Why Japan Loves Quantitative Easing – And Strongly Recommends It

Sprout Money's picture

Japanese Flag

It was an interesting past few weeks wherein Koichi Hamada, a special economic advisor to Japanese prime minister Shinzo Abe has stepped up the plate to defend the countries and currency blocks which have entered into a program of Quantitative Easing to give their respective economies more fuel.

In a written statement, Hamada is actually defending the creation of money out of thin air to keep the economy going, stating that even in a low interest rate environment the creation of money could be an important step for ailing economies. Referring to Japan’s own situation both in 2001 and in 2007, Hamada says his country should have printed more money to save itself from a contracting economy.

The most remarkable thing however, is that Hamada is effectively supporting and promoting quantitative easing and thus indirectly the currency wars it induces. He says that due to the fact Japan didn’t expand its monetary basis back in 2008 when the global financial crisis has hit the markets, its economy lost a lot of power and just one year later, the Japanese economy was performing approximately 8% below its potential. This is a clear statement countries should consider to apply quantitative easing to bump its own GDP numbers.

Theoretically, this all sounds great! A country could continue to grow by creating more money through quantitative easing (even though the GDP would only increase in terms of the domestic currency) but there’s one thing Hamada is ignoring here. This could work if only one country would allow its currency to depreciate, but that’s not the case in a globalized world. If one country would start to print money in order to boost its economy, a retaliation from another country cannot be excluded.

But let’s look at some charts (courtesy of tradingeconomics.com) of the money supply in Japan throughout the years as well as the USA and the effect it had on the GDP.

Japan Money Supply

Japan GDP

USA Money Supply

USA GDP

So there is some truth in Japan’s statements and the country’s newest round of quantitative easing should help the country to increase the GDP again. The ECB’s view might be strengthened by the fact the inflation rate in the USA hasn’t (at least not according to the official numbers) increased tremendously as it continues to be around the 2% mark which is exactly the sweet spot the ECB has been aiming for.

US Inflation Rate

Source

The currency war is continuing in full force and the strong US Dollar might prevent the Federal Reserve from increasing its benchmark interest rate in June as it would undermine the country’s export position on the world market.

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damicol's picture

Hedge it,, there is always some wanker like wossissname who thought he could take on Venezuaela and loses billions for his clients.

After al, alll the hedgies, they are all fucked now so whats one last roll of the dice

DullKnife's picture

A strong Yen helps the little people.

A weak Yen helps the big people (corporations and Govts).

Printing money out of nothing and giving it to Govt and the megabanks and megacorps screws the citizens.

Zero interest does too.

Especially the elderly and non-stock trading professionals who are on fixed income and whose income is the interest on CD's and bank savings.

Zero interest rate and fiat money printing shows how much Govts actually care about their citizens (subjects?  slaves?)

DK

DavidC's picture

Is Koichi Hamada a pseudonym of Paul Krugman's?

DavidC

medium giraffe's picture

I bet you 60 trillion Zimbabwe Dollars that nothing could possibly go wrong.

theliberalliberal's picture

Eyeballing that graph....

USA 2010 to 2015.  6.7% increase per year

Japan 2010 to 2015.  2.7% increase per year

 

Japan clearly didnt do enough.

 

 

VWAndy's picture

The Japanese government or the Japanese people?

JerseyJoe's picture

Its sounds like the Japanese swallowed Krudman's BS hook line and sinker.  

What's next?  Trillion dollar coins?  

kaiserhoff's picture

Rubbish.  The author does not know the difference between printing and borrowing.

Printing would create inflation and give some relief to all debtors.  QE benefits government and banksters, and rapes the savers.   Define your terms.  Then try to analize.

thatsnotmyname's picture

Our export position on the world market has already been severely damaged due to the NSA revelations. Once you lose your reputation it takes a long time to earn back the trust of your customers. Long term, printing money to purposely weaken the currency to increase exports is not a sound strategy. History shows the list of countries that have tried and failed by following that strategy is long and wide. Pro growth fiscal policies such as lowering the corporate tax rate to 15%, elimination or substantial lowering of the captial gains tax, and reducing red tape in business formation will make the USA not only competitive again, it will make the USA the most desirable place to be. Using monetary policy to fix or coverup horrible fiscal policy is not our solution.

GuusjA's picture

Volgens Eurogroepvoorzitter Jeroen Dijsselbloem is het nog te vroeg om te speculeren hoe de instituties (de Europese Commissie, het Internationaal Monetair Fonds en de Europese Centrale Bank) gaan reAgeren op het script van RuitenTeam om tot een gecontroleerde paradigma-wisseling naar het systeem 'Leven en Laten Leven' te komen.

 

http://nos.nl/artikel/2023703-dijsselbloem-gesprek-griekenland-gaat-te-l...

 

De Europese Centrale Bank is vandaag al begonnen met het opkopen van staatsleningen bij Europese banken, zodat dadelijk een snelle ParadigmaCHANGE naar het GELD=ZUURSTOF-paradigma in de eurozone mogelijk is. 

donsluck's picture

Could you point to a time when that actually worked? And what does lowering government income have to do with the NSA?

bwh1214's picture

I know I've been pushing this site, but it really does have a great overview of how we got ourselves into this mess. Starts off slow with stuff most of us already know but does a great job of pulling everything together.

 

http://www.debtcrash.report/entry/history-and-introduction

 

 

kaiserhoff's picture

Yes, but less Putin fluffing and America bashing would help preserve some credibility.

coast's picture

if they can print money out of thin air, why do they need the IRS gustapo and all our hard earned dollars?

Stuck on Zero's picture

The purpose of the IRS and tax laws is to penalize those who don't pay off the lawmakers.

KnuckleDragger-X's picture

The word your looking for is 'control'.Force majeure give them the claimed right but penalties gives them the ability to threaten the complete destruction of our life.

donsluck's picture

They don't. They are printing money and bailing out bondholders, that's the transmission system.

coast's picture

And for more control over our lives donsluck...to keep us bound and gagged, and too many people have stockholm syndrome.