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.