Quote:
Originally Posted by Rain Man
I definitely didn't take the right kinds of college courses to understand this stuff. Based on what you said, it sounds like they shifted the economic transmission into first gear and then the gearshift knob came off. So I wonder what has to happen for it to start moving again - it sounds like it has to come from something other than policy.
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You've got it backwards. They shifted to high gear and burned up the clutch.
Theory is if there are low interest rates industry will expand because money is cheap. Unemployment will fall GDP will rise. Extended periods of growth leads to inflation. Raising interest rates will cause businesses to slow expansion and cook off the economy and wait for the market to catch up with GDP growth.
There are a series of interrelated curves (labor, money supply, GDP, and some other shit) that proof it all out but that is the 30,000 ft overview of intermediate macroeconomics.
So what Japan did was try to spur growth through interest rates and it didn't do anything. So they've fired their bullets.
Again, I'm not an expert, but I'd postulate that what happened here was interest got cheap and business did things other than directly increase production
1. Sit on the cash (see apple)
2. Invest in automation - not sending money home, wrecking the velocity of money
3. Invest overseas - taking it out of the equation completely thus thoroughly wrecking the velocity of money.