Tuesday, March 31, 2009
Quantitive Easing, Didn't work in Japan?
Spend our way out! This policy won't work and punishes savers. This monetary policy doesn't make sense. I wish the government would allow me to borrow at .25% and then go out and buy 10-year notes at 2.5%, thus earning a 2% risk free return. Like I really believe that Ben Bernacke is going to buy up enough Treasury securities to move 10-year note rates below 2% and force banks to lend money to borrowers who can't possibly pay them back.
No instead, the middle class gets taxed to death, pays too much interest, and gets killed silently by inflation. We will have low interest rates for a couple of years and inflation will eat our purchasing power and savings away. Japan taught us very little and the deflationary depression will run its course. In 1990 Japan's Nikkei index was 80% higher than today at close to 40,000. Today the Nikkei trades at under 10,000. Real estate prices in Japan were also 80% higher than they are today. The 1990's in Japan is called the lost decade and interest rates stayed between zero and 1%. Remember in Japan the inflation that everyone says is coming in the US never became a factor. At some point in a galaxy far far away, inflation will rear its ugly head. Probably in a couple of years we'll see double digit inflation, but Japan never did.
This video below explains quantitive easing: