Their nominal rate is zero, however their *real* problem is that the *real interest rate* is positive. Here is an equation to remember: Real Interest Rate = Nominal Interest Rate - Inflation Inflation for Japan is negative, thereby causing real interest rates to be above zero. This has led to tighter money and less of an ability to climb out of their economic downturn. Since you're allegedly better trained in economics than Alan Greenspan, I'm a little surprised you didn't know this. sigh CLASS DISMISSED
Who the heck said I am better trained than Greenspan. Oh yea, and what is the "real" interest rate? I bet you it isn't very high. Get real, money expansion has been a nightmare, and if you have been paying attention, Greenspan has hinted that as well. In fact, when Greenspan first came in, he did not drop interest rates like he many wanted too. He thought it was more important to keep inflation in check even if that meant keeping interest rates high. Too bad he has gone away from his principles. If you are going to say stuff like "class dismissed" you should just stop posting.
Are you suggesting Japan should have negative interest rates to counter this deflation?? I know we weren't really discussing Japan, and intuitively I know that raising interest rates is just plain wrong, but I'm curious why Japan is used as an example here. Seems Japan followed the policy of lower and lower rates and refusal to foreclose and it lead them into a further muck.
I know we weren't really discussing Japan, and intuitively I know that raising interest rates is just plain wrong, but I'm curious why Japan is used as an example here. Seems Japan followed the policy of lower and lower rates and refusal to foreclose and it lead them into a further muck. Japan has a host of other problems that caused the mess that they have there. One is that when they had banks failing (similiar to our S&L mess, I believe), they kept artificially propping them up. Japan's move to lower interest rates is the right thing to do -- their mistakes were in other areas.
In fact, when Greenspan first came in, he did not drop interest rates like he many wanted too. He thought it was more important to keep inflation in check even if that meant keeping interest rates high. And in a booming economy, that's not a bad policy. However, inflation is not an issue right now, so its possible and beneficial to keep low interest rates until it is an issue again.
Yes, that is the policy that Japan followed and it did not work. I am not sure if we should raise interest rates, but we should definitely hold the line at least. And if there is any sign of inflation, Greenspan *will* raise interest rates. And I am sure this will happen, as the dollar has been getting weaker. The difference in my thinking, economically, is that people need to get rid of debt so they can start saving and investing which will create jobs. This will cause short term pain but get our economy going again. The "mainstream" view is that everyone needs to spend, spend, spend (even though we're all in debt!!!). I'm thinking that if No Worries and Trader Jorge are both insulting me on this then I must be right.
Actually, it was during the 80's when the economy was not always booming. He thought it more important to hold down inflation than to "jumpstart" the economy. The difference now is that there is no "sign" of inflation.
It may not be long before the US has to do this here. Banks are not in great shape at all. This is simply not true -- at least not in any way like the problems existing in Japan in the 80s and 90s.
Systematically, they are very different. The banks and corporations had a close relationship that is different here. Fundamentally, however, banks are accumulating a lot of debt and risk.
2003. I told you guys we should have raised rates and that banks would be a problem! I got A LOT of crap in this thread, people accused me of not knowing economics, but I was right. If only I was FED chairman back then.
haha, this thread was pre d&d days. i didn't post in it but i vividly remember tj's ray charles/stevie wonder comment. anyway, we know where the cheap money went, it went to a collasping housing market that is going to take this country down
Way to go Greenspan. Lowering interest rates to near zero because you think there maybe might be an outside chance for "deflation" has to be one of the stupidest moves in central banking history.
