acting-man.com / By Pater Tenebrarum / January 6, 2013
There’s Nothing New Under the Sun …
Japan’s finance minister Taro Aso (of ‘I wish my elderly fellow citizens would hurry up and die‘ fame) has laid out after which example from the past the ‘new’ Japanese policy pursued by the Abe administration should be patterned. Hopefully Japan’s citizens have their lifeboats ready. If we were one of them, we would just about now shift our entire life savings into gold, store the bulk of it in a far-away place and keep just enough nearby to be able to bribe the border guards.
Proving that there is nothing new under the sun, Aso yesterday invoked the example of one of his predecessors from the 1930s, finance minister Korekiyo Takahashi. This is the man whose example Japan should follow, according to Aso.
“Japanese Finance Minister Taro Aso said the government is imitating his Depression-era predecessor, Korekiyo Takahashi, who told the Bank of Japan to underwrite government debt to fund deficit spending.
“There is no one in the government, the bureaucracy or the BOJ who has experience in anti-deflation policy,” Aso said yesterday in an interview on NHK television. “We can only learn from history,” he said, adding that the new administration is looking to Takahashi’s example.
Emulating Takahashi’s policies of monetary expansion and government-financed spending has a chance of helping Japan beat deflation, said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co., who used to work at the central bank. Yet lobbying by interest groups empowered by increased spending, such as the construction industry, could make it difficult for leaders to tighten policy once growth is achieved, he said.
“If it is just a one-off and temporary, then it’s OK,” Kanno said. “But if the government loses fiscal discipline, then it will distort politics.”
The yen fell to a 2 1/2 year low on Feb. 1 amid bets Prime Minister Shinzo Abe will select a new BOJ governor who will boost monetary stimulus. The currency was little changed at 92.77 per dollar as of 1:04 p.m. in Tokyo. The Nikkei 225 Stock Average was 0.7 percent higher, heading for a five-day advance. The yield on benchmark 10-year government bonds rose to a three-week high of 0.795 percent.
As finance minister in 1932, Takahashi increased fiscal spending by 34 percent, doubled bond issuance and instructed the BOJ to underwrite government debt, according to a report by the Japan Center for Economic Research. While the effort helped end deflation and boost growth, Takahashi made enemies in the military when he later attempted to rein in spending. He was assassinated in 1936.
Takahashi “brilliantly rescued Japan from the Great Depression through reflationary policies,” Federal Reserve Chairman Ben S. Bernanke said in a speech in 2003. His policy package increased the fiscal deficit, depreciated the currency and expanded the money stock, with robust growth and mild inflation for the five years from 1933, according to a research paper co-authored by Masato Shizume, an economist working for the BOJ.
“If a central bank starts to underwrite government bonds, there may be no problems at first, but it would lead to a limitless expansion of currency issuance, spur sharp inflation and yield a big blow to people’s lives” and the economy, as has happened in the past, BOJ Governor Masaaki Shirakawa said in 2011. The central bank took the step in the 1930s because thedebt market was “very immature,” Shirakawa said.”