Umm, I was implying no such thing.
I said “it is entirely reasonable to expect” interest rates to rise, which means the OP’s question was not necessarily “confused”. I did not propose that expectation as the only possibility.
Fair enough. I misread you there.
Which raises the question, why did printing money in Europe in the early 1930s create hyperinflation instead of easing the Depression?
You got the timing wrong on this one.
The hyperinflation was in 1920s Weimar Germany, not 1930s Depressionary Europe. For the Depression itself, countries did in fact start printing more money, in the form of dropping their gold pegs. And there is, in fact, a perfect one-to-one correlation for this. The faster that countries pushed up prices (by devaluing their currencies), the faster they recovered from the Depression.
Incidentally, I wish people would quit using the phrase “to print money” for these processes. There are plenty of people out there who think that this is accomplished by literally printing and issuing more banknotes, and I’ve had several tiresome arguments with them. Cecil speaks
Would building some more island airports help?
It’s not invested, it’s used to buy Japanese bonds, and given the extremely high ratio of public debt in Japan, I’m assuming that the money gathered by selling those bonds is used for the structural expenses of the government rather than for public investments, like, say, infrastructure (although I could be mistaken about that, I don’t know enough about Japan’s current situation).
My understanding is that despite ludicrously low interests rates, Japanese people and Japanese companies aren’t interest in borrowing, spending or investing money or at least whose who do are outnumbered by those who rather save it (for instance in the form of Japanese bonds).
Umm… nope.
So you’re a Japanese company that buys parts from china via long term contract. Every month, you pay them 100 yen.
Japanese gov’t prints more yen, you raise local prices, so the 100 yen is now nothing to you, you’re happy:). Your supplier is not, because the money you send him has lost most of its purchasing power. In fact, everyone who didn’t hedge exchange rate risk gets screwed:(.
Your supplier now exercises an option in the contract requiring you to pay in U.S. Dollars at an amount that was pre-specified in the contract (100 yen or $1,000 at the supplier’s discretion). You go to the money changer with your 100 yen, and find that it will only bring you $10 U.S. To get the the full $100 for the contract, you shell out 10,000 yen. Now your supplier is happy:), you’re unhappy:(.
Bottom line… prices adjust, exchange rates adjust, companies get smart about hedging, status quo remains unchanged.
Are you sure about this? As far as I know, the Japanese discount rate was 6.0% in August 1990 and never once was increased until it went from 0.10% to 0.40% in July 2006. When did they supposedly increase interest rates?
The first was in 2000. You mentioned the second time.
Not a big bump, but the signal to the markets was clear: We’ll give you a bigger allowance, but we’ll take the cash back the moment before you kids try to spend it. That’s a killer. The process is no good if everyone expects the new money to disappear before it can be used. It just sits in the banks as excess reserves, as happened with the US QE1.
I’m not in any way doubting your site as it looks fine. It is weird to me that the Bank of Japan’s website doesn’t show that 2000 increase. Link
Every other change seems to line up.
Ah, your cite is right, too, but you’ve got the discount rate (how much it costs to borrow directly from the BoJ), whereas I cited the interbank interest rate.
In the US, the discount rate is normally about one point over the fed funds rate. I don’t how the Japanese normally operate.
Isn’t it just shorthand for “to create fiat money”? And isn’t the Fed’s new money arguably less “substantial” than even printed banknotes? Just ledger entries?
Please fight my ignorance: What legal limits, if any, are there on Fed’s ability to create such fiat money? IIRC, Fed banknotes must be backed in part with Treasury debt (though that leads to a circular notion of “backing”), but perhaps that won’t apply to QEII until banks ask to close their Fed accounts. (“Large unmarked bills, please!”)