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15 декабря 2015, 18:36

Intellectual regress, by Scott Sumner

Intellectual progress is much more common than regress, but I do believe that the latter problem occurs more often than we might assume. Mid-century Keynesianism may have represented progress in some dimensions, but it also reflected regress on our understanding of the role of monetary policy. Jeff Holmes sent me a fascinating blog post on scurvy, which he noticed had an interesting connection with some of the ideas that I blog about. The post is too long to quickly summarize, but the gist of it is that knowledge of how to avoid scurvy was more advanced in the early 1800s than in the early 1900s. Indeed scurvy caused major problems in Scott's 1911 ill-fated expedition to the South Pole. This is odd, because by 1800 the British navy knew that eating citrus fruits could prevent scurvy, but did not understand the role of vitamin C, or indeed even the importance of fresh food. As shipping speeds increased with an advent of steam power, scurvy became far more rare. Gradually fresh lemons were replaced by bottles of rather stale lime juice, which had very little vitamin C. The inadequacy of this replacement only became clear on the long Antarctic expeditions. I think something like that happened in economics, especially with the Phillips Curve. The Phillips Curve model worked pretty well under the gold standard, and indeed its policy implications were very important in the early 1930s. If we had prevented the Great Deflation of 1929-33, then we would probably have also avoided the Great Depression. But just as the key to stopping scurvy was fresh foods, not highly acidic stale lime juice, so the key to stopping depressions was stable NGDP growth, not stable prices. The Phillips Curve model was a reasonable approximation of the truth, until it no longer worked very well. Several commenters sent me a recent WSJ article, where lots of well-known economists express puzzlement over the recent period of low inflation. This outcome seems to violate the Phillips curve model, as unemployment has now fallen to 5%. Those of us in the market monetarist camp are not at all surprised, and indeed we predicted that inflation would fall short of the Fed's expectations. While it looks like low unemployment might cause higher inflation, that's a statistical illusion caused by the fact that highly inflationary policies sometime create low unemployment, and deflationary policies often create high unemployment. But in both cases you only get that result when NGDP moves in a certain way relative to wages. The actual cause of high inflation is not low unemployment, but rather monetary policies that cause NGDP to rise very fast relative to trend RGDP growth. But recent Fed policy has led to slower NGDP growth, and we in the market monetarist community noticed that the bond markets seemed to expect continued very slow growth in NGDP. The profession wrongly assumed that monetary policy was "expansionary" when expectations for NGDP growth showed that the stance was actually highly contractionary. That, combined with the plausible but not quite accurate Phillips Curve model, led to false predictions about the likely path of inflation. And this is not the first time the Keynesians screwed up. As Lars Christensen recently reminded me, they also misused the Phillips Curve in the 1970s, expecting that high unemployment would bring down inflation. But inflation didn't fall, at least not until the early 1980s, when Volcker finally slowed the extremely rapid growth in NGDP. The recent failures of central banks to hit their inflation targets have led to a crisis of confidence: Central bankers "thought that it must be their own doing," said Jon Faust, the director of the Center for Financial Economics at Johns Hopkins University, who served two stints at the Fed during that period. "We thought we figured out macro policy, and we could deliver low, stable inflation and stable output and low unemployment and all things good." They had "figured out macro policy" in one sense, but they didn't know how they had achieved those results. It wasn't Phillips Curve thinking, it was keeping NGDP growth close to 5%. It just so happened that both approaches yielded similar results during the Great Moderation. But when they diverged after 2008, the Fed followed the wrong model, the Keynesian Phillips Curve model rather than the market monetarist NGDPLT approach. Adam Posen sees the problem: "There's no way in hell anybody reasonably predicted, using the mainstream models, that you would end up with inflation this low," said Adam Posen, the president of the Peterson Institute for International Economics, a think tank with an international focus. "Macroeconomics is in the era of Kepler and Copernicus and Tycho Brahe. We built Ptolemaic models and thought we were doing quantum mechanics," said Mr. Posen, who served on the Bank of England's monetary policy committee from 2009 to 2012 and pressed his central bank colleagues at home and around the world to launch more aggressive monetary action to revive stagnant economies and boost inflation rates. Mr. Posen was on the winning side of those debates--major central banks doubled down on stimulus efforts--but expected inflation never materialized. The key phrase here is "using mainstream models." Unfortunately, there are signs that the Phillips Curve model will be replaced with something even worse: Former Fed Chairman Ben Bernanke, in an interview, pointed to Congress as one culprit for inflation's weak performance. As Fed chairman, he urged Congress in the aftermath of the recession to temporarily boost government spending and focus on longer-run measures to control debt. By raising demand, that spending would also boost inflation. After an $830 billion stimulus plan in 2009, however, Congress turned to shorter-run budget cutting. Mr. Bernanke said in an interview that a central bank's ability to raise inflation would have to assume "at least reasonably cooperative" fiscal policy. In other words, the central bank can only do so much to stabilize the U.S. economy if lawmakers are working against Fed efforts. A new theory about low inflation has emerged from former Bank of Japan governor Masaaki Shirakawa. While his former professor, University of Chicago economist Milton Friedman, said inflation could only be caused by a surge in the money supply, Mr. Shirakawa raised demographics as a cause. Japan's aging population during the 1990s and 2000s seemed to unleash powerful deflationary forces, according to his theory, by lowering expectations of growth, straining the government's budget and putting a growing proportion of Japanese consumption in the hands of older people who draw on savings rather than younger wage earners. The population of Japanese ages 15 to 64 has fallen from around 87 million in the mid-1990s to about 77 million in 2015, according to data from the Organization for Economic Cooperation and Development. That means fewer working-age people to buy existing homes or purchase products, putting a damper on the economy's ability to boost demand or bid up prices. In a prescient 2012 speech, Mr. Shirakawa said the U.S. and Europe would face similar conditions: "I cannot entirely rule out the looming menace that may unveil itself into downward pressure on inflation rates." In 2014, a trio of economists at the International Monetary Fund endorsed many of Mr. Shirakawa's hypotheses, arguing there are "substantial deflationary pressures from aging" and that "this applies not just to Japan, but also to other countries with aging or declining populations." Debate over inflation and its causes has come to a boil in recent months, with other theories joining Mr. Shirakawa's ideas about aging countries and Mr. Bernanke's blame of stingy fiscal policy. Economists challenged Fed officials about their understanding of inflation during two days of talks this summer at the Kansas City Fed's annual monetary conference in Jackson Hole, Wyoming, Mr. Faust of Johns Hopkins University said the long-standing view that central banks could control inflation was a myth. "There's very little support for the view that inflation is simple and we had it figured out," he said. Reading this makes me very demoralized; it seems that macroeconomics is regressing. When money is tight we get slow NGDP growth expectations, and that leads to low T-bond yields. It should be no surprise that inflation is low in that sort of policy environment. And this has nothing to do with the Fed being unable to hit its targets because of the zero rate bound. After all, they are planning on raising rates this week. This is all about the Fed and the ECB having the wrong target. Just to be clear, I did not expect inflation to get this low, as neither the market nor I is able to predict sudden oil prices collapses. I'm talking about the sub-2% trend rate of core inflation in recent years, which was entirely predictable. The fact that mainstream economists didn't predict it should lead them to re-evaluate their models, not come up with bizarre theories of "demographics" causing deflation. Note that the Japanese economist who used the demographics excuse presided over the last portion of a near two decade period where the GDP deflator fell at 1%/year. Since he was replaced in 2013, the Japanese deflator has trended upward at 2%/year, even as the demographic situation has worsened dramatically. The yen was at about 80 when Abenomics was first announced in late 2012, and now is at about 125 to the dollar. It's odd to see that one of the architects of Japan's deflation is still excusing his tight money policies by pointing to "demographics", after the dramatic success achieved by his successor. What would Milton Friedman think of his former student? HT: Benny Lava, TravisV (10 COMMENTS)

19 ноября 2015, 16:49

Central bank 'silo culture' detracts from statistics, says ex-BoJ governor

Central Banking Masaaki Shirakawa advocates exposing economists to statistics and business contacts Masaaki Shirakawa tells audience at Deutsche Bundesbank to expose economists to statistics and business contacts during their careers; Otmar Issing stresses value of good data

Выбор редакции
10 ноября 2015, 20:42

Rajan picked as BIS board vice-chair as he calls for global ‘rules of the game’

Central Banking RBI governor wants global 'rules of the game' RBI governor chosen to take over position Masaaki Shirakawa vacated in 2013; delivers lecture in Frankfurt calling for global ‘rules of the game’

27 марта 2015, 20:00

Is Finland’s Economy Suffering From Secular Stagnation?

“After the Great Depression, secular stagnation turned out to be a figment of economists’ imaginations……..it is still too soon to tell if this will also be the case after the Great Recession. However, the risks of secular stagnation are much … Continue reading →

26 марта 2015, 10:06

Links for 03-26-15

The Confidence Witch - Gloomy European Economist On the Stupidity of Anti-Monetarist Economics - Brad DeLong Choosing the Right Policy in Real Time - Liberty Street Economics Correlating Social Mobility and Economic Outcomes - Vox EU The Rise of Mortgages:...

