Outgoing BOJ Governor Nails It!!

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Sometimes economics is hard, other times it’s pretty easy.  The closer one stays to proper fundamentals, the easier it is.  Things get confusing when people try to alter economic truisms and have varied from the lighted path. 

Sometimes, when diagnosing problems it’s best to find out what the problem is not and then try to find a fix as opposed to trying to fix something without an understanding of what the problem is. 

National banks are very limited in the things they can and can’t do.  I would suggest that the least they do, the better off economies are. 

Japan is a nation on the brink of economic collapse.  As I’ve discussed before, there’s little for Japan to do.  Their standard of living is too high for a nation of little resources.  Years ago, cheap labor was their best resource and they used it to their advantage, but, that’s long since past.  So, much of what they’re doing may be because they’ve little else to do.  Mostly what they’ve been doing is printing money.  The new head of state didn’t like Outgoing Bank of Japan Governor Masaaki Shirakawa’s approach, so he had to go.  Here’s what he said in his final news conference.

“A lack of cash isn’t what’s keeping companies from increasing capital expenditure,” Shirakawa said, on the last day of his five-year term as governor and his 39-year career at the central bank.

And, that’s true.  And, it’s true in many places well beyond Japan.  Here’s some other jewels of knowledge he stated.

“What may be desirable for market participants may not necessarily be the same as what is desirable for the economy in the long run,” Shirakawa said.

“I feel it is dangerous to believe that central banks can freely control market moves with words,” he said.

He missed on some other thoughts, but nailed it with these. 

I think the point about the differences of the markets and economies is also something which needs reinforced.  Markets are like funhouse mirrors of economies.  They are not true reflections of economies and everything is distorted.  And, while markets do react to words from central banks, words do nothing towards sound economic policy. 

Read more here.

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8 Responses to Outgoing BOJ Governor Nails It!!

  1. DirkH says:

    They have about 2 new finance ministers a year… how many BOJ bosses in a year?

    EU and Japan are both in the end stadium of Keynesianism.

    • philjourdan says:

      I wish people would stop misusing that term (Keynesianism), but I understand how it has gotten into the lexicon through incorrect usage.

      I prefer Krugmanism. A totally baseless economics system that has never been shown to be correct in any model or reality. See: AGW

      • DirkH says:

        Phil; Keynes is the favorite economist of the social democrats since they stopped endorsing Marx openly. You could say that the deficit politics of social democrats are against what Keynes said, and the social democrats would say that they really would like very much to one day not have a deficit, but that just doesn’t happen with them.

        I think Keynesianism is just as likely to work as Marxism in the real world.

        • philjourdan says:

          Perhaps one of Milton Friedman’s greatest claims to fame is when he disproved Keynes central theory. As it was, he did not start out to do so, but to prove it. But found the data did not support the theory.

          And I fully understand your point. Like anything, politicians liked the idea and bastardized Keynes to suit their own agenda. Keynes actually spoke out against continual deficit spending, but no one remembers that. They only remember that he proposed deficit spending (they leave off the short term part).

    • suyts says:

      LOL, I’ve long given up on keeping track of who’s actually running the BOJ.

  2. Bruce says:

    I say this over and over on blogs. Companies will not invest if they cannot get a return which exceeds their company hurdle IRR rate. You can stimulate them by lowering interest rates since their weighted cost of capital feeds in to the IRR calc, but if there is still no way to make hurdle then they will not invest. You have to then do the unpalatable (for the left) of reducing the cost of doing business – payroll taxes, Obamacare forced imposts, green and red tape regulation etc.

    Japan strung things along for a while by having their companies invest overseas where the cost structure was lower, using their hard earned IP to offset the cost of the rest of the company remaining in Japan. But that model has run its course because first the Koreans then the Chinese learnt the Japanese IP (eg efficient business practices) and now can undercut them. The only way you can keep ahead is to develop new IP from scratch, which the Japanese haven’t done (but the US still is able to do, more or less).

    If more any of Obama’s team actually had worked at a company that made stuff, as opposed to working at a bank like Goldman Sachs, then they would better understand this. But no, the left never seems to make actual stuff, they just produce propaganda.

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