What has the Fed done to avoid the US becoming the next Japan?

By Warren Mosler

Imagine being on the FOMC and in the mainstream paradigm. In 2008 you moved quickly to make sure the US would not become the next Japan.

  • You cut rates to 0, even faster than Japan did.
  • You provided unlimited liquidity to the dollar money markets, both home and abroad.
  • You did trillions of QE, sooner than Japan did. You announced you expected rates to stay down for two years, etc. etc. etc.

And what do you have to show for it, 3 years later?

  • GDP marginally positive, much like Japan. Inflation working its way lower to Japan-like levels, especially housing and wages.
  • Employment stagnant a la Japan.
  • And now, after 3 years of 0 rates, and trillions of QE, the dollar is going up, much like the yen did.

After the Fed has done all it could think of to reflate, and then some.

And all just like MMT suspected — and for what should be obvious reasons.

The post first appeared at The Center of the Universe blog.

  1. Anonymous says

    It was obvious that the US was on the same path as Japan three years ago. The only question is why anyone thought that it would work? The US does not have the same savings rate that Japan does to actually buy the US treasuries. As this continues the real solutions are not being implemented. 

  2. Jspiers says

    Printing money does nothing for final demand… the only solution is a fiscal solution. Richard Koo’s RWER article sums it up nicely IMHO.

    1. Anonymous says

      I totally agree that there needs to be a fiscal solution but only China is willing to do such measures. Therefore the next Depression is simply a matter of time.

      Yes but for the US with the Tea Party dominating the GOP fiscal measures are not even possible. The rest of Europe has the problem that neo-classical economics pervades the IMF, the World Bank and most Governments policy making and central banks. So debt write-offs are coming and multiple sovereign defaults. It is just a matter of time. 
      The issue will be what can they do to become the next Japan without spending money? That will mean that if the GOP get control watch the US slide into oblivion as they slash taxes to stimulate the economy and all it does is accelerate twenty years of deleveraging into fifteen years. The deficit will rocket but nothing will said about fiscal responsibility then. Policy makers are clueless.

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