17 февраля 2015, 13:49

Demographic changes and structural deflation

Authors: Jérémie Cohen-SettonWhat’s at stake: A view has appeared arguing that the low-inflation environment experienced by advanced economies may be structural, rather than cyclical. Although this view remains based on thin empirical evidence and still needs to be fully articulated, it is gaining support among monetary pessimists. Motivation and empirical link Derek Anderson, Dennis Botman, Ben Hunt write that a view appears to have emerged that exiting deflation has become more challenging due to aging. Edward Hugh writes that if deflation is a product of lower potential GDP that comes with lower population growth, all the ongoing attempts to reflate economies may be simply working against history. In their Population History of England, Wrigley and Schofield (chapter 10) write that when Malthus wrote his Essay on the principle of population he made the tension between population growth and food production (and prices) the central thesis of the work. 'An increase of population without a proportional increase food [...] The food must necessarily be distributed in smaller quantities, and consequently a day's labour will purchase a smaller quantity of provisions. An increase in the price of provisions would arise, either from an increase of population faster than the means of subsistence; or from a different distribution of the money of society.’ The population and price dynamics of the 250 years preceding the appearance of his Essay in 1798 provides suggestive evidence about that link: population doubled while prices more than tripled (suggesting an elasticity of prices to population growth is 1.5). Former Bank of Japan governor Masaaki Shirakawa writes that, seemingly, there should be no linkage between demography and deflation. But it may not be the case. A cross-country comparison among advanced economies reveals intriguing evidence: Over the decade of the 2000s, the population growth rate and inflation correlate positively across 24 advanced economies. That finding shows a sharp contrast with the recently waning correlation between money growth and inflation. Edward Hugh writes that the correlation may be just an odd coincidence, but it is striking.Mechanisms The BIS (HT Blog-Illusio) writes that Governor Shirakawa (2011a, 2011b, 2012 and 2013) has argued that population ageing can lead to deflationary pressures by lowering expectations of future economic growth. The resulting loss of demand and investment might not be easily offset by monetary policy, especially if inflation is already low and policy rates are close to the zero lower bound. President Bullard of the St Louis Federal Reserve Bank has suggested a different explanation focusing on the political economy of central banking. Bullard et al (2012) argue that the old might prefer lower inflation than the young due to the redistributive effects of inflation. Thus, to the degree their policies reflect voter preference, central banks might engineer lower inflation when populations age. Patrick Imam writes that a declining and aging population could put deflationary pressures on the economy through lower aggregate demand, a negative wealth effect from falling asset prices, and changes in relative prices reflecting different consumption preferences. Katagiri (2012) investigated the effects of changes in demand structure caused by population aging on the Japanese economy and found that population aging—modeled as unexpected shocks to its demand structure— caused about 0.3 percentage point deflationary pressure using a multi-sector new Keynesian model. Derek Anderson, Dennis Botman, Ben Hunt use the IMF’s Global Integrated Fiscal and Monetary Model (GIMF) and find substantial deflationary pressures from aging, mainly from declining growth and falling land prices. Dissaving by the elderly makes matters worse as it leads to real exchange rate appreciation from the repatriation of foreign assets. The deflationary effects from aging are magnified by the large fiscal consolidation need. Monetary pessimism or aggressiveness Edward Hugh writes that it’s hard not to draw the conclusion that something structural and more long-term is taking place and that this something is only tangentially related to the recent global financial crisis. One plausible explanation is that Japan’s long-lasting malaise is not simply a debt deflationary hangover from the bursting of a property bubble in 1992, but rather with the rapid population ageing the country has experienced. Derek Anderson, Dennis Botman, Ben Hunt write that the scant theoretical and empirical work on the potential relationship between these factors – with most research on aging focusing on the effects on growth and fiscal sustainability – may be due to the monetarist doctrine: whether or not aging exerts downward pressure on prices is irrelevant as a central bank committed to do whatever it takes should remain capable of anchoring inflation expectations at the target. ECB Board member Benoit Coeure recently repeated the long-held view that inflation is and remains a monetary phenomenon. And that, as such, doubts about the ability of central banks to deliver on their inflation targets in the medium run are just misplaced. The BIS writes that, though unconventional, if right, a link between demography and inflation may have significant implications for monetary policy. Christina Romer and David Romer write that such arguments were already made in the 1970s when economists of the Federal Reserve “regard[ed] continuing cost increases as a structural problem not amenable to macroeconomic measures”. These views led monetary policymakers to advocate nonmonetary steps to combat inflation. Derek Anderson, Dennis Botman, Ben Hunt argue, indeed, that that deflation risk from aging is not inevitable as ambitious structural reforms and an aggressive monetary policy reaction can provide the offset. Calibrating monetary policy appropriately may, however, de difficult. Jong-Won Yoon, Jinill Kim, and Jungjin Lee write that there is little empirical evidence to date on whether, and to what extent, monetary policy changes have different effects on various cohorts and, therefore, on whether monetary policy effectiveness changes in an ageing society.Read more...

