Bernanke: U.S. Financial Crisis Worse than Japan’s Lost Decade, but We’ll Still Copy the Japanese Playbook, Even Though It Didn’t Work

Today, Ben Bernanke acknowledged that the U.S. economic crisis is worse than the Japanese economic crisis of the 1990′s:


Credit spreads are much wider and credit markets more dysfunctional in the United States today than was the case during the Japanese experiment with quantitative easing.

However, the Fed will still use the failed Japanese playbook:

Bernanke commented for the first time on “quantitative easing (QE),” or increasing the money supply in a manner similar to the method used by the Bank of Japan in the 1990s.

But the US central bank chief said the Fed’s approach “is conceptually distinct from quantitative easing” and could be described as “credit easing.”

He said that both expand the central bank’s balance sheet but that the two are different.

“In a pure QE regime, the focus of policy is the quantity of bank reserves, which are liabilities of the central bank (and) the composition of loans and securities on the asset side of the central bank’s balance sheet is incidental,” he said.

“In contrast, the Federal Reserve’s credit easing approach focuses on the mix of loans and securities that it holds … This difference does not reflect any doctrinal disagreement with the Japanese approach, but rather the differences in financial and economic conditions between the two episodes.”

In other words, he’s using the Japanese approach, but changing the name.

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  • http://www.blogger.com/profile/10812015187848204055 MC Shalom

    Chairman Ben S. Bernanke, Quantitative Easing Can’t Work.In a Liquidity Trap although Saving (S) is abnormally high investment (I) is next to 0. Hence, the Keynesian paradigm I = S is not verified.The purpose of Quantitative Easing being to lower the yield on long-term savings and increase liquidity it doesn’t create $1 of investment. In a Liquidity Trap the last thing the Market needs is liquidity. This is why, Mr Chairman, we call it a Liquidity Trap, Force-feeding the Market won’t achieve anything useful.If short-term risk free interest rates are at 0.00% doesn’t that mean that credit is worthless?Quantitative Easing does diminish the yield on long-term US Treasury debt but lowers marginally, if at all, the asked yield on long-term savings.Those purchases maintain the demand for long-term asset in an unstable equilibrium.When this disequilibrium resolves the Market turns chaotic.This and other issues are explored in my tract:A Specific Application of Employment, Interest and MoneyPlea for a New World Economic OrderAbstract:This tract makes a critical analysis of credit based, free market economy, Capitalism, and proves that its dysfunctions are the result of the existence of credit. It shows that income / wealth disparity, cause and consequence of credit and of the level of long-term interest-rates, is the first order hidden variable, possibly the only one, of economic development. It solves most of the puzzles of macro economy: among which Unemployment, Business Cycles, Under Development, Trade Deficits, International Division of Labour, Stagflation, Greenspan Conundrum, Deflation and Keynes’ Liquidity Trap… It shows that no fiscal or monetary policy, including the barbaric Quantitative Easing will get us out of depression.A Credit Free, Free Market Economy will correct all of those dysfunctions.The other option would be to wait till, on the long run, most of our productive assets get physically destroyed either by war or by rust.It will be either awfully deadly or dramatically long.In This Age of Turbulence People Want an Exit Strategy Out of Credit,An Adventure in a New World Economic Order.We Need, Hence, Abolish Interest Bearing Credit and Cancel All Interest Bearing Debt.✔ Exit Strategy Out of Credit✔ A Specific Application of Employment, Interest and Money [Intended for my Fellows Economists].Press release of my open letter to Chairman Ben S. Bernanke:Chairman Ben S. Bernanke, Quantitative Easing Can’t Work!Yours Sincerely,Shalom P. Hamou AKA ‘MC Shalom’Chief Economist – Master Conductor1776 – Annuit Cœptis.

