Republicans should pay close attention to what’s happening in Japan, where the Bank of Japan’s new bond-buying program is already bearing fruit. As the Financial Times reports, “Japan’s economy grew at the fastest pace among Group of Seven countries last quarter, with solid growth in consumer spending and exports suggesting the expansionary ‘Abenomics’ that has ignited a historic stock market rally is also lifting real output.”
It wasn’t a perfect report — business investment was weak — but still an extremely encouraging data point for the BofJ’s new approach to invigorating a moribund economy. So now we have a) rising stocks, b) weakening yen, c) higher inflation expectations, and d) stronger real growth. Not bad.
The US central bank is also engaged in a bond-buying program. It may not have sparked a boom, but it has done a fair job of offsetting near-term fiscal drag from the fiscal cliff tax hikes and sequestration. For instance: Even though jobless claims have bounced up last week, the four-week moving average remained at the lowest levels of the expansion. Economist David Beckworth: “The fact that the Fed has successfully offset structural fiscal austerity since 2010–as seen by the stable NGDP growth–suggest it could do far more. The Fed has made big strides with QE3, but has yet to unload both barrels of guns. It is time for a NGDP level target.”
Now US congressman Kevin Brady — an important GOP voice on monetary policy — wants to use the Fed’s 100th anniversary as an opportunity to formally review the central bank’s performance and recommend possible changes. While his proposal for a “centennial commission” has a broad and open mandate, Brady himself is a hard money guy who favors a big role for gold in monetary policy and seems to think the ECB would be a good model for the Fed. Of course, as you may have heard, the euro zone is now in its longest ever recession. That represents a stunning, calamitous failure by the ECB.
We are seeing an amazing real-world monetary policy experiment unfold before our eyes. Is anyone in the GOP noticing? They should. Look to Tokyo, not Frankfurt.