05 сентября 2014, 16:59

Secular Stagnation Part III – The Expectations Fairy

“So what’s going on here? Well, it might sound like a hokey religion, but central banking is really a Jedi mind trick. Just saying something can be enough to make it happen. That’s because the power of the printing press gives their words a distinct power. Well, that and the fact that the economy is already one big self-fulfilling prophecy.” – Matt O’brien,  “Abenomics has only worked because foreigners think it will“ “Lucas thought he could do better. His major innovation in his seminal 1972 article was to get rid of the assumption (implicit and often explicit in virtually every previous macro model) that government policymakers could persistently fool people.” – The Concise Encyclopedia of Economics, “Robert Lucas“. Of course, if we knew – really knew – that one got much more reliable results by doing the things that ad-hoc macro does not, it would be a tool to be used only for the most preliminary examination of issues. But do we know that? – Paul Krugman, How Complicated Does the Model Have to Be? “It is unfair for Keynesians to be making fun of the people who call for austerity by saying “confidence fairy” when they are making similar expectational-shift arguments themselves.” -  Brad DeLong, Confusion: High Public Debt Levels and Other Sources of Risk in Today’s Macroeconomic Environment “You can fool some of the people all of the time, and all of the people some of the time, but you can not fool all of the people all of the …. Winston Churchill. Exiting a Liquidity Trap   The classic solution to the problem posed by a demand slump when monetary policy becomes ineffective due to the operation of a liquidity trap is a credible commitment to future inflation (see for example Paul Krugman’s 1998 Japan’s Trap). This commitment reduces the real interest rate despite the presence of a zero bound and thus stimulates spending, and it does so through the impact of the commitment on expectations about future inflation. In a later blog post Krugman himself puts it like this: “Here’s the thing, however: the economy won’t always be in a liquidity trap, or at least it might not always be there. And while investors shouldn’t care about what the central bank does now, they should care about what it will do in the future. If investors believe that the central bank will keep the pedal to the metal even as the economy begins to recover, this will imply higher inflation than if it hikes rates at the first hint of good news – and higher expected inflation means a lower real interest rate, and therefore a stronger economy. So the central bank can still get traction if it can change expectations about future policy.” The tricky part is, as he goes on to note, this commitment won’t convince if investors fear that at the first sign of good news the normally staid and serious central bankers revert to type and snatch away the punch bowl. An old Greek fable catches the feel of the situation remarkably well: “A lion is trapped in a deep hole. A fox passes by and the lion asks it to pass down a tree branch. The lion makes many promises about the reward it will give the fox if it escapes from the trap. The fox understands that the lion is hungry and that once escapes the trap it will simply eat it. Once the lion is free from the trap it has no incentive to fulfill its promise but has every reason to make the fox its meal.” So the central bank has to commit to future inflation in a way which credibly convinces investors that they are not going to be turkey’s participating in a Christmas promotion campaign. In an attempt to get over this his (at the time) PhD student Gauti Eggertsson came up with a set of proposals – in a paper entitled Committing to Being Irresponsible – where the core idea was that removing central bank independence would make the commitment more credible, presumably because politicians are known to have a lower anti-inflation bias than central bankers. Eggertsson puts it like this: “In this paper the zero bound is binding because of large shocks that make the Central bank unable to lower the nominal interest rate enough to prevent deflation and a deleterious decline in output. We show that in the presence of these shocks there is instead a deflation bias of a discretionary independent Central Bank.” “In a liquidity trap the Central Bank would best achieve its goals if it could commit to moderate future inflation in order to maintain price stability and keep employment close to potential. If it is a discretionary maximizer it cannot, however, do this because its announcements are not credible. The result is a liquidity trap characterized by excessive deflation and undesirably low output.” Krugman uses exactly the same expression at the end of the post I cite above: “The hope now is that things have changed enough at the Bank of Japan that this time it can, as I put it all those years ago, ‘credibly promise to be irresponsible’”. So the question is, why isn’t this short term irresponsibility – I presume the idea is that they don’t go being irresponsible on forever (although see below) – some variant of what Matt O’brien calls the Jedi mind trick? At the heart of the problem lies the issue of expectations, and what you can get people to credibly believe. Baron von Münchhausen was reputedly able to pull himself up by his own bootstraps , why don’t you go try it?  What’s the Difference Between the “Confidence Fairy” and the “Expectations Imp”? The issue of expectations is important, since if the theory here isn’t right then Abenomics simply can’t work. Nor will QE at the ECB. In contrast some macro-economists have a tendency to  ridicule those practitioners who exhibit a tendency to view economic crises through rosy-tinted  sentiment spectacles by suggesting that  all you need to get people to spend their way out of a demand slump is make them feel more confident. But don’t expectations play some sort of similar role in the latest generation of theories about how to escape from a liquidity trap. At least this is the point Brad DeLong seems to be making in the quote I use above. To be able to behave as if inflation was coming you need to believe the central bank is willing and able to create it, and keep doing so. So what is the difference between confidence and expectations? Why should I not believe central bankers’ (confidence raising) growth forecasts yet believe their inflation ones? Well, according to Paul Krugman in one of his most explicit attempts to date to address just this point (here):  ”The expansionary austerity types………are (or were) actually counting on the supposed rise in confidence to avoid what would otherwise be nasty recessions, which have in fact materialized…….those of us hoping to summon the expectations imp want to do so with policies that are at worst harmless, such as expanding the monetary base under conditions where this has no direct inflationary impact.” Doesn’t sound very convincing as an explanation, does it? Confidence arguments are used by those who try to avoid an unpleasant truth, expectations ones by people who believe you can change things. While generally agreeing with Krugman that deep seated economic imbalances are normally not resolved by simply improving confidence, I’m not sure he quite does the expansionary austerity argument justice here by saying that those advocating the view do so simply  because they think in this way they can avoid deep and nasty recessions.Sounds more like “good” vs “evil” polemical stuff. In fact, not surprisingly, the expansionary austerity people do have some stronger arguments than those Krugman saw fit to deal with. The first reference to this kind of argument I personally came across in the context of the current crisis was in the IMF Hungary Standby Loan Report (November 2008). Certainly in the reference I cite below the IMF economists who used it do not seem to be basing themselves on the kind of argument K suggests they do: “In emerging market countries with debt overhangs, the “Keynesian” effect of fiscal adjustment is likely to be outweighed by “non-Keynesian” effects related to expectations and credibility. Non- Keynesian effects have to do with the offsetting response of private saving to policy-related changes in public saving. In particular, if fiscal adjustment credibly signals improved public sector solvency, a fiscal contraction could turn out to be expansionary, as private consumption rises based on the view that future tax hikes will be smaller than previously envisaged.” So as far as I can see the argument in its current form first emerged on the eastern European periphery and then headed south. I didn’t agree with the argument at the time – see my The New Orthodoxy is Upon Us – and I don’t now, but hey, guess what: the argument is based on an expectations mechanism. Private consumption is expected to rise on the basis of an anticipated lower future tax burden: pure Robert Lucas. Now lets’ leave aside for the moment the idea that fiscal stimulus policies are “at worst harmless” (or that Japan’s rising debt level has no obvious ill-effects), these are after all polemical blog posts (even if in some cases “extremely wonkish” ones) so we shouldn’t be too harsh. But, as illustrated above, even Brad DeLong has trouble going to the line with some of the argument.  The question is the “non-Keynesian effects” argument isn’t wrong because it postulates you can avoid nasty recessions (don’t Austrians and Schumpeter even think recessions are much needed, “cleansing” mechanisms, to purge out imbalances??), it’s “wrong” (if that is the appropriate word here) since it is based on implausible assumptions about how people work (rational expectations) and as a result doesn’t offer an adequate account of decision making dynamics. More especially it’s wrong because it confuses the mechanics behind financial crises (collapse in confidence, self fulfilling expectations, etc) with the dynamics of crises which have deep roots in the real economy (more on this below). In this sense, when Krugman said about Estonia, “Better than no recovery at all, obviously — but this is what passes for economic triumph?” he was basically right, increased investor confidence – of which there certainly was a lot – didn’t do the trick.  Quick Look At Robert Lucas A central role in the “expectations” phenomenon in modern macro is played, as Paul Krugman notes here, by Robert Lucas. Lucas came online professionally in a world where large-scale Keynesian models were hegemonic when it came to forecasting and policy evaluation. He erupted onto this stage by making one very simple point: the economic models then in vogue were not reflexive enough, in that the observed empirical relationships between variables tended to be “regime specific” and thus of limited value in situations of regime change. The regime Lucas was talking about was the government policy one – a relationship (between say interest rates and inflation) which is observed under one policy regime may not be under another, different, one. In fact the argument could be used to question virtually any model based on the extrapolation of patterns from historical time series under conditions of rapid change, and hence has as much validity today as it did in the 1970s. The so called  “Lucas critique” focused on the role played by expectations in determining movements in large economic aggregates. The conclusion he came to was that generalizations about policy impacts are difficult, since the impact and effectiveness of a given policy in given circumstances may be critically determined by how that policy alters the expectations of the various economic agents involved. Regime change in a central bank and inflation is a typical example. A bank which convincingly commits to doing whatever is necessary to maintain inflation at or around 2% may change actor reaction functions rapidly if a previous regime had been seen to be having a “live and let live” relation with regards to inflation. Equally, a regime committed to generating inflation “whatever it takes” could influence the behaviour of economic agents by changing their expectations – if that is they have the capacity to generate inflation (see below): if not, they are just another version of Baron Münchhausen. There is no doubt that the influence of new-generation neoclassical theorists like Robert Lucas gave macroeconomics the appearance of being an increasingly rigorous discipline, in particular in its recourse to ever more sophisticated mathematical techniques – techniques which were so rigorous that the subject came to look as if it were  more amenable to theoretical physicists than to those with basic economic intuitions.  There was also a systematic attempt to integrate the models used more closely with basic macroeconomic foundations. But what was in doubt from the start -  and still remains without an adequate answer today – was whether all that extra rigour and all the mathematical sophistication did not come at a price: that of substituting theoretical sophistication for realism and plausibility. There seemed to be a growing distanciation between the theoretical models being developed and everyday economic reality. Long before the recent global economic crisis brought the fact to everyone’s attention it had been evident that the new theoretical economics had still  to develop testable – and easily falsifiable – models that would enable practitioners to predict and foresee interesting, unexpected and surprising phenomena in the domain of real world economies: and this surely is where the simple dividing line between science and “doxa” (or mere opinion) has to lie. And surely you don’t need a whole lot of math to decide the issue we are looking at today – the ability of central banks to “always and everywhere” generate inflation – since whether or not they can is, at the end of the day, an empirical question. All you need is a dictionary to help you understand the meaning of words like “always”, “everywhere” and “inflation”. One simple counter example can bring a whole mountain of math tumbling down like a pack of cards. These points are far from new. The two Roberts – Solow and Lucas – were already clashing over them back in the 1980s. Lucas lamented; “I don’t think that Solow, in particular, has ever tried to come to grips with any of these issues except by making jokes,”  while Solow retorted: “Suppose someone sits down where you are sitting right now and announces to me that he is Napoleon Bonaparte. The last thing I want to do with him is to get involved in a technical discussion of cavalry tactics at the Battle of Austerlitz. If I do that, I’m getting tacitly drawn into the game that he is Napoleon Bonaparte.” As Gregg Mankiw observes: “Lucas seems to be complaining that Solow does not appreciate the greater analytic rigor that new classical macroeconomics can offer. Solow seems to be complaining the Lucas does not appreciate the patent lack of reality of his market-clearing assumptions.” (See Mankiw’s extremely interesting The Macroeconomist as Scientist and Engineer). Although economists like Thomas Sargent and Robert Lucas viewed Keynesian modelling and forecasting as based on flawed science – even going so far at one point as to say, “For policy, the central fact is that Keynesian policy recommendations have no sounder basis, in a scientific sense, than recommendations of non-Keynesian economists or, for that matter, non-economists.” – they also knew that simply knocking down one edifice isn’t equivalent to building another. This would require new, more plausible and more effective models. In this sense although much was promised little actually materialized.   “We consider the best currently existing equilibrium models as prototypes of better, future models which will, we hope, prove of practical use in the formulation of policy,” they declared in 1979. They event went so far as to suggest that such models would be available “in ten years if we get lucky.” They obviously didn’t get lucky, since 35 years later the world is still waiting. Naturally this has harmed perceptions of their project since macroeconomics is not, in principle, a discipline which seeks to determine how many angels you can balance on the head of a pin. As Paul Krugman caustically commented: “One can now explain how price stickiness could happen. But useful predictions about when it happens and when it does not, or models that build from menu costs to a realistic Phillips curve, just don’t seem to be forthcoming.” “Even as a proponent of this line of work”,  Gregg Mankiw tells us, “I have to admit that there is some truth to that assessment.” Beyond the difficulties involved in understanding the dynamics of expectations, tying macroeconomics down to micro foundations was always going to be a problematic exercise, since the subject is inherently all about identifying patterns which are to be found in the economic system as a whole and studying the systemic properties which are revealed by those patterns, and these properties are often discrete and distinguishable from the properties and relationships of the component elements observed at the micro level. Confidence Versus Expectations As I say above, in the context of financial crises confidence is an extremely important factor – surely it is obvious to everyone that banks runs are always bad.  In that sense the large central banks did a sterling job during the global financial crisis by maintaining confidence in the respective banking systems. During so-called “balance of payments crises” sustaining confidence is also vital, since sudden fund outflows can lead to self-fulfilling expectations whereby a country which only has a liquidity problem can be driven to insolvency.  Again, there is consensus on this, so when Jean Claude Trichet declares “Confidence-inspiring policies will foster and not hamper economic recovery,” perhaps it’s worth remembering he is a banker, and that he thought the Euro Crisis was based on balance of payments (liquidity) problems in a number of periphery countries. If the problem is more a question of deep seated competitiveness issues, coupled with potential solvency problems then simple confidence raising won’t do that much (as can be seen from the Estonia chart above). To move towards a solution in these – real economy – cases you need to do much more than raise confidence, you need to generate the expectation that the problems are being addressed and resolved. And you generate this confidence by addressing and resolving them. And here Krugman is surely right, fiscal austerity measures  don’t help at all during adjustments which are carried out in these cases: au contraire, and the IMF effectively admit as much in their mea culpa over Greece. If Greek debt had been restructured from the start and the country had entered a longer term (EFF) programme the fiscal adjustment wouldn’t have been so sharp and the outcome would have been better. So the really important issue is what role can/do expectations play in economic processes? The answer is evidently a significant one. If people who were expecting inflation come to expect that there’s going to be a lot less of it, then they probably change their behaviour. It’s the mechanism through which this process works – that of the central bank having a regime change and the person in the street changing their behaviour – that I would say isn’t very clear. The “young” Lucas would obviously have said that they hear the message coming out of the central bank and then, if it is credible, start to adapt accordingly. This all sounds horribly simplistic, and as Krugman notes, the “elder” Lucas moved over talking about “price signals” which sounds more plausible (and is completely compatible with a kind of restricted behaviorism which doesn’t need to assume fully rational agents).   So as people note that prices aren’t going up, they may start to start feeling that inflation is coming down, and start adjusting their behaviour to the expectation of lower inflation, which in and of itself lowers inflation, and so on. This adaptation (and self-fulfilling behaviour) obviously works with a lag – and what that lag is is an empirical matter which may change from case to case – so expectations generally change after, and not before, the fact. Perhaps the best example of this comes from the Bank of Japan in the 1990s (or the ECB now) where expectations structurally exceeded outcomes all the way down the price curve till the country ended up in deflation. So the deflation was not produced by self-fulfilling behaviour, the latter comes as a result of the fall into deflation and the feeling the central bank is powerless to stop it (Mr Draghi take note!). The reasonable conclusion to draw is that expectations really are constantly at work in day to day economic processes, even if we don’t fully understand the mechanisms through which they work, and it is a perfectly plausible approach – and not simply a Jedi mind trick – to adopt a policy aimed at changing people’s expectations. Especially if the problem you are trying to deal with is deflation rather than inflation. As Mario Draghi says in his standard definition of deflation: “Deflation is a protracted fall in prices across different commodities, sectors and countries. In other words, it is a generalised protracted fall in prices, with self-fulfilling expectations.” So obviously to break out of deflation you have to change expectations. But the question arises: in the case of the deflation we are seeing in Europe and Japan is that possible? Maybe it would be a good economic outcome for us all to practice levitation. But – despite what some may think – we won’t be able to do so simply because some government agency or other works hard to try to convince us that we all can.  We need to think to some extent about the mechanics of flight. Something similar is evidently the case with deflation. We need to think about the causes and whether or not the proposed solutions work before we can decide whether or not the attempt to generate (at the central bank or elsewhere) the appropriate expectation is achievable. If we think the current deflation is just an expectations issue – and not a phenomenon with deep roots in the real economy – we may well end up leading ourselves totally astray. Just to help the argument along, let’s accept the basic definition Paul Krugman gives as to why there is deflation in Japan. “To have more or less full employment, we need sufficient spending to make use of the economy’s potential. But one important component of spending, investment, is subject to the accelerator effect: the demand for new capital depends on the economy’s rate of growth, rather than the current level of output. So if growth slows due to a falloff in population growth, investment demand falls — potentially pushing the economy into a semi-permanent slump.” Well, that’s pretty straight forward, isn’t it? An easy to understand explanation about how a society with long term very low fertility gets stuck in a semi-permanent slump, which is what, of course, leads to the deflation. Nothing about expectations here. So if the slump is semi permanent and demographically produced why should people believe the central bank when they say inflation and recovery (the ending of the semi-permanent slum) are just around the corner and about to arrive? Sounds like a Jedi mind trick to me. Of course, no one doubts that – in extremis – the central bank could produce inflation. It could practice a literal  version of the Willem Buiter type helicopter drop, or Steve Keen debt moratorium type direct transfers into people’s bank accounts. It would need to do lots of them, however, since otherwise people might just treat the added income as a windfall (Milton Friedman) and hoard for the future. Naturally if the central bank continued with helicopter drops, and managed to convince everyone that they really were being irresponsible (and not a lion asking a fox for help), then expectations would certainly shift, and maybe the accompanying shock to confidence would be so great these could even produce panic and hyperinflation, but if the problem is a demographically driven one who’s to say that after the chaos settled what was left of the country wouldn’t be right back into deflation again?  The sad truth is that over the last 15 years, and despite all the monetary promises, the only thing people have seen in Japan  is deflation. There isn’t deflation in Japan because people have built-in, self-fulfilling, expectations: there is deflation because they have had nearly 40 years of ultra-low fertility. And many people can sense that, and see that this isn’t something that monetary policy can fix. As Martin Wolf once said, “you can’t print babies”. To close, I would like to quote the ex-Governor of the Bank of Japan, Masaaki Shirakawa,and the conclusions which he has drawn after many years of trying to battle with this problem: If, after the collapse of a bubble, the natural rate of interest declines and remains depressed for an extended period of time, the effectiveness of unconventional monetary policy is diminished, compared to its effectiveness in a world without such declines in the natural rate. Particularly relevant in the light of Japan’s experience is the implication of a decline in the natural rate of interest which is secular in nature. The rationale for unconventional monetary policy is that if we can just succeed in lowering the longterm real interest rate, we will stimulate demand and thus return the path of economy to full employment.  But the implicit assumption here is that the economy has only been hit by a temporary demand shock or is in a Keynesian situation of demand deficiency. In this case, unconventional monetary policy at least in theory should be effective by bringing future demand to the present. On the other hand, what if the economy is faced with a secular decline in the natural rate of interest? In this alternative case, the longer we rely on this mechanism, the less demand to be brought forward from the future there is and the less effective the inter-temporal substitution mechanism will be. Postscript This post form part of a series I am writing on secular stagnation. Secular Stagnation Part 1 – Paul Krugman’s Bicycling Problem Secular Stagnation Part II – On Bubble Business Bound For more on the state of play with Abenomics in Japan see my:   Will Japan Re-enter Deflation in April 2015? Japan Inflation At A 32 Year High? Abenomics – What Could Possibly Go Wrong?

06 июня 2014, 21:37

Secular Stagnation Part 1 – Paul Krugman’s Bicycling Problem

“What’s really happening fast is the demographic transition, with Europe very quickly turning Japanese.” Paul Krugman – For Bonds, This Time is Different  Ever since Larry Summers gave his game-changing speech at last autumn’s IMF research conference the back-and-forth flow of arguments about secular stagnation has been almost non-stop (indeed Larry himself now has a webpage dedicated to the topic). First to dive into the swimming pool after the sounding of the starting pistol was Paul Krugman, with a series of blogposts and NYT articles (here, here, here, here, here, here, and here).  These were followed/accompanied by a series of commentaries (both for and against), and then finally we got to one of the potential end points of the argument, the “negative natural interest rates for ever and ever” model produced by Gauti Eggertsson and Neil Mehrotra (here) – summarised by Krugman in his memorable “Stagnation Without End, Amen” post.   A fuller bibliography of major milestones in the secular stagnation issue can be found at the foot of this post, but I’m going to eat up most of the column space here looking at just one Krugmans arguments – the one contained in Demography and the Bicycle Effect – since in many ways in goes right to the nub of the issue. The background to the argument (as originally, even if prematurely, explored by Alvin Hansen, Günar Myrdal and even John Maynard Keynes himself in the 1930s) is that the population dynamics set in motion by the industrial revolution of the late 18th century have reached a historic turning point. In the two centuries or so that have elapsed since what many term the modern growth era got going three related but distinct processes co-existed in time: 1/ positive trend population growth 2/ positive trend economic growth  3/ steadily accelerating technical change You could call these the “stylized facts” which characterize the modern growth era, but the secular tendency in two of them  is about to undergo a seismic shift. At some stage during the 21st century global population will peak, and then gradually start to decline, probably forever more. In fact in some countries (principally in Eastern Europe, but also Japan, Germany, Spain, Portugal, and Greece) population is already falling. All of Europe will likely head in this direction sometime in the 2020s, although there is considerable uncertainty still about the actual path dynamics of this process since in addition to birth rates immigration rates also play a part. At the present time some countries in Europe (the UK, Germany, Switzerland) are in receipt of large numbers of migrants annually, while others are losing working age population precisely to the aforementioned trio. Hence the significance of the fact that Paul Krugman uses the expression “demographic transition” (for the first time to my knowledge) in the quote which opens this post. We are not talking here about some one-off problem (although often observers have spoken about Japan in just these terms), but a generalized phenomenon, a transition, something which eventually will affect all countries on the planet and our entire species. Previously people have tended to use the expression “demographic transition” to refer to the increase in the proportion of working age population and total population that accompanies the drop in fertility from high levels in less developed economies. The expression “demographic dividend” has often been used to describe the boost to economic activity this shift entails. Normally people assumed that this process would come to a halt around the 2.1tfr replacement level, but in one developed economy after another this hasn’t happened, and those in which it has have been more the exception than the rule. So now reality pushes us towards a broadening in the definition of that transition towards acceptance of a later phase wherein populations age, and ultimately decline, a process which is greatly accelerated in those countries which have experienced long term very low fertility. What Alvin Hansen and others started to think about in the 1930s was what the consequence would be for the second of the secular process which have characterized the modern growth era  (positive economic growth). What happens if populations (or better put working age populations) start to shrink? The kernel of their argument is summed up (here) by Paul Krugman as follows: “To have more or less full employment, we need sufficient spending to make use of the economy’s potential. But one important component of spending, investment, is subject to the accelerator effect: the demand for new capital depends on the economy’s rate of growth, rather than the current level of output. So if growth slows due to a falloff in population growth, investment demand falls — potentially pushing the economy into a semi-permanent slump.” Pretty simple really, but isn’t this just what Keynes says at the start of the General Theory, sometimes the simplest things are the hardest to see. Especially if our natural intellectual disposition leads us towards assuming the opposite. Apart from the theoretical simplicity, the idea is backed by plenty of empirical evidence. It has become clear in one country after another that there is a steady falling off of economic growth after the rate of working age population growth peaks and then starts to decline. The Japan case (as shown above) is clear enough, but the start of this process is already observable in China, where working age population is currently peaking, and where growth rates have now fallen from the earlier double digit levels to ones in the 6%/7% range. People are even alarming themselves by saying we’d better get used to the idea of 5% growth, but in fact this easing in growth rates has little to do with a housing slowdown. Rather it is structural and long term, and Chinese growth rates will eventually fall to the level of Japanese ones (see my 2008 “Has China’s Economic Growth Now Passed It’s Peak“). Or does anyone seriously think China can keep going on the basis of attracting immigration? What we are seeing then is that as working age population growth drops towards zero, so GDP growth weakens. The question is, as it turns negative will GDP growth (as opposed to GDP per capita growth) also turn negative. The answer is it depends. A simple approximation to a growth accounting model of the type used by IMF, OECD etc to calculate trend growth in an economy would be the following: GDP growth = growth in working age population + TFP (total factor productivity) growth Now, if working age population growth turns negative, then GDP growth can only be positive if productivity grows faster. One conclusion is very obvious here, handling the later stages of the demographic transition is all about managing the rate of working age population decline. This can be achieved to some extent via lengthening the working life, raising the participation rate, or having immigration. Even so, we may arrive at a point were GDP trend growth rates drop below zero. This situation is very near to being the case in Japan, Italy and Portugal, among others. So we could be moving to a world were eventually both population and GDP decline. What about technology? Well this will need to be the subject of a separate post, but it is highly likely that the rate of technical  change will continue to accelerate, so we could have the peculiar situation that while GDP notional falls, and keeps falling, materially we feel a lot better off. Well, after this excursus, let’s go back to Paul Krugman’s bicycling issue. Basically Paul has started to run into a problem that Claus Vistessen and I ran into on our Demography Matters blog. If the world is overpopulated, and there is a constant pressure on natural resources, then why are you economist types worried about falling populations? Wouldn’t it be a positive for the planet? “whenever I raise these points, I get questions from people who ask why I don’t regard slowing population growth as a good thing. After all, it means less pressure on resources, less environmental damage, and so on”. Now naturally at the moment in the US we are talking about slower population growth, but in Japan and parts of Europe – and eventually as we have seen probably everywhere else – population and working age population are already falling. But still, if slowing population growth is going to be a problem for an economy, then sure as hell falling population could be. “What’s important to realize, then, is that slower population growth indeed could and should be a good thing — but that what passes for sound economic policy is all too likely to turn this potentially good development into a major problem. Why? Because under the current rules of the game, there’s a strong bicycle aspect to our economies: unless they’re moving forward sufficiently rapidly, they tend to fall over.” So what’s the issue here? What he calls the current rules of the game (is it in our power to change them?)? Or the bicycle effect, which implies that we are perpetually “condemned to grow”, since as Paul says, if our economies don’t move forward fast enough they tend to fall over. This is what I intend to examine in the posts which will follow. To close this introduction to my series on Secular Stagnation I would like to cite the end of the Keynes speech I mention above (here): “A too rapidly declining population  would obviously involve many severe problems, and there are strong reasons……why in that event, or in the threat of that event, measures ought to be taken to prevent it. But a stationary, or slowly declining population may, if we exercise the necessary strength and wisdom, enable us to raise the standard of life to what it should be, whilst retaining those parts of our traditional life which we value the more now we see what happens to those who lose them”   “In the final summing up, therefore……. I only wish to warn you, that the chaining up of one devil may, if we are careless, only serve to loose another still fiercer and more intractable.” Conclusion In this introduction we have seen that population decline may now well be inevitable, as may a turning negative of economic growth. This need not make us poorer, depending on how we: a) develop technology b) manage the process As Paul Krugman warns, the current economic and financial “set up” implies the bicycle needs to constantly move forward, something which may prove more and more difficult to achieve. We therefore need as Keynes said, to exercise the necessary strength and wisdom. That is to say we need to adapt the current rules of the game to the new reality, and learn to manage the process. Is simply blowing bubbles the best way to handle this sort of epochal change? That is the topic we will turn to next. Bibliography  E. Cary Brown: Alvin H. Hansen’s Contributions To Business Cycle Analyisis, 1989 (here) Willem H Buiter: The Simple Analytics of Helicopter Money, Why It Always Works, Cepr 2014 (here) Willem H Buiter, Ebrahim Rahbari & Joe Seydl: Secular Stagnation: Only If We Ask For It, Citi Global Economics View January 2014 Gauti Eggertsson & Neil Mehrotra: A Model of Secular Stagnation, 2014 (here) Alvin Hansen (1939), “Economic progress and declining population growth,” American Economic Review. John Maynard Keynes: Some Economic Consequences of a Declining Population, Galton Lecture, 1937 (here) Paul Krugman: Inflation Targets Reconsidered, Sintra May 2014 (here) Paul Krugman: For Bonds, This Time is Different, NYT 2 June 2014 (here) Paul Krugman: Demography and the Bicycle Effect, NYT 19 May 2014 (here) Paul Krugman: Secular Stagnation in the Euro Area, NYT 17 May 2014 (here) Paul Krugman: Stagnation Without End, Amen (Wonkish), NYT 9 April 2014 (here) Paul Krugman: Monetary and Fiscal Implications of Secular Stagnation, NYT 19 November 2013 (here) Paul Krugman: A Permanent Slump?, NYT 17 November 2013 (here) Paul Krugman: Secular Stagnation, Coalmines, Bubbles, and Larry Summers, NYT 16 November 2013 (here) Paul Krugman: Monetary Policy In A Liquidity Trap NYT 11 April 2013 (here) Paul Krugman: The Japan Story, NYT 5 Feb 2013 (here) Paul Krugman: Japanese Relative Performance, NYT 9 February 2013 (here) Paul Krugman: Japan: What Went Wrong? June 1998 (available in Japan section here) Paul Krugman: Further Notes On Japan’s Liquidity Trap, June 1998 (available in Japan section here) Paul Krugman: It’s Baaack: Japan’s Slump and the Return of the Liquidity Trap, Brookings Papers on Economic Activity, 2:1998 (here) Gunnar Myrdal: The Effects of Population Decline. Godkin Lectures, Lecture VI, 1938 (here) Masaaki Shirakawa (2014):Is inflation (or deflation) “always and everywhere” a monetary phenomenon?, BIS (here) Masaaki Shirakawa (2012): Demographic Changes and Macroeconomic Performance, Bank of Japan  (here) Larry Summers (2014):On secular stagnation (here). Timothy Taylor: Secular Stagnation: Back To Alvin Hansen, 2013 (here)

