-- Friedrich August von Hayek


induction (n.) late 14c., "advancement toward the grace of God;" also (c.1400) "formal installation of a clergyman," from O.Fr. induction (14c.) or directly from L. inductionem (nom. inductio) "a leading in, introduction," noun of action from pp. stem of inducere "to lead" (see induce). As a term in logic (early 15c.) it is from Cicero's use of inductio to translate Gk. epagoge "leading to" in Aristotle. Induction starts with known instances and arrives at generalizations; deduction starts from the general principle and arrives at some individual fact. As a term of science, c.1800; military service sense is from 1934, American English. IOW Induction is the application of the Universal Principles, whereby Deduction is the phlegm of the unaccomplished man attendant upon his looting.
JuicedGamma's picture

"However, Japanese society approaches work differently, and unemployment numbers may not be comparable to US numbers."


There isn't very much from Japan that is comparable with the US.  That's why it's so stupid that we've followed their eccentric ZIRP to pull out of a housing slump in the process putting the entire economy at risk, the USD as a reserve days are numbered.  Only time will tell where it leads.  Unintended consequences are without a doubt ahead.

AnAnonymous's picture

As long they come with the intended consequences and people exist around to soak the unintended ones, 'Americans' will be satisfied.