Subscribe free to our newsletters via your
. Earth Science News .

Walker's World: Printing more money
by Martin Walker
Paris (UPI) Apr 8, 2013

disclaimer: image is for illustration purposes only

So far, so good. Japan's extraordinary decision to bring back inflation into its economy saw the Nikkei stock market index rise 2.2 percent even as the yen sank. But the real effect of the move was to ram home the fact that we live in the age of central bankers.

So Haruhiko Kuroda, new governor of the Bank of Japan, joins the ranks of the financial rock stars alongside the Fed's Ben Bernanke and Europe's Mario Draghi. These are the real masters of the universe. Their word is more than law; it is money.

It took just the one phrase from Draghi, that he would do "whatever it takes," to calm last year's euro crisis. He meant that he was prepared to buy as many government bonds as required to ensure that a member of the euro zone wouldn't be forced out of the currency union by bankruptcy.

That is a very big promise to make but for today's central bankers the grandiose gesture has become routine. Bernanke at the Fed has become the trillion-a-year man, spending $85 billion a month -- $1 trillion a year -- to buy assets that are supposed to stimulate the overall economy. That means $45 billion of Treasury bonds and $40 billion mortgage-backed securities (remember them?).

And let us not forget that when this financial crisis began, the Fed's balance sheet was just more than $700 billion and since then it has more than tripled. Add together the measures taken by the Fed, the European Central Bank, the Bank of Japan and Bank of England and the way China's central bank ordered its commercial banks to lend as never before, and more than $10 trillion has been poured into this global economy.

Now comes Hurricane Kuroda from Tokyo, with a mandate from his prime minister to do even more to help haul the Japanese economy out of two decades of stagnation.

Part of the problem has been that prices have either remained stuck of dwindled steadily lower since Japan's property bubble burst after 1990, so consumers wait before they spend, expecting prices to drop. Now he is promising to give Japan 2 percent inflation within two years.

At the same time, he is following in Bernanke's footsteps by promising to buy $50 billion of government bonds a month and to double the country's monetary base by the end of next year.

This is financial tinkering on a heroic scale and it raises three serious questions. The first is: Why, after all this money being created and assets being bought and massive interventions to save the financial system, is the recovery so feeble?

The second question is: Just how is the new Bank of Japan policy different from a deliberate attempt to devalue the currency and boost exports by driving down the value of the yen?

Tsinghua University Professor Li Daokui, , a former adviser to the People's Bank of Chin, called Japan's move "the latest round of the global currency war" in remarks to the Chinese media Friday, adding "the massive monetary stimulus by the Japanese central bank could spell doom for other nations in the region."

The third question is: Do the central bankers really know what they are doing? They have devised fancy terms, like QE -- quantitative easing -- but what they are basically doing is printing money. Traditional economic theory says this is bound eventually to produce inflation.

But inflation has seldom looked less threatening. There are reasons for this. High unemployment means workers have trouble demanding higher wages. Many factories are working at less than capacity. And consumers, worried by their own levels of debt, aren't spending like they used to. Above all, U.S. corporations simply don't believe that there is much demand in the economy; that is why they are sitting on close to $2 trillion in corporate treasuries rather than investing it in new plant and equipment.

However, remembering how tough it was to drive inflation out of the system in the 1980s, when interest rates were more than 15 percent, it seems more than risky to try deliberately producing it today. The fact is that the world's central bankers are engaged in a gigantic experiment with the global economy and it will be some time before we guinea pigs find out if their QE theories are right.


Related Links
The Economy

Comment on this article via your Facebook, Yahoo, AOL, Hotmail login.

Share this article via these popular social media networks DiggDigg RedditReddit GoogleGoogle

Memory Foam Mattress Review
Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily
XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News

China's Xi says Asia faces 'new challenges' to stability
Boao, China (AFP) April 7, 2013
Chinese President Xi Jinping said Sunday that Asia faced "new challenges" to its stability and warned no one should be allowed to throw the region into chaos as tensions mounted over North Korea. Xi, delivering a speech at an annual international forum on the southern Chinese island of Hainan, did not mention the crisis on the Korean Peninsula or China's territorial disputes with Japan and S ... read more

Fukushima fuel cooling system stops again:TEPCO

Environmental policies matter for growing megacities

Finland's Fennovoima in talks with Rosatom over reactor

US drivers talk and text as much as ever

Theory and practice key to optimized broadband, low-loss optical metamaterials

CWRU-led scientists build material that mimics squid beak

Watching fluid flow at nanometer scales

Michigan Tech researcher slashes optics laboratory costs

Temperature difference between hemispheres could shift rainfall patterns

Chinese foreign fisheries catch 12 times more than reported

Shark tooth weapons reveal missing shark species in Central Pacific islands

Tiny Grazers Play Key Role in Marine Ecosystem Health

New models predict drastically greener Arctic in coming decades

Ice cores preserve 1,800 years of climate

2013 Wintertime Arctic Sea Ice Maximum Fifth Lowest on Record

Thin clouds drove Greenland's record-breaking 2012 ice melt

'World's greatest' chef Adria seeks digital legacy

China paper says farm sector raises bird flu risk

Italy bids to close gap in wine exports to China

Birch juice season takes Latvia by storm

Argentina floods caused $5 billion in damage

Italy marks fourth anniversary of L'Aquila quake

7.1-magnitude quake causes panic in Indonesia's Papua

Quake shakes buildings in Manila

Thousands in Darfur seek protection after fighting

Congolese pygmy seeks to enlighten his kin

Guinea-Bissau ex-navy chief held on US drug charges

S.Africa pulls troops from C.Africa after deadly firefight

Women and men perform the same in math

Scientists identify brain's 'molecular memory switch'

Researchers successfully map fountain of youth

First evidence of Neanderthal/human mix

The content herein, unless otherwise known to be public domain, are Copyright 1995-2014 - Space Media Network. AFP, UPI and IANS news wire stories are copyright Agence France-Presse, United Press International and Indo-Asia News Service. ESA Portal Reports are copyright European Space Agency. All NASA sourced material is public domain. Additional copyrights may apply in whole or part to other bona fide parties. Advertising does not imply endorsement,agreement or approval of any opinions, statements or information provided by Space Media Network on any Web page published or hosted by Space Media Network. Privacy Statement