Breaking news from Japan
Hot off the presses (I need one of those Drudge sirens on top):
TOKYO (AP) — Japan’s central bank has decided to ease monetary policy amid a strong yen and growing political pressure to take action on the faltering economic recovery.
The decision came during an emergency board meeting called by Bank of Japan Gov. Masaaki Shirakawa.
To boost liquidity, the central bank will expand a low-interest loan program for financial institutions to 30 trillion yen ($354.7 billion) from 20 trillion yen.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.
TOKYO (AP) — The Bank of Japan is holding an emergency meeting Monday as political pressure mounts for the central bank to ease monetary policy in the face of a surging yen.
In a statement on its website, the bank said the meeting is scheduled for 9 a.m. in Tokyo (0000 GMT; 8 p.m. EDT Sunday). The bank had been expected to convene Sept. 6 at a scheduled two-day policy board meeting.
The news sent Japanese stocks soaring. The Nikkei 225 stock average finished the morning session up 3.1 percent at 9,265.39.
Didn’t some Fed people recently say an aggressive move could hurt markets, by scaring people into thinking the Fed saw serious problems with the economy? It’s late, I’ll try to dig up a quotation tomorrow, and add an update. (BTW, I doubt the BOJ action will have much effect, so I wouldn’t be surprised if stocks fall back at some point. My hunch is that they rose merely because the BOJ seems to have woken up.) And speaking of Drudge, he linked to this sorry article from the NYT:
In a much-anticipated speech on Friday, Ben Bernanke, the Federal Reserve chairman, reiterated his vow to do more to boost the economy if conditions worsened. He did not seem particularly convinced that anything the Fed could do would be enough.
Actually just the opposite. He said there was plenty they could do, but that they weren’t going to do it out of fear it would boost inflation too much. Isn’t the NYT supposed to be our best paper? If he thought the policy would have little impact on AD and inflation, they’d definitely do it with unemployment at 9.5%.
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30. August 2010 at 04:37
So, 19 years of economic stagnation is not too much, but a double dip is scary? I fear your scepticism is warranted.
I am beginning to wonder if part of the problem with monetary authorities is simply that monetary economics is too esoteric and has so little to do with legislators. Not merely can a sense of arcane knowledge and lack of accountability allow collective obsessions to run riot, classic public servant risk aversion operates: central bankers may be able to avoid blame for economic downturns but will be blamed for inflation.
30. August 2010 at 04:40
Lorenzo, The problem is that really, really tight money looks like really, really easy money to the average guy (and politician.)
30. August 2010 at 06:26
“The problem is that really, really tight money looks like really, really easy money to the average guy (and politician.)”
Scott, if you convince yourself of that you will not make progress.
Small business people, the Republican college graduate class understand fundamentally that the banks have increased reserves. They also understand why banks aren’t lending. Most loan requests are coming from the desperate, the ones who need to be cleaned out of the system.
Yes, there are banks not lending (the insolvent ones). People with orders though, are making heavy of factoring, and guys with money to loan are offering to do factoring.
Even the employed guys taking out payday loans, are very aware that banks have money, but they are not lending.
But all of this is a much deeper you want to pretending.
The truth is most people have a fundamental problem savings being destroyed – it is not what ANYONE signed up for.
And please make no mistake, the stock market “soaring” when you print money isn’t news – as I understand it, it naturally has to soar. Word was just announced that the shittiest companies on the Nikkei are going to be able to borrow $100B.
Which means the shittiest companies – the ones who should be getting plowed under, are bing propped up. It doesn’t mean they are going to win, it just means they are going to be around longer.
Which CAUSES STICKY WAGES, right?
30. August 2010 at 07:34
scott sumner, 30. August 2010 at 04:40:
“Lorenzo, The problem is that really, really tight money looks like really, really easy money to the average guy (and politician.)”
That may indeed be true for some sort of “objective” analysis based on information available to (or availed of by) the “average guy.” However, my suspicion is that it greatly overstates both the native wit of the common man and, more importantly, that man’s inclination to make even the most rudimentary of distinctions where the subject of monetary economics is concerned. This paragon of averageness might indeed express vociferous opinion regarding “stimulus,” but the qualifications of “fiscal” or “monetary” would immediately cause his eyes to glaze over. Couple that with the simple truth that Monetary *is* hard, and you have a recipe for democratic disaster.
“Isn’t the NYT supposed to be our best paper?”
Sarcasm does not translate well via this medium. Do pardon the hysterics, but am I to be left assuming our utter intellectual doom?
30. August 2010 at 08:56
Let me put on my PR hat.
Okay, the idea of QE has made it into the headlines (of the business section anyway). The economic literati has the idea on the table (at long last).
Step 2? I say discuss/propose concrete options. Should the Fed buy $30 billion on mortgage-backed secutities every month, until we see some results? $40 billion?
Also, we need to tout Milton Friedman’s famous statement, that “Inflation is always a monetary phenomenon.” Except flip up: “Deflation and low inflation are monetary phenomenons.”
Why MF? Stupidly, the QE approach is being taken as a “liberal” idea. If you are “conservative” you are supposed to be for “tight money and a strong dollar.”
Of course, in the real world, being a conservative should not mean you want to starve the economy of money, especially now. But the argument looks like it is getting framed this way.
We have to make a concreate plan of QE appeal across the political spectrum. Make it sound right-wing.
30. August 2010 at 12:37
[…] SUMNER links to a story announcing new expansionary activity from the Bank of Japan (designed to bring down the […]
30. August 2010 at 14:19
[…] SUMNER links to a story announcing new expansionary activity from the Bank of Japan (designed to bring down the […]
30. August 2010 at 19:10
Scott, apparently:
1. This was brought one because China started buying Yen.
http://www.businessinsider.com/is-chinese-consumption-much-lower-than-we-thought-2010-8
2. It didn’t work:
http://www.marketwatch.com/story/yen-rises-after-bojs-special-easing-disappoints-2010-08-30?dist=afterbell
1. September 2010 at 05:57
Morgan, Stocks were hurt by high inflation in the 1970s. So it may not be true that stocks always soar after easy money.
William, OK, the average guy that knows some economics.
Benjamin, I agree.
Morgan, I’m not surprised it didn’t do much.
18. September 2010 at 18:31
Lorenzo, The problem is that really, really tight money looks like really, really easy money to the average guy (and politician.)
I get this, but don’t the average guy and the average politician care about results? If the philosopher kings get results, I suspect the guys on the street would be happy. Or at least better off.
And shouldn’t the unaccountable philosopher kings not give a shit anyway? I guess I’m still looking for a good model of why, if the Fed can do something, it doesn’t.
19. September 2010 at 08:09
MikeDC, I am addressing that in some recent posts. I think it is a mixture of lack of understanding of how monetary policy works, and excessively hawkish goals.