05 июня 2014, 15:57

NIRP Has Arrived: Europe Officially Enters The "Monetary Twilight Zone"

Today's decision by the ECB to officially lower the deposit facility rate to negative is shocking, but not surprising: we prevised just this precisely two years ago in "Europe's "Monetary Twilight Zone" Neutron Bomb: NIRP" Here is what we wrote in June 2012 about Europe's unprecedented NIRP monetary experiment. Just because ZIRP is so 2009 (and will be until the end of central planning as the Fed can not afford to hike rates ever again), the ECB is now contemplating something far more drastic: charging depositors for the privilege of holding money. Enter NIRP, aka Negative Interest Rate Policy. Bloomberg reports that "European Central Bank President Mario Draghi is contemplating taking interest rates into a twilight zone shunned by the Federal Reserve. while cutting ECB rates may boost confidence, stimulate lending and foster growth, it could also involve reducing the bank’s deposit rate to zero or even lower. Once an obstacle for policy makers because it risks hurting the money markets they’re trying to revive, cutting the deposit rate from 0.25 percent is no longer a taboo, two euro-area central bank officials said on June 15... “The European recession is worsening, the ECB has to do more,” said Julian Callow, chief European economist at Barclays Capital in London, who forecasts rates will be cut at the ECB’s next policy meeting on July 5. “A negative deposit rate is something they need to consider but taking it to zero as a first step is more likely.” Should Draghi elect to cut the deposit rate to zero or lower, he’ll be entering territory few policy makers have dared to venture. Sweden’s Riksbank in July 2009 became the world’s first central bank to charge financial institutions for the money they deposited with it overnight." There is only one problem when comparing the Riksbank with the ECB: at €747 billion in deposits parked at the ECB as of yesterday, the ECB is currently paying out 0.25% on this balance, a move which may or may not be a reason for the depositor banks, primarily of North European extraction, to keep their money parked in Frankfurt. However, once this money has to pay to stay, it is certain that nearly $1 trillion in deposit cash, currently in electronic format, would flood the market. What happens next is unknown: the ECB hopes that this liquidity flood will be contained. The reality will be vastly different. One thing is certain: inflating the debt is the only way out for the status quo. The only question is what format it will take. More from Bloomberg: “It won’t help the prospect of a functioning money market because banks won’t be compensated for the risk they’re taking,” said Orlando Green, a fixed-income strategist at Credit Agricole Corporate & Investment Bank in London. It would make more sense to lower the benchmark rate, thus reducing the interest banks pay on ECB loans, and keep the deposit rate where it is, Green said.   The ECB has lent banks more than 1 trillion euros in three- year loans, with the interest determined by the average of the benchmark rate over that period. Societe Generale SA estimates that cutting the key rate by 50 basis points would save banks 5 billion euros a year.   The deposit rate traditionally moves in tandem with the benchmark, which policy makers kept at a record low of 1 percent on June 6. Draghi said “a few” officials called for a cut, fueling speculation the bank could act next month. Sadly, because all this is merely operating in the confines of a broken system, just as the LTRO provides a brief respite only to commence crushing banks such as Monte Paschi, so any further intervention by the ECB will only lead to a faster unwind of an unstable system. Other institutions have opted against such a move. The Fed started paying interest on deposits to help keep the federal funds rate near its target in October 2008 and has reimbursed banks with 0.25 percent on required and excess reserve balances since December that year.   Some Fed policy makers last August argued that reducing the rate could be helpful in easing financial conditions. While they discussed doing so in September, many expressed concern that such a move “risked costly disruptions to money markets and to the intermediation of credit,” the Fed said in minutes published on Oct. 12.   The Bank of Japan (8301) introduced a Complementary Deposit Facility in October 2008 to provide financial institutions with liquidity and stabilize markets, and has kept the interest it pays for the funds at 0.1 percent since then. Governor Masaaki Shirakawa told reporters on May 23 there would be “large demerits” to reducing the deposit rate because it could lead to a decline in money-market trading. It gets worse: by trying to help banks, the ECB will actually be impairng them: “If the ECB cut the deposit rate, it would take an important profit opportunity away from banks,” said Tobias Blattner, an economist at Daiwa Capital Markets Europe in London. By doing so, the ECB would also be “encouraging banks to lend to the real economy” even though “there’s hardly any demand for credit,” he said. Blattner predicts the ECB will cut its benchmark and leave the deposit rate at 0.25 percent.   ECB Executive Board member Benoit Coeure said on Feb. 19 that market interest rates of zero or lower “can result in a credit contraction.”   That’s because banks, trying to preserve their deposit bases by paying customers a reasonable interest rate, may reduce lending to companies and households because the return is too low and invest in higher-yielding assets instead. Finally kiss money markets - which together with Repos are one of the core components of shadow banking - goodbye: “A deposit rate at zero will be of particular support to banks in southern Europe because it could help encourage some flow of credit,” said Callow. “A negative deposit rate can be damaging for money markets.”   Negative rates would destroy the business model for money- market funds, which would face the prospect of paying to invest, said Societe Generale economist Klaus Baader.   “But the ECB doesn’t set policy to keep alive certain parts of the financial sector,” he said. “Policy makers want to show that they haven’t exhausted their options yet.”       

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23 мая 2014, 20:23

BOJ’s Kuroda Talking More Like His Predecessor

A year ago, Bank of Japan Gov. Haruhiko Kuroda and his predecessor, Masaaki Shirakawa, seemed far apart in their prescriptions for stopping deflation and reviving the economy. Now they look a lot closer.

23 мая 2014, 02:59

Keynesian Madness: Central Banks Waging War On Price Stability & Savers

Submitted by Detlev Schlichter via his blog, There is apparently a new economic danger out there. It is called “very low inflation” and the eurozone is evidently at great risk of succumbing to this menace. “A long period of low inflation – or outright deflation, when prices fall persistently – alarms central bankers”, explains The Wall Street Journal, “because it [low inflation, DS] can cripple growth and make it harder for governments, businesses and consumers to service their debts.” Official inflation readings at the ECB are at 0.7 percent, still positive so no deflation, but certainly very low. How low inflation cripples growth is not clear to me. “Very low inflation” was, of course, once known as “price stability” and used to invoke more positive connotations. It was not previously considered a health hazard. Why this has suddenly changed is not obvious. Certainly there is no empirical support – usually so highly regarded by market commentators – for the assertion that low inflation, or even deflation, is linked to recessions or depressions, although that link is assumed to exist implicitly or explicitly in the financial press almost daily. In the twentieth century the United States had many years of very low inflation and even outright deflation that were not marked by recessions. In the nineteenth century, throughout the rapidly industrializing world, “very low inflation” or even persistent deflation were the norm, and such deflation was frequently accompanied by growth rates that would today be the envy of any G8 country. To come to think of it, the capitalist economy with its constant tendency to increase productivity should create persistent deflation naturally. Stuff becomes more affordable. Things get cheaper. “Breaking news: Consumers shocked out of consuming by low inflation!” So what is the point at which reasonably low inflation suddenly turns into “very low inflation”, and thus becomes dangerous according to this new strand of thinking? Judging by the reception of the Bank of England’s UK inflation report delivered by Mark Carney last week, on the one hand, and the ridicule the financial industry piles onto the ECB on the other – “stupid” is what Appaloosa Management’s David Tepper calls the Frankfurt-based institution according to the FT (May 16) -, the demarcation must lie somewhere between the 1.6 percent reported by Mr. Carney, and the 0.7 that so embarrasses Mr. Draghi. The argument is frequently advanced that low inflation or deflation cause people to postpone purchases, to defer consumption. By this logic, the Eurozonians expect a €1,000 item to cost €1,007 in a year’s time, and that is not sufficient a threat to their purchasing power to rush out and buy NOW! Hence, the depressed economy. The Brits, on the other hand, can reasonably expect a £1,000 item to fetch £1,016 in a year’s time, and this is a much more compelling reason, one assumes, to consume in the present. The Brits are in fact so keen to beat the coming 2 percent price hikes that they are even loading up on debt again and incur considerable interest rate expenses to buy in the here and now. “Britons are re-leveraging,” tells us Anne Pettifor in The Guardian, “Net consumer credit lending rose by £1.1bn in March alone. Total credit card debt in March 2014 was £56.9bn. The average interest rate on credit card lending, [stands at] at 16.86%.” Britain is, as Ms. Pettifor reminds us, the world’s most indebted nation. I leave the question to one side for a minute whether these developments should be more reason to “alarm central bankers” than “very low inflation”. They certainly did not alarm Mr. Carney and his colleagues last week, who cheerfully left rates at rock bottom, and nobody called the Bank of England “stupid” either, to my knowledge. They certainly seem not to alarm Ms. Pettifor. She wants the Bank of England to keep rates low to help all those Britons in debt – and probably yet more Britons to get into debt. Ms. Pettifor has a highly politicized view of money and monetary policy. To her this is all some giant class struggle between the class of savers/creditors and the class of spenders/debtors, and her allegiance is to the latter. Calls for rate hikes from other market commentator thus represent “certain interests,” meaning stingy savers and greedy creditors. That the policy could set up the economy for another crisis does not seem to trouble her. Echoing Ms. Pettifor, Martin Wolf flatly stated in the FT recently that the “low-risk-seeking saver” no longer served a useful purpose in the global economy, and he approvingly quoted John Maynard Keynes with his call for the “euthanasia of the rentier”. “Interest today rewards no genuine sacrifice,” Keynes wrote back then, obviously in error: Just ask Britons today if not spending their money now but saving it for a rainy day does not involve a genuine sacrifice. Today’s rentiers do not even get interest for their sacrifices, thanks to all the “stimulus” policy. And now the call is for an end to price stability, for combining higher inflation with zero rates. It is not much fun being a saver these days – and I doubt that these policies will make anyone happy in the long run. Euthanasia of the Japanese rentier What the “euthanasia of the rentier” may look like we may have chance to see in Japan, an ideal test case for the policy given that the country is home to a rapidly aging population of life-long savers who will rely on their savings in old age. The new policy of Abenomics is supposed to reinvigorate the economy through, among other things, monetary debasement. “In as much as Abenomics was intended to generate strong nominal growth, I have been a big believer,” Trevor Greetham, asset allocation director at Fidelity Worldwide Investment, wrote in the FT last week (FT, May 15, 2014, page 28). “Japan has been in debt deflation for more than 20 years.” Really? – In March 2013, when Mr. Abe installed Haruhiko Kuroda as his choice of Bank of Japan governor, and Abenomics started in earnest, Japan’s consumer price index stood at 99.4. 20 years earlier, in March 1994, it stood at 99.9 and 10 years ago, in March 2004, at 100.5. Over 20 years Japan’s consumer prices had dropped by 0.5 percent. Of course, there were periods of falling prices and periods of rising prices in between but you need a microscope to detect any broad price changes in the Japanese consumption basket over the long haul. By any realistic measure, the Japanese consumer has not suffered deflation but has enjoyed roughly price stability for 20 years. “The main problem in the Japanese economy is not deflation, it’s demographics,” Masaaki Shirakawa declared in a speech at Dartmouth College two weeks ago (as reported by the Wall Street Journal Europe on May 15). Mr. Shirakawa is the former Bank of Japan governor who was unceremoniously ousted by Mr. Abe in 2013, so you may say he is biased. Never mind, his arguments make sense to me. “Mr. Shirakawa,” the Journal reports, “calls it ‘a very mild deflation’ [and I call it price stability, DS] that had the benefit of helping Japan maintain low unemployment.” The official unemployment rate in Japan stands at an eye-watering 3.60%. Maybe the Japanese have not fared so poorly with price stability. Be that as it may, after a year of Abenomics it turns out that higher inflation is not really all it’s cracked up to be. Here is Fidelity’s Mr. Greetham again: “Things are not as straightforward as they were….The sales tax rise pushed Tokyo headline inflation to a 22-year high of 2.9 percent in April, cutting real purchasing power and worsening living standards for the many older consumers on fixed incomes.” Mr. Greetham’s “older consumers” are probably Mr. Wolf’s “rentiers”, but in any case, these folks are not having a splendid time. The advocates of “easy money” tell us that a weaker currency is a boost to exports but in Japan’s case a weaker yen lifts energy prices as the country is heavily dependent on energy imports. The Japanese were previously thought to not consume enough because prices weren’t rising fast enough, now they may not consume enough because prices are rising. The problem with going after “nominal growth” is that “real purchasing power” may get a hit. If all of this is confusing, Fidelity’s Mr. Greetham offers hope. We may just need a bigger boat. More stimulus. “The stock market may need to get lower over the next few months before the government and Bank of Japan are shocked out of their complacency…When domestic policy eases further, as it inevitably will, the case for owning the Japanese market will be compelling once again.” You see, that is the problem with Keynesian stimulus, you need to do ever more of it, and make it ever bigger, in an effort to outrun the unintended consequences. Whether Mr. Greetham is right or not on the stock market, I do not know. But one thing seems pretty obvious to me. If you could lastingly improve your economy through easy money and currency debasement, Argentina would be one of the richest countries in the world today, as it indeed was at the beginning of the twentieth century, before the currency debasements of its many incompetent governments began. No country has ever become more prosperous by debasing its currency and ripping off its savers. This will end badly – although probably not soon. Takeaways What does it all mean? – I don’t know (and I could, of course, be wrong) but I guess the following: The ECB will cut rates in June but this is the most advertised and anticipated policy easing in a long while. Euro bears will ultimately be disappointed. The ECB does not go ‘all in’, and there is no reason to do so. My hunch is that a pronounced weakening of the euro remains unlikely. In my humble opinion, and contrary to market consensus, the ECB has run the least worst policy of all major central banks. No QE thus far; the balance sheet has even shrunk; large-scale inactivity. What is not to like? Ms Pettifor and her fellow saver-haters will get their way in that any meaningful policy tightening is far off, including in the UK and the US. Central banks see their main role now in supporting asset markets, the economy, the banks, and the government. They are positively petrified of potentially derailing anything through tighter policy. They will structurally “under-tighten”. Higher inflation will be the endgame but when that will come is anyone’s guess. Growth will, by itself, not lead to a meaningful response from central bankers. Abenomics will be tried but it will ultimately fail. The question is if it will first be implemented on such a scale as to cause disaster, or if it will receive its own quiet “euthanasia”, as Mr. Shirakawa seems to suggest. At Dartmouth he claimed “to have the quiet support of some Japanese business leaders who joined the Abe campaign pressuring the Shirakawa BoJ. ‘One of the surprising facts is what CEOs say privately is quite different from what they say publicly,’ he said….’in private they say, No, no, we are fed up with massive liquidity – money does not constrain our investment.’”    

18 февраля 2014, 16:28

Grand Central: BOJ Attempts to Stimulate Without Easing

The Wall Street Journal’s Daily Report on Global Central Banks for Tuesday, Feb. 18 Sign up for the newsletter: http://on.wsj.com/1n92O6N.SCHLESINGER’S TAKE The Bank of Japan Tuesday found a low-cost, symbolic way to look like it was easing further without really taking new action, and to allay market concerns that policymakers weren't sufficiently attentive to new risks, while avoiding any changes to core monetary policy. The central bank sparked a 3% rally in Japanese stocks, and a swift dip in the yen against the dollar, with an announcement that it was tinkering with the terms of two small programs designed to encourage the nation's stingy banks to lend more money. BOJ Gov. Haruhiko Kuroda inherited the programs from his discredited predecessor, Masaaki Shirakawa, who designed them as part of a defensive campaign to stave off calls for the kind of large-scale easing Mr. Kuroda has embraced. While the BOJ claims the facilities have helped "catalyze" private-sector lending, few economists have seen a serious impact.

18 февраля 2014, 16:28

Grand Central: BOJ Attempts to Stimulate Without Easing

The Wall Street Journal’s Daily Report on Global Central Banks for Tuesday, Feb. 18 Sign up for the newsletter: http://on.wsj.com/1n92O6N.SCHLESINGER’S TAKE The Bank of Japan Tuesday found a low-cost, symbolic way to look like it was easing further without really taking new action, and to allay market concerns that policymakers weren't sufficiently attentive to new risks, while avoiding any changes to core monetary policy. The central bank sparked a 3% rally in Japanese stocks, and a swift dip in the yen against the dollar, with an announcement that it was tinkering with the terms of two small programs designed to encourage the nation's stingy banks to lend more money. BOJ Gov. Haruhiko Kuroda inherited the programs from his discredited predecessor, Masaaki Shirakawa, who designed them as part of a defensive campaign to stave off calls for the kind of large-scale easing Mr. Kuroda has embraced. While the BOJ claims the facilities have helped "catalyze" private-sector lending, few economists have seen a serious impact.

18 февраля 2014, 16:28

Grand Central: BOJ Attempts to Stimulate Without Easing

The Wall Street Journal’s Daily Report on Global Central Banks for Tuesday, Feb. 18 Sign up for the newsletter: http://on.wsj.com/1n92O6N.SCHLESINGER’S TAKE The Bank of Japan Tuesday found a low-cost, symbolic way to look like it was easing further without really taking new action, and to allay market concerns that policymakers weren't sufficiently attentive to new risks, while avoiding any changes to core monetary policy. The central bank sparked a 3% rally in Japanese stocks, and a swift dip in the yen against the dollar, with an announcement that it was tinkering with the terms of two small programs designed to encourage the nation's stingy banks to lend more money. BOJ Gov. Haruhiko Kuroda inherited the programs from his discredited predecessor, Masaaki Shirakawa, who designed them as part of a defensive campaign to stave off calls for the kind of large-scale easing Mr. Kuroda has embraced. While the BOJ claims the facilities have helped "catalyze" private-sector lending, few economists have seen a serious impact.

18 февраля 2014, 16:28

Grand Central: BOJ Attempts to Stimulate Without Easing

The Wall Street Journal’s Daily Report on Global Central Banks for Tuesday, Feb. 18 Sign up for the newsletter: http://on.wsj.com/1n92O6N.SCHLESINGER’S TAKE The Bank of Japan Tuesday found a low-cost, symbolic way to look like it was easing further without really taking new action, and to allay market concerns that policymakers weren't sufficiently attentive to new risks, while avoiding any changes to core monetary policy. The central bank sparked a 3% rally in Japanese stocks, and a swift dip in the yen against the dollar, with an announcement that it was tinkering with the terms of two small programs designed to encourage the nation's stingy banks to lend more money. BOJ Gov. Haruhiko Kuroda inherited the programs from his discredited predecessor, Masaaki Shirakawa, who designed them as part of a defensive campaign to stave off calls for the kind of large-scale easing Mr. Kuroda has embraced. While the BOJ claims the facilities have helped "catalyze" private-sector lending, few economists have seen a serious impact.

18 июня 2013, 19:16

Goldman Slams Abenomics: "Positive Impact Is Gone, Only High Yields And Volatility Remain; BOJ Credibility At Stake"

While many impartial observers have been lamenting the death of Abenomics now that the Nikkei - essentially the only favorable indicator resulting from the coordinated and unprecedented action by the Japanese government and its less than independent central bank - has peaked and dropped 20% from the highs, Wall Street was largely mum on its Abenomics scorecard. This changed overnight following a scathing report by Goldman which slams Abenomics, it sorry current condition, and where it is headed, warning that unless the BOJ promptly implements a set of changes to how it manipulates markets as per Goldman's recommendations, the situation will get out of control fast. To wit: "Our conclusion is that the positive market reaction initially created by the policy has been almost completely undone. At the same time, a lack of credible forward guidance for policy duration means that five-year JGB yields have risen in comparison with before the easing started, and volatility has also increased. It will not be an easy task to completely rebuild confidence in the BOJ among overseas investors after it has been undermined, and the BOJ will not be able to easily pull out of its 2% price target after committing to it." Bad, bad Kuroda. Not surprisingly, the primary driver of skepticism - both Goldman's, and that of its clients who recently got crushed based on Goldman's long Nikkei trade recommendations - is the epic surge in JGB vol, which Zero Hedge first cautioned about when the BOJ unleashed its monetary bazooka and since then with periodic updates. And sure enough, Goldman which disappointed with its expectation that the BOJ would unveil a 2 year LTRO equivalent operation, is once again back to tutoring its failing student, Kuroda, about what he should do in order to put Abenomics back on the tracks, or else risk the complete loss of confidence in this latest (and possibly last reflationary chance) program from both the most important bank, as well as those whose money is critical in preserving the smooth glidepath of Abenomics - overseas investors (i.e., Goldman's clients). Will the BOJ implement Goldman's ultimatum, and if not, will the great Japanese reflationary experiment crash and burn? Find out soon enough. From Goldman's Naohiko Baba Impact from new BOJ easing disappears, eroded confidence is one significant factor    One of the main focuses for overseas equity investors since late May has been the JGB market. They have invested in Japanese equities with one eye on the tail risk from Japan’s fiscal problems, which could explode at any time. They are therefore more nervous than most Japanese about the rise and instability in long-term JGB yields since unprecedented easing was introduced in April. We believe there is a particularly large gap in recognition between overseas investors and the BOJ on this issue.   BOJ Governor Kuroda’s comments at a press conference on May 22 after the monetary policy meeting were taken by the market as an acceptance  of rising JGB yields. Overseas investor confidence in the BOJ was further undermined after the June 11 policy meeting when the committee decided not to extend the duration of fixed interest rate operations, an action that was already reported in the press and priced in by the markets.   As a result, instability in long-term JGB yields has been having a significant knock-on impact on the equity and forex markets since late May. A look  at forex, equities, and the JGBi expected inflation rate shows that most of the initial positive impact from unprecedented easing was reversed in  mid-June, with only high yields and volatility remaining. The BOJ urgently needs to reestablish forward guidance for its policy duration and a communication strategy that does not involve contradictory messages.   Or else... Goldman continues: Overseas investors focused on JGB market instability The author has recently returned from meetings with more than 100 overseas investors in Europe and Asia in early-June and have also talked to investors who visited Tokyo from around the world. Discussions with them focused on Abenomics, and we were surprised that the JGB market was not only the main focus of investors who concentrate on rates and forex, but also for equity investors. The specific themes that came up in our meetings with these investors included: (1) reasons why long-term JGB yields rose and have become unstable after the introduction of unprecedented easing aimed at doubling the monetary base over two years through large-volume JGB purchases (announced by the BOJ on April 4); (2) how to interpret BOJ’s stance toward the JGB yields and their stability based on conflicting statements made by Governor Haruhiko Kuroda on long-term yields; (3) whether or not the government, and the Finance Ministry in particular, plans to allow the JGB market to remain unstable; and (4) the possibility that huge JGB purchases by the BOJ may cause the government to lose incentives for fiscal restructuring, given calls to postpone consumption tax hikes among some officials close to Prime Minister Shinzo Abe. Of course, this strong interest in the JGB market among overseas investors is due to concerns over Japan’s fiscal conditions. Given government debt is currently at 240% GDP and still rising, they probably see Japan’s fiscal state as fragile, which could potentially give way under further pressure (see Exhibit 1). These overseas investors are very conscious of this huge tail risk when they invest in Japanese equities, and compared to  the Japanese, they have been much more uncomfortable with the increased yield volatility under the current unprecedented easing (see Exhibit 2). In the beginning, the easing helped the yen to depreciate and pushed up the Japanese equity market, and the BOJ may be thinking that volatility on the JGB market is a small price to pay for these positive market reactions. Up to now, the driver of Abenomics has been overseas investors, but we see a significant gap between these investors and the BOJ in terms of the degree of concern over the instability of the JGB market. As a result, Kuroda’s remarks at a press conference post the May 22 monetary policy meeting were interpreted as an acceptance of further rises in long-term rates. Overseas investor confidence in the BOJ was further undermined at the June 11 monetary policy meeting when the BOJ decided to forego an extension to fixed rate operations after it was widely reported in the media and already factored into the market. Of course, other negative factors were present, including disappointing market reaction to the “third arrow” growth strategy in Abenomics and an increase in global volatility on expectations that the Fed could wind back its quantitative easing measures soon. However, any positive market reaction to unprecedented easing has largely been undone, leaving only high JGB yields and high volatility, and we are not in any doubt that overseas investors have started to lose their confidence in the BOJ (see Exhibit 3). Instability exacerbated by a lack of credible forward guidance for policy duration and conflicting statements from Kuroda The 2-year commitment for the 2% price target is the backbone of Kuroda’s unprecedented monetary easing. Under the previous BOJ governor, Masaaki Shirakawa, the duration of JGBs bought under the Asset Purchase Program was limited to three years, which acted as a sort of forward guidance for policy duration and kept short-/medium-term rates low and stable. Kuroda’s designation of a two-year time frame for the 2% price target was meant to be another such forward guidance, by which the BOJ intends to lower the short- and medium-term zones in a stable manner. Meanwhile, massive JGB purchases are meant to suppress yields for longer-term zones. The economic outlook report issued by the BOJ on April 26 stated that it saw a high probability of achieving 2% consumer price inflation in the next two years or so. We have already pointed out that we were not convinced by the BOJ’s argument for the economic impact of monetary easing, and we do not think the BOJ is able to earn market confidence about such a commitment. Under these conditions, the two-year time frame was unlikely to take root as credible forward guidance. We are currently hearing two main prospective scenarios from market participants. In one, the BOJ undertakes massive JGB purchases, but inflation does not go up significantly, and the BOJ is obliged to unwind its current easing policy within two years due to concerns over the possible side effects. The second scenario involves the BOJ maintaining the easing on a semi-permanent basis until it achieves its 2% price target. Either case appears to suggest rising JGB yields in the future – due to supply-demand deterioration in the first scenario and concerns about debt monetization in the second. Furthermore, JGB market volatility tends to increase when visibility of the market outlook is quite low, as suggested by the current situation. We believe this has led to the comparatively large rise in 5-year JGB yields. At the same time, inconsistencies in statements from Kuroda have caused confusion not only on the JGB market but also in the equity and forex markets. One specific example of this relates to his claim that the BOJ would aim to bring down the yield curve as a whole through large-volume JGB purchases. Kuroda made this claim when he introduced the unprecedented easing measures on April 4, and it was intended to be an important policy transmission channel. When long-term JGB yields started rising against his intentions, Kuroda said it wasn’t a problem as it was a result of inflation/growth expectations. Somewhat sardonically, the expected inflation rate (an indicator frequently referred to by both Kuroda and Deputy Governor Iwata; represented by CPI index-linked JGB movements) began to decline sharply after May 22, when Kuroda made the statement about rising bond yields (see Exhibit 3). The BOJ also used the buzz word “portfolio rebalancing” to describe the effects its increased presence on the JGB market would have in encouraging institutional investors (banks, life insurance companies, etc.) to move away from the JGB market and into other markets, such as lending and foreign assets. Some institutional investors actually sold off JGBs as the BOJ expected, but market liquidity dried up with the resulting exit of these liquidity providers. This in turn increased market volatility, and some other market participants came under pressure to sell their JGB holdings in order to manage their risk, which fuelled a malignant cycle of further instability. The BOJ was left as one of the few buyers on the JGB market, and it is also being criticized for reducing market liquidity because of the lack of clarity around its large-lot JGB buying operations. Also, equity prices of some regional banks declined as a result of their substantial JGB yield risk exposure and the current instability of yields as well of concerns about future yield rises. We also need to be aware of the risk that they might attempt to sell even more JGBs than they need to if the JGB market continues to be volatile in the future. JGB market instability spilled over to the equity and forex market, further exacerbating volatility The rumblings in the JGB market have transferred to the equity and forex markets as well. We believe this reflects concerns among overseas investors about a lack of BOJ determination to stabilize the JGB market, as mentioned at the beginning of this report. The remarks made by BOJ Governor Kuroda at the press conference after the May 22 policy meeting were particularly interpreted as an acceptance of rises in JGB yields, and this has strengthened the link between volatility in long-term yields, equities, and the forexmarket (see Exhibit 5). In order to investigate this phenomenon more rigorously, we analyzed the reaction in volatility of equity prices and forex rates when long-term JGB yield volatility changes by 1% (see Exhibit 6). We can see a big change in trend from May 22, when Kuroda held his post policy meeting press conference. Equity and forex volatility began reacting strongly to changes in JGB yield volatility with a particularly noticeable reaction in equity volatility. Of course, we do not attribute all of the market volatility to the BOJ. Other factors have impacted the markets, including disappointing market reaction to the “third arrow” growth strategy of Abenomics and an increase in global volatility on expectations that the Fed could unwind its quantitative easing measures soon. Still, our conversations with overseas investors suggest to us that instability in the JGB market is a significant factor behind the diffusion of that instability to the equity and forex markets as the BOJ gave the impression that it sees JGB market volatility as acceptable or lacks measures to stabilize it. * * * In conclusion, here is Goldman's ultimatum to Japan on what it should do now - and yes, life would be so much easier if Goldman had one of its alumni running the central bank in Japan, as it does in the US, Europe and now, England. Urgent need to rebuild the forward guidance and communication strategy Exhibit 7 summarizes the market reaction from the start of the unprecedented easing on April 4 all the way to the present. We extracted a common factor from three variables in the BOJ’s focus for policy transmission (equity prices, forex rates, and the JGB expected inflation rate) using principal component analysis. Our conclusion is that the positive market reaction initially created by the policy has been almost completely undone. At the same time, a lack of credible forward guidance for policy duration means that five-year JGB yields have risen in comparison with before the easing started, and volatility has also increased. It will not be an easy task to completely rebuild confidence in the BOJ among overseas investors after it has been undermined, and the BOJ will not be able to easily pull out of its 2% price target after committing to it. We therefore see a need for the BOJ to offset this with an improvement in its communication strategy. We especially see a need for the BOJ to clearly outline its basic intentions and provide, in a consistent manner, a time frame for how long-term yields will be formed under the unprecedented easing. It also needs to establish specific measures to stabilize the JGB market in case of an emergency.  Unprecedented easing relies overwhelmingly on financial market transmission channels, and it is important for the central bank to urgently rebuild stability thereby enhancing thevisibility for the main players on these markets – overseas investors. * * * To summarize: Goldman is angry (that year end bonuses may not be at new all time highs, which after all was the whole point behind Abenomics). And you don't want to see Goldman angry.    

02 апреля 2013, 12:57

BlackRock: играйте вместе с Банком Японии

Разница в доходности двадцатилетних облигаций Японии и двухлетних достигла в марте минимума с 2008 г. на отметке 1,34%. Только с начала года инвесторы получили от вложения в бумаги со сроком погашения более десяти лет порядка 6,5%, это лучшие результат с конца 2008 г. Для сравнения, американские казначейские бумаги за это время потеряли 2,35%.Глава Банка Японии Харухико Курода на прошлой неделе заявил, что будет рассматривать все возможные меры, чтобы повлиять на так называемую кривую доходности. Не исключается и пересмотр бумаг, входящий в программу выкупа активов. Речь идет о включении бумаг с более длинным сроком погашения в эту самую программу. Завтра начинается двухдневное заседание Банка Японии, на котором будет принято окончательное решение. Впрочем, рынок всегда закладывается заранее, и доходности по бумагам со сроком погашения 10 и 20 лет опустились до минимумов почти за 10 лет.Принимая во внимание текущую ситуация, BlackRock советует играть по тренду, а не "воевать" против регулятора. Гораздо более выгодный вариант - это быть вместе с Центральным банком. "Покупайте то же самое, что покупает Банк Японии", - рекомендует BlackRock.Напомним, что Япония имеет самые низкие в мире ставки и самый большой государственный долг. Причем, по оценкам МВФ, обязательства страны могут вырасти в этом году до 245% ВВП. Недавно бывший глава Банка Японии Масааки Сиракава предупредил, что если регулятор будет продолжать агрессивную денежно-кредитную политику, он может столкнуться с ростом инфляции и соответственно с ростом ставок. Это вызовет хаос на долговом рынке. Впрочем, пока особой паники не наблюдается. Да и страховка от дефолта, хоть и выросла, все равно стоит почти в два раза дешевле, чем в прошлом году.

20 марта 2013, 04:57

Exiting Banker Questions Japan's Aim

Departing Bank of Japan Gov. Masaaki Shirakawa used his valedictory news conference to raise doubts about the aggressive monetary policy expected to be adopted by his successor—a path he long resisted.

16 января 2013, 10:50

Первые выстрелы в мировой "валютной войне"

Столкнувшись с медленным и неравномерным восстановлением мировой экономики, все больше стран могут прибегнуть к сокращению стоимости своих национальных валют, что позволит получить конкурентные преимущества.Экономисты ожидают, что множество стран будет участвовать в мировой валютной войне Япония, например, уже подготовила почву для потенциальной мировой "валютной войны", так как премьер-министр страны Синдзо Абэ предлагает покупать облигации правительства США, для того чтобы снизить стоимость иены и стимулировать темпы роста экономики при достижении цели по инфляции.Экономисты ожидают, что за Японией последуют другие страны, и хотя это пойдет на пользу отдельным экономикам, но, вероятно, будет препятствовать зарождающемуся восстановлению мировой экономики и относительно надежному фондовому рынку.Хотя различные страны будут действовать по-своему, основные события связаны с агрессивными покупками облигаций в течение трех лет со стороны ФРС в рамках программы количественного смягчения в объеме $3 трлн.Критики беспокоятся о долгосрочных перспективах, но три раунда QE позволили сохранить экономику США на плаву, что привело к росту рисковых активов, таких как акции и сырьевые товары."С тех пор как ФРС начала в августе 2010 г. QE2, мы были в состоянии валютной войны, - сказал портфельный менеджер фонда Oppenheimer Currency Opportunities Алеесио де Лонгис. – Это по-прежнему будет так".Теперь Япония, по словам главы Банка Японии Масааки Сиракава, потратит на программу смягчения 50 трлн иен в течение года. Этот шаг является частью плана Абэ, который позволит вывести страну из состояния дефляции, но он вызвал неоднозначную реакцию.Аналитики Citigroup отмечают, что это вряд ли приведет к возрождению японской экономики, хотя и улучшит ситуацию с японским экспортом и усилит давление на другие валюты, а другие страны вряд ли будут мириться с этим.После того как QE началась в 2009 г., доллар упал на 11% по отношению к корзине мировых валют, а цены на акции за это время удвоились. Как ожидается, роль США как лидера конкурентной девальвации усилится.В 2012 г. мировые центральные банки в целом снизили процентные ставки около 75 раз для создания условий, стимулирующих экономический рост. Но, как ожидают, экономисты, в текущем году мировая экономика вряд ли вырастет более чем на 3%, что является небольшим уровнем.Страны, которые девальвируют национальную валюту, удешевляют цену своих товаров во всем мире, тем самым увеличивая экспорт и создавая положительную инфляция. На начальных этапах инфляция, как правило, негативно влияет на рост акций, так как инвесторы уходят в активы с фиксированной доходностью, которая индексируется с учетом инфляции, например казначейские облигации."Так что может привести к коррекции рынка в первой половине 2013 г.? – спрашивает главный инвестиционный стратег Bank of America Merrill Lynch Майкл Хартнетт. – На наш взгляд, это будет либо 1) быстрый рост процентных ставок и повтор истории 1994 г., или 2) экономика не среагирует на ликвидность, что вынудит страны девальвировать свою валюту в попытке стимулировать рост".В 1994 г. индекс S&P 500 потерял 4% на фоне того, что ФРС ужесточила политику для управления восстановлением. При этом в 1995 г. индекс вырос на 32%. Ссылки по теме Япония обвинила США в "валютных войнах" Мир на грани новых "валютных войн" QE3 может спровоцировать валютные войны Хотя некоторые инвесторы бояться, что ФРС может нормализовать ставки раньше, чем ожидалось, эти страхи были развеяны, что, конечно, примут к сведению другие центральные банки во всем мире.Хартнетт отметил, что риск валютных войн начнет расти, и сейчас понятно, что многие страны, даже Китай, хотят более слабую валюту или нуждаются в этом. Он посоветовал клиентам внимательно следить за китайским юанем и более широким азиатским индексом доллара.Эксперты также добавляют в этот список колумбийское песо, австралийский доллар, а также валюту других стран в Южной Америке и Европе.Из ярких примеров по началу валютных войн, кроме Японии и США, можно также отметить действия Национального банка Швейцарии, который в сентябре прошлого года объявил о закреплении курса франка на уровне 1,2 к евро. При этом тревогу вызывают комментарии относительно евро. В частности, глава Еврогруппы Жан-Клод Юнкер отметил, что курс евро "опасно завышен", и не исключено, что в ближайшее время мы увидим действия ЕЦБ для его снижения.