Economics, Monetary Policy, Pethokoukis

Look at Japan. Look at the euro zone. And the GOP wants the Fed to be more like the ECB?

Credit: Financial Times

Credit: Financial Times

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.

 

9 thoughts on “Look at Japan. Look at the euro zone. And the GOP wants the Fed to be more like the ECB?

  1. Aren’t there a lot more factors at play here than Fed policy? Maybe the ECB policy is the correct policy with all other things equal — which they obviously aren’t.

  2. Reality to Jimmy. The Fed is not all that different than the ECB and both need to be ended. As for the US, the biggest difference between it and France is the accounting that hides many of the warts.

  3. Success via bond buys? Hello? The only success of the repetitive QEs has been to stimulate equities prices:

    http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/Fed%20vs%20S%26P.jpg

    It sure as hell hasn’t worked to stimulate a recovery (worst one on record).

    Japan is going all-in, and as Paul observes, 1 quarter does not an uptrend make, especially after a 22 year malaise.

    The ECB is even worse, attempting to cobble together a monetary solution to an ultimately political division – ain’t gonna work, no matter how many LTROs and OMP threats you make.

    • Success via bond buys? Hello? The only success of the repetitive QEs has been to stimulate equities prices:…

      Like most of the AEI commentators Jimmy panders to power. That is good for Jimmy because he makes a decent living and gets a great deal of exposure. The reality of what the Fed does is not much of a concern because his position largely insulates him from the downside and will continue to do so until the system breaks for good. As such he is unconcerned with the problems that the process of monetizing debt is creating and will cherry-pick any data that supports his narrative. When Japan collapses entirely he will ignore the events and blame them on not monetizing debt earlier and faster.

      • Agreed, Vangel, but Jim is odd in that he appears to understand part of the stimulus picture (it isn’t working), but continues to believe in Phillips Curve mythology (it isn’t working).

        Now, let’s see if he can construct a cogent narrative which encompasses both the moral hazard problems of TBTF (and everything else) and a reasonable pro-growth agenda in this political environment.

        He needs to make that next leap, methinks.

  4. Smart blogging.

    Jeez, can the right-wing give it a rest when it come to the howling for “tight money and a gold standard?” And then there is the genuflecting to a “strong dollar” as if American might and an overvalued greenback are connected.

    Sometimes, you have to forget the ideologies, the dogmas, the partisan hysterics, the models, the theories.

    You have to go with what works.

    QE works. I just the wish the Fed would really our it in.

    You see I like prosperity.

    And a cruddy economy does not good for anyone, and may even lead to more socialism.

    Bombs away Fed, bring in the money B-52s and don’t let up!

    • Jeez, can the right-wing give it a rest when it come to the howling for “tight money and a gold standard?” And then there is the genuflecting to a “strong dollar” as if American might and an overvalued greenback are connected.

      On the issue of money the National Socialists agree entirely with the Socialists. Both the left and right want money printing so that the big government policies can continue. Their disagreement is only about which of their beloved programs should be expanded and which cut.

      QE works. I just the wish the Fed would really our it in.

      The evidence shows that QE does not work. All of the gains go to the financial sector as the real economy stagnates and ordinary people become poorer.

      QE works. I just the wish the Fed would really our it in.

      You are showing way too much love for the gold bugs you claim to despise.

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