On Monetary Policy Outside of a Balance Sheet Recession

I can’t say that I am a huge fan of the way Japan is implementing monetary policy these days as there’s a certain level of ponzi that appears embedded in QE and its “wealth effect” transmission mechanism via the stock market.  But it does all make me wonder – since we know Japan’s balance sheet recession is over, then what if monetary policy is much more powerful outside of a BSR than we presume?  I think that once credit trends normalize within the economy that monetary policy tends to be much more effective.  We’re not quite there yet in the USA, but what if Japan is benefiting from it finally?

I’ve been particularly hard on the monetarists in recent years because I just didn’t believe their ideas would be all the impactful inside of a BSR in the USA.  But this Japanese experiment does make me wonder – could there be more to all of this than we previously believed?  And could it be implemented in a manner that doesn’t have such a stench of ponzi via the stock market?   And can it avoid the bad types of credit bubbles inside of asset markets like stocks and bonds?  I don’t know, but I am not going to lie – I am eager to analyze and judge the results in Japan at some point.

We’ll probably have to wait several years to reserve judgment on Abenomics, but I am certainly open-minded enough to admit that I could be overly skeptical about its efficacy.  But I think we should give it a lot more time and see how things play out over the next few years.  So far, I don’t think the results have been that great outside of crushing the Yen and setting the stock market on fire, but it hasn’t been very long.  So we continue to wait for the greatest experiment in modern economics to play out in real-time.

 

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Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services. He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.

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