Krugman Goes To Japan, Scolds Abe For Worrying About Quadrillion Yen Debt Pile, Leaves
By Tyler Durden
Much like BoJ governor Haruhiko Kuroda, Paul Krugman thinks that the key for Japan when it comes to overcoming decades of deflation is a positive outlook.
“Japan needs to reach a point where everyone believes that it has pulled out of deflation. And then if that can be believed, then it may be able to stay out of trouble thereafter,” he told an audience in Tokyo last September.
That rather ridiculous pronouncement is reminiscent of something Kuroda said last summer: “I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it.’ Yes, what we need is a positive attitude and conviction.”
In other words, Krugman and Kuroda believe that Japan can wish its way out of deflation. Krugman’s comments in Tokyo came around 10 months after he visited Japan in 2014. On that trip, he’s said to have helped convince PM Shinzo Abe to delay a planned sales tax hike. “That nailed Abe’s decision — Krugman was Krugman, he was so powerful,” Japanese economist Etsuro Honda said, recounting a meeting between the economist and the premier.
Well, 16 months has passed since that fateful visit and virtually nothing has changed in Japan. In fact, the Japanese have since taken a further plunge down the Keynesian rabbit hole by taking interest rates negative and not only is inflation still languishing at essentially zero, stocks are some 20% off their highs and this month the yen actually hit its highest levels since Kuroda announced the second round of QE two Octobers ago.
With the entire enterprise now falling apart, and with JGBs yo-yoing around like penny stocks as traders try to game BoJ POMO, Krugman was back in Tokyo this week to attend a panel discussion on the global economy with Abe and senior Japanese policy makers. There, the good professor called for Abe to scrap the sales tax hike and introduce more fiscal stimulus. NIRP, he said, is probably “a good idea.”
Excerpts from Krugman’s speech can be found below.
We are now in the world of pervasive economic weakness. In many ways, we are all Japan now. This complicates policy for everyone including Japan.
We are seeing the difficulty in achieving goals through even very bold and unconventional monetary policy. Kuroda-san here, we will clearly need to speak about that. Monetary policy needs help from fiscal and possibly other policies but certainly on the fiscal side, and certainly does not need to be struggling against fiscal policy moving in the opposite direction. That is not just a Japanese issue but very much a global issue at this point.
Despite everything, despite everything that Mr. Kuroda is doing, the rise in the yen, which is a very unfortunate development from Japan’s point of view, is driven …read more
Source: Krugman Goes To Japan, Scolds Abe For Worrying About Quadrillion Yen Debt Pile, Leaves
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