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Economics

绝望的央行行长们

Sep 26, 2016 Stephen S. Roach

纽黑文—夏天的最后一天开启了世界两大主要央行——美联储和日本银行的又一个徒劳的决策季。美联储什么都没做，而这正是问题所在。而日本银行的炼金术师们在无效的非常规政策上越走越远。

美联储和日本银行所追求的策略都大大偏离了人们信任它们去管理的经济。此外，它们的最新动作更深一步地坐实了货币政策、金融市场和依赖资产的经济之间的日益狡猾的传递机制。该方针导致了2008—2009年的大崩盘，很有可能也为几年后的又一场危机奠定了基础。

十年来，央行行长的武器库里添加了不少新的强大工具，关于这些工具的效果的争论遮掩了经济增长萎靡的严峻现实。日本是明显的例子。其经济在过去四分之一个世纪中增长率一直处于1%的增长轨迹中，对一再实施的反常货币政策都没有什么反应。

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0 Comments on this paragraph, 27 Comments on this article

Joe Bongiovanni Oct 4, 2016

For some reason, central banker monetary economists are incapable of addressing the real solution unless it can come under some rubric of unacceptability, like helicopter money, free money or worse.
The only viable solution is publicly issued money.
That would overcome the 'you can't get there(money) from here (debt)' CB monetary policy conundrum.
You see, you CAN get there from here.
Just saying.
Let me know if you NEED instructions.
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Frank Field Oct 2, 2016

The author is right on point: the real question here is how to improve productivity and thus growth of the economy. Used to be that when we fell into a recession, with Presidential leadership the Congress would pass a series of measures that included public infrastructure spending, generally improving that which supports the economy, and accelerated tax depreciation to encourage private investment in its own infrastructure. Aside from repaving a few highways in 2009-2011, infrastructure investments, both public and private, have been largely missing. For all we appreciate him, President Obama has been sadly missing in action when it comes to providing that Presidential leadership over the economy, the Congress itself composed largely of posturing talking heads incapable of doing much beside calling for another multi-week recess, and Fed just plain using the real economy to see if they can prove or disprove Professor Bernanke's hypothesis. Any wonder we are where we are???
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Per Kurowski Oct 2, 2016

Stephen S Roach writes: “Asset prices are being manipulated across the board – stocks and bonds, long- and short-duration assets, as well as currencies… Central bankers desperately want the public to believe that they know what they are doing. Nothing could be further from the truth.”

Of course not, central bankers who do not understand how credit risk weighted capital requirements distorts the allocation of credit to the real economy, and all for nothing” should be paraded down our avenues wearing dunce caps.

http://perkurowski.blogspot.com/2016/04/here-are-17-reasons-for-why-i-believe.html
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Richard Graham Oct 2, 2016

The writer either doesn't now, or doesn't care that large corps and billionaires suck all the money out of the markets. This leaves nothing for the middle class, the heart of the economy since Henry Ford. All he can do is utter self-serving drivel about the central banks. The same institutions that caused the so-called financial crisis in the first instance.
- bruce birkett Oct 2, 2016
  
  A more significant suck is coming from over spending on entitlements (medicare, social security) and public pensions that are acknowledged to be absorbing money that could be invested in infrastructure and education. This isn't happening because we want to consume instead of invest.
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Niklas Monrad Oct 2, 2016

When Mr Roach talks of fiscal policy tools, does he then mean by that tax cuts? And if so who should benefit from those tax cuts? If so, does Mr Roach believe that tax cuts in themselves will stimulate the economy and so to speak pay for themselves? Because we have heard this argument before and it turned out to be inaccurate, at least insofar as the tax cuts would benefit the richest. Is Mr Roach in favor of adding to the already unsustainable debt burden and budget deficits? It's all well to claim that past policies have had no positive effect, and it is of course free, as nobody could tell what the situation would have looked like had those not been in place. But with harsh criticism like this also comes the obligation to present alternatives, detailed and argued.
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Walter Gingery Sep 28, 2016

In the absence of more forceful fiscal stimulus, it is far from clear – in the case of the BoJ specifically, and in the case of central banks faced with long-running inflation undershoots more generally – how central banks can boost aggregate demand and inflation significantly.
- Walter Gingery Sep 28, 2016
  
  That's bank-speak for, "We don't know what to do next, but we hope that someone will rescue us by spending more money in the real economy."
  
  Experience, however, points to a different solution: allocate debt and write it off.
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Farid Novin Sep 27, 2016

Excellent article! I cannot, however, agree with the conclusion that fiscal policy is the answer. The Problem is that the global financial structure is broken because of close to $700 tn and rising of toxic assets, which require a serious restructuring of global debt and a halt in the currency war, which are the main reasons for the lack of capital formation and the tepid productivity growth . For further elaborations please see :
http://fn-post.blogspot.com/2016/09/will-fed-raise-rates-this-september.html

http://fn-post.blogspot.com/2016/09/an-uneasy-truce-in-currency-war-and.html
and
http://fn-post.blogspot.com/2016/09/mr-draghis-transmission-mechanism-of.html
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jagjeet sinha Sep 27, 2016

MONETARY MYOPIA
Public Infrastructure Assets created with Zero Coupon Perpetuals - have a mathematical relationship with Unemployment & Inflation Targets.
Central Banks seem to have run out of ammunition - perhaps due to confinement from the Real World instead of The World of Finance.
Infrastructure Assets have a direct bearing on Investment Value, just as Corporate Assets have on Stock Markets.
In China, they have Two Governors - One runs the PBOC, One runs the CDB. The First one operates in the realm of Finance.
But it is the Second One that oversees the Infrastructure Investment linkage - operating in the realm of the Real World.
A Governor for Financial Assets and a defacto Governor for Real Assets.
MONETARY MYOPIA does not limit State interventions that BUILD The Real China.
QE injections so far seem evidently obsessed with Financial Asset Prices.
Whereas the Helicopter that delivers Growth is Public Infrastructure Assets.
Lord Keynes always cognizant of the limitations of the Private Sector and Financial Asset Prices.
Lord Keynes never undermined The State interventions as well as The Real World of Public Infrastructure Assets.
Lord Keynes had Crystal clear vision - MONETARY MYOPIA seems like a modern affliction.
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Jose araujo Sep 27, 2016

Can somebody please tell Mr Roach that the Austrian explanation was found long time ago to be false.

No, the 2008-2009 crisis wasn't due to an expanding monetary base. No the FED and the BOJ didn't create the crisis.
- Jose araujo Sep 27, 2016
  
  Milton Friedman and many others denied the ABC.
  ABC makes no sense because what tipps the model isn't the low interest rates but the irrational behavior of agents, and if you consider irrationality, then Austrian models have no validity whatsoever.
  There is no evidence that interest rates lose their sorting properties depending on the level, actually there is evidence agents taking more risk in high vs interest rates environment. There are irrationality episodes in both low and high interest rates environments
  If economic model is tipped by an external shock, there is no evidence or rational for an economy under monetary expansion to suffer more than an economy in monetary contraction.
  Actually there is no evidence supporting that unemployment decrease when wages go down, quite the contrary, the effect of lower demand will determine a reduction of total output, so actually the supposed stickiness of wages actually help in recession periods.
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- Jose araujo Sep 27, 2016
  
  @Vicky, Hayeck himself killed his theory, ABC makes no sense.
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- Vicky Lavendel Sep 27, 2016
  
  Who found out that the Austrian school is all the way false? Has it been Jose Araujo the master economist of the universe?
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yw yap Sep 27, 2016

Guess managing a national budget is not small task. In a globalized society U could even get reprimand from outside your country e.g. labelled a currency manipulator??

I am bemused that financial engineering has been used (by now probably over-used) to address economic issue. An overstuffed human might not get motivated from just getting free food. Motivation might not be complex but is not so easily understood too. We wish for productivity but what we keep getting mis-allocation. Maybe we can look at societal issue?
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Michael Public Sep 27, 2016

Monetary policy is to the economy like coffee is to a person. You can get a stimulus from one cup but twenty cups leads to a non functional person unable to do anything.
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Phillip William Sep 26, 2016

Seems to me that the big disconnect between what happened in the 1930s and today, is that in the 1930s there were massive bankruptcies, removing significant amount of capacity from the market and allowing the major asset owners hands to change in society. Many of the then tycoons failed, and new ones were born, more adebt for the times ahead. In the 2008-2009 crisis and ongoing, we sustained businesses and their chieftains that engaged in massive criminal activities, collusion and corruption. Consequences? Continued misallocation of resources (intentionally exacerbated through monetary policies) in asset prices and associated financial engineering, creating an ever increasing inequality in society and a sense of gross injustice where the players who broke the rules and hence the system, keep their ill gotten rains and continue unhindered to influence policies and businesses.

This explains the failure of Japanese fiscal stimulus. You will push on a string, either through monetary or fiscal policies, when the system itself is built on rules that do not work for the efficient allocation of capital or for the general good.

Is it so hard to understand? You killed the animal spirits and now want to add another layer of repression through fiscal policies run by the very politicians who brought the economy to its knees and allowed its perpetrators to go unpunished.
- Jose araujo Sep 27, 2016
  
  Following the 1930 collapse there were a large number of regulations passed that allowed for the confidence of the agents to be regained.
  
  After the 2008 collapse no such regulations were brought back.
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- yw yap Sep 27, 2016
  
  "Like"
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George Stockus Sep 26, 2016

Super piece by Roach, as usual.
Just disagree Fed/BOJ are "missing" the disconnect between assets and real economy...they created it.
Presumably by design in hope the economic dog caught up with their market price tails. A dangerous choice from which there seems no exit.
- Jose araujo Sep 27, 2016
  
  If Money velocity decreased, what in reality were experiencing was a monetary contraction. MV was decreasing.
  
  What the central banks did by injecting liquidity was to accomodate the decrease in money velocity, probably not enough liquidity was injected since no inflation was produced, quite the contrary.
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- Jose araujo Sep 27, 2016
  
  Mr. Roach is shooting from the hip, you see that the absence of inflation makes the reality where Mr Roach lives in a virtual world.
  
  Mr. Roach conclusion is impossible because it would have implied a raise in inflation: if M increased, V is Y are stable, then prices (P) should have increased. MV=PY is and equality, so the only explanation for the situation is if M increased and money velocity (V) decreased.
  
  Money velocity decreased because of the change of liquidity preferences, not by action of the central bankers.
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dan baur Sep 26, 2016

Almost good until you bring up Keynes and "liquidity trap". There is no liquidity trap, and Keynesianism makes even less sense.
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G. A. Pakela Sep 26, 2016

Since the Japanese experience with central banking plays so prominent a role in the failure of monetary policy to stimulate economic growth, why no comment on the similar failure of Japanese fiscal policy even though the Japanese have done nothing if not spend trillions on infrastructure spending over the past 20+ years.
- Jose araujo Sep 27, 2016
  
  Are you sure of your data, or are you just making stuff up to prove your point. Because looking at Japanese Government Spending you don't see the infrastructure effect, actually I don't recall any major uplift in Japanese Infraytructure this past years.
  
  Most of the spending is/was done servicing the national debt, social security and bailing the financial system.
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- Marc Laventurier Sep 27, 2016
  
  Quite right, and their life-and-death struggle to increase inflation is in the context of a cost-of-living already on the high side (as I find as I plan my trip to Kyoto for the autumn foliage, after the USD/JPY has depreciated 20% this year.) If I recall correctly , Japan has a per capita PPP of around US$36k - surprisingly low. The government and economists worldwide just want to cook the books through inflation.
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Paul Daley Sep 26, 2016

Good article, but the conclusion -- that more aggressive fiscal policy is the only way out -- depends on how you cut the policy pie. If you assume that the only way that central banks can lend against income is to lend to governments, then fiscal policy would be the only game in town. But, if you allow (and equip) central banks to lend to taxpayers directly, then you can get results even absent government action. It's really only when you require central banks to manage economic expansions with the same tools that they use to fight financial crises that you get into trouble.
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