theredkay1
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http://www.nytimes.com/2012/02/15/business/global/battling-falling-prices-japan-sets-an-inflation-target.html?_r=1
"At its policy meeting Tuesday, the Bank of Japan’s board showed a more explicit commitment to ending deflation, voting to set consumer inflation at an annual rate of 1 percent as its price goal, at least for the time being. "
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Seems a very different strategy for a central bank....actively setting a formal inflation target and announcing that the economy needs more inflation to pull it out of the economic slowdown.
Different than the Feds 'we must avoid deflation but we will set ourselves on fire before we call for higher inflation' and nearly the opposite of the Euro Central Banks 'we will burn the whole continent down to avoid inflation'.
Seems like a subtle shift but it could have a large impact. This should provide a large economic jolt for Japan....and it may influence the actions of the Fed and ECB if that actually happens....but we'll see.
Nice to see a Central Bank somewhere has finally decided to stop sitting on its hands and do something about the global economic slowdown.
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Rosaria
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Our central bank also has an inflation target....
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imaloon1
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Ya, kind of not seeing the big news here. Pretty sure all the central banks do.
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Abaddon_Ambrosius
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Rosaria posted:
Our central bank also has an inflation target....
Ssssssh dammit Rosie I was gonna let him go on for pages and pages with this!
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ZigmundZag
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I read a rant on Forbes.com about how the fed's inflationary policy was destroying 50% of all wealth over the next 10 years, in fact. I was kinda disappointed because I had assumed that Forbes hired intelligent writers.
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Yukishiro1
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Forbes is written by stupid rich people for stupid rich people. I have never read anything from Forbes that wasn't mind-numbingly stupid.
It is really just a platform for advertisers looking for a bunch of gullible rich people to rip off. So writing stupid stuff helps them with their business model.
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Desnoxvu
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So the Japanese central bank is saying "We need to make the money you have worth less so that you ("we" in reality) can be more prosperous!
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theredkay1
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Mebbe I wasnt clear enough...
Raising inflation as an economic stimulus was the change
it runs very counter to other central banks ideology and in the complete opposite direction of the textbook outpost economics.
Central banks usually dont say 'we need to raise our inflation target to help the economy'. Now one of them has said that.
Bad central banking has negatively impacted hundreds of millions of people the last few years. Better central banking would be a good thing. This will certainly have a bigger impact on US economic growth and future deficits than 99.9% of the political debates about those subjects.
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Rosaria
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 [edit <---that was meant for AA]
Okay, okay hear me out. You flood, and keep flooding, the economy with trillions of USD. You keep your inflation target very low for an extended period of time, possibly for the forseable future. Simultaneously, housing and unemployment are uncertain. There are headwinds from different regions of the earth that are going to ping the global economy. What is your low inflation rate designed to protect? Where are those trillions of dollars going to [given tight credit] and how do you slap the economy around to get those dollars circulating at a faster rate and in greater numbers? Is low inflation going to do that?
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Rosaria
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Desnoxvu posted:
So the Japanese central bank is saying "We need to make the money you have worth less so that you ("we" in reality) can be more prosperous!
That's not entirely what controlled inflation does.
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theredkay1
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Desnoxvu posted:
So the Japanese central bank is saying "We need to make the money you have worth less so that you ("we" in reality) can be more prosperous!
They are saying that future price levels are going to rise while existing debt levels will stay the same. This is a situation most companies would find favorable for expansion.
The Bank of Japan is holding its interest rate even while boosting its inflation target. If nominal interest rates stay the same and inflation rises....the real interest rate will fall. This is a situation most companies would find favorable for expansion.
Cash will be worth less in the future, but real assets producing goods/services which sell for an increasing amount each year (thanks to inflation) are now more valuable. Right now, in much of the world, the problem we face is not enough production of stuff and not enough people employed to produce that stuff.....this policy makes the business of making stuff look better. And the business of sitting on cash look worse.
If you do not have a job, do not intend to work in the future and live off the money stashed under your bed....this is a bad policy for you.
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Desnoxvu
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The definition of inflation means to increase the money and credit supply. Some people think that it means an increase in prices. But the distortions in the market are just as bad as the increase in prices. The Austrian School of Economics explains this.
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theredkay1
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inflation = an increase in the general price level
this is the definition that everybody is working off of when the word is used.
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Desnoxvu
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I know that is what people think. That is probably why we are in such a mess. The increase in prices is a predictable consequence from the increase in money supply and credit. Again, read up on Austrian Economics. It isn't just a theory.
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Rosaria
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From the FOMC Minutes:
"The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability. A few members observed that, in their judgment, current and prospective economic conditions—including elevated unemployment and inflation at or below the Committee’s objective—could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run."
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eodoll
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Whats the point of having a savings if theyre going to do this on purpose?
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Sin_of_Onin
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eodoll posted:
Whats the point of having a savings if theyre going to do this on purpose?
Inflation is more likely to hurt wage earners than capital owners. That said a small amount of inflation helps an economy adjust to lower real prices. In an economy without inflation wages (when they go down) tend to adjust down all at once.
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theredkay1
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Desnoxvu posted:
I know that is what people think. That is probably why we are in such a mess. The increase in prices is a predictable consequence from the increase in money supply and credit. Again, read up on Austrian Economics. It isn't just a theory.
We are in a huge mess because we have a commonly understood meaning for a word...and you wish it meant something else? I dont think so.
Increasing prices has a long correlated history of economic success. The last 20 years we have seen a big slowdown in price increases...and fairly stagnant growth. Very inconvenient facts I know.
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theredkay1
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Rosaria posted:
From the FOMC Minutes:
"The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability. A few members observed that, in their judgment, current and prospective economic conditions—including elevated unemployment and inflation at or below the Committee’s objective—could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run."
Here they are saying the FED might take action to keep inflation at the same target they had in the past. This should probably be interpreted as a soft reduction in the inflation target, the opposite of what japan is doing, since they seem to be saying 'only a few members think that maybe we should try to keep inflation from falling below 2%'.
Stating that they will definately take action to achieve a higher interest rate going forward would be a very different policy.
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Rosaria
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theredkay1 posted:
Rosaria posted:
From the FOMC Minutes:
"The Committee also stated that it is prepared to adjust the size and composition of its securities holdings as appropriate to promote a stronger economic recovery in a context of price stability. A few members observed that, in their judgment, current and prospective economic conditions—including elevated unemployment and inflation at or below the Committee’s objective—could warrant the initiation of additional securities purchases before long. Other members indicated that such policy action could become necessary if the economy lost momentum or if inflation seemed likely to remain below its mandate-consistent rate of 2 percent over the medium run."
Here they are saying the FED might take action to keep inflation at the same target they had in the past. This should probably be interpreted as a soft reduction in the inflation target, the opposite of what japan is doing, since they seem to be saying 'only a few members think that maybe we should try to keep inflation from falling below 2%'.
Stating that they will definately take action to achieve a higher interest rate going forward would be a very different policy.
Yes I know, I wanted to clarify the Fed position so we're all on the same page.
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theredkay1
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eodoll posted:
Whats the point of having a savings if theyre going to do this on purpose?
Savings should be loosely tied to inflation in the long run. If you save by investing in a company, the company will be on the receiving end of those higher prices and should pass some of back to you through dividends, capital gains.....demand for credit to expand in real assets should increase the demand for savings and give a slightly higher return if you are saving in bonds or money market accounts.
If you are saving in cash, this wont help you. The point of this inflation push is to make it less attractive to save in cash and more attractive to save in the form of real things.
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Does any of this translate into a repeat of the last ten years, where the price of just about everything doubled or tripled while incomes actually declined?
Because that worked really well for us the last time.
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theredkay1
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Rosaria posted:
Yes I know, I wanted to clarify the Fed position so we're all on the same page.
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theredkay1
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B_Shinkicker posted:
Does any of this translate into a repeat of the last ten years, where the price of just about everything doubled or tripled while incomes actually declined?
Because that worked really well for us the last time.
The central bank doesnt control everything. The amount of oil in the ground, crop supplies, chinese currency manipulation, trade policy....there are alot of balls in the air.
Getting one thing right doesnt really ensure how everything else will work out.
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