I subscribe to a newsletter from a mortgage guy that seems pretty sharp on economic issues and in his newsletter today, he talked about the quantitative easing strategy employed by Japan when their economy fell apart 9 years ago. I am a pretty green on the Austrian School, only hearing about it this past weekend, so I don't have enough knowledge to judge whether the idea is at all sound and if it isn't too late.
From what I have read, the US is following the playbook written by Japan about how to get out of our current woes. If we look into our crystal ball, based on our knowledge of our current situation and combine that with the quantitative easing strategy, what do the next 5 years look like for the US?
NewCreature<><
Welcome.
Japan's economy has been falling apart for more than 9 years. The 90s are known as the lost decade, with zombie banks (dead men walking) being propped up by government.
The US can't follow Japan's playbook, because the current situation is built on the dollar hegemony. The Japanese never had a Yen hegemony being the reserve currency of the world.
No one here can predict the future. But the US is not built to withstand what Japan went through, and one could argue that Japan is still suffering for those policies and approaches.
Watch this video
http://mises.org/Community/forums/t/5021.aspx
and check out Peter Schiff on YouTube. Actually, you can also check Schiff out on Lew Rockwell's (President of Mises) podcast.
hth
If you find something evil that wobbles, push it. - Gary North
From what I understand, quantitative easing is pretty much what the Fed just announced with its $800bn bailout. It is a short-term fix to a long-term problem. The basics of the Austrian theory of the business cycle states that when interest rates are artificially lowered, bad investments are made which cannot be profitable in the long term. This is due to the inherent uncertainty in daily life, and it is unknown how much inflation the new injection of money will bring. Ultimately, the bad investments made during the boom period face rising inflation (i.e. the 7% inflation earlier this year), as the resources they need to use (i.e. labor, land, steel, etc.) are bidded away from them, which forces some of these investments to be abandoned completely, while others become significantly less profitable. This throws the economy in recession.
Buying bad loans and stocks, lowering interest rates, etc. might solve a problem in the short run, but it can only bring higher inflation and unemployment in the future.
Mises Community Natural Rights Discussion Group
I beleive a major difference between us and Japan is that Japan's personal saving rate was and still is around 12% both before and after the crash in '89. Their growth rate of money supply (M2+CD's) fell from around 13 or 14% before the crash down to 0%, and was only pushed up to about 5% by the mid to late 90's.
In other words, it appears the Japanese let some liquidation happen, although they did push against it, mostly in the form of the zombie banks. More importantly, they let the private side of the equation drive their credit market.
In contrast, our personal savings rate has fallen into negative territory, only recently pushed up to about 2% because of the uncertainty created in this bust. During the boom, money supply (M2) increased at a rate of around 8%, fell to about 5% from '04-'06, and has recently been jacked up to over 10%. In short, we are not allowing any liquidation. Our bailouts are larger. Our intervention in the credit market is larger. The printing presses now dominate the credit market.
Critiques of Japan's recovery often cited Japan did not put enough force into their policies. We are the new experiment. The last time anything like this occurred, we called it the Great Depression. Expect similar results.
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