“Soft despotism is a term coined by Alexis de Tocqueville describing the state into which a country overrun by "a network of small complicated rules" might degrade. Soft despotism is different from despotism (also called 'hard despotism') in the sense that it is not obvious to the people."

Tuesday, October 05, 2010

Bank of Japan Throws in the Towel

Zero percent interest rates and huge governmental deficits have not helped in Japan. Why do we expect they will work in the United States?

Japan's fall also followed a huge property bubble. Real wages in Japan have been falling for twelve years. These trends hit the middle class the hardest. The middle class is the bedrock of any society. What is the lesson for the US?

Falling wages in the private sector and rising wages in the government is a toxic combination. Add to that the government and Wall Street sponsored breaking of US manufacturing and the resultant structural rise in unemployment and wages and you have a very nasty combination.

US federal deficit spending was aided and abetted by the pernicious additional affect of allowing and encouraging Japan and China to buy US sovereign debt. Stopping that practice is a necessary step in any serious effort at stopping the slide.


Bank of Japan Cuts Rates to as Low as Zero Percent
Published: October 5, 2010
NY