  • http://www.blogger.com/profile/10812015187848204055 MC Shalom

    Ben S. Bernanke ExposedThis is quit embarrassing and the Japanese must be laughing now!”The debate about the ultimate causes of the prolonged Japanese slump has been heated. There are questions, for example, about whether the Japanese economic model, constrained as it is by the inherent conservatism of a society that places so much value on consensus, is well-equipped to deal with the increasing pace of technological, social, and economic change we see in the world today. The problems of the Japanese banking system, for example, can be interpreted as arising in part from the collision of a traditional, relationship-based financial system with the forces of globalization, deregulation, and technological innovation (Hoshi and Kashyap, forthcoming). Indeed, it seems fairly safe to say that, in the long run, Japan’s economic success will depend largely on whether the country can achieve a structural transformation that increases its economic flexibility and openness to change, without sacrificing its traditional strengths.In the short-to-medium run, however, macroeconomic policy has played, and will continue to play, a major role in Japan’s macroeconomic (mis) fortunes. My focus in this essay will be on monetary policy in particular. Although it is not essential to the arguments I want to make—-which concern what monetary policy should do now, not what it has done in the past—-I tend to agree with the conventional wisdom that attributes much of Japan’s current dilemma to exceptionally poor monetary policy-making over the past fifteen years (see Bernanke and Gertler, 1999, for a formal econometric analysis).Among the more important monetary-policy mistakes were 1) the failure to tighten policy during 1987-89, despite evidence of growing inflationary pressures, a failure that contributed to the development of the “bubble economy”; 2) the apparent attempt to “prick” the stock market bubble in 1989-91, which helped to induce an asset-price crash; and 3) the failure to ease adequately during the 1991-94 period, as asset prices, the banking system, and the economy declined precipitouslyBernanke and Gertler (1999) argue that if the Japanese monetary policy after 1985 had focused on stabilizing aggregate demand and inflation, rather than being distracted by the exchange rate or asset prices, the results would have been much better. Bank of Japan officials would not necessarily deny that monetary policy has some culpability for the current situation. But they would also argue that now, at least, the Bank of Japan is doing all it can to promote economic recovery.For example, in his vigorous defense of current Bank of Japan (BOJ) policies, Okina (1999, p. 1) applauds the “BOJ’s historically unprecedented accommodative monetary policy”. He refers, of course, to the fact that the BOJ has for some time now pursued a policy of setting the call rate, its instrument rate, virtually at zero, its practical floor. Having pushed monetary ease to 2 Posen (1998) discusses the somewhat spotty record of Japanese fiscal policy; see especially his Chapter 2.its seeming limit, what more could the BOJ do? Isn’t Japan stuck in what Keynes called a “liquidity trap”?I will argue here that, to the contrary, there is much that the Bank of Japan, in cooperation with other government agencies, could do to help promote economic recovery in Japan. Most of my arguments will not be new to the policy board and staff of the BOJ, which of course has discussed these questions extensively. However, their responses, when not confused or inconsistent, have generally relied on various technical or legal objections—- objections which, I will argue, could be overcome if the will to do so existed. My objective here is not to score academic debating points. Rather it is to try in a straightforward way to make the case that, far from being powerless, the Bank of Japan could achieve a great deal if it were willing to abandon its excessive caution and its defensive response to criticism.”Prof. Benjamin Shalom BernankeJapanese Monetary Policy: A Case of Self-Induced Paralysis?For presentation at the ASSA meetings, Boston MA, January 9, 2000.So Mister Chairman Ben S. Bernanke is not fit to deal with the present situation he does not even readily understand.Moreover, he advocates illegality.There is no pilot in this plane! We are going to crash!If short-term risk free interest rates are at 0.00% doesn’t that mean that credit is worthless?A Credit Free, Free Market Economy will correct all of those dysfunctions.The alternative would be to wait till, on the long run, most of our productive assets get physically destroyed either by war or by rust.It will be either awfully deadly or dramatically long.In This Age of Turbulence People Want an Exit Strategy Out of Credit,An Adventure in a New World Economic Order.We Need Hence Abolish Interest Bearing Credit and Cancel All Interest Bearing Debt.✔ Shalom Exit Strategy Out of Credit✔ A Specific Application of Employment, Interest and Money [Intended to my Fellows Economists].Press release of my open letter to Chairman Ben S. Bernanke:Chairman Ben S. Bernanke, Quantitative Easing Can’t Work!Yours Sincerely,Shalom P. Hamou AKA ‘MC Shalom’Chief Economist – Master Conductor1776 – Annuit Cœptis.

 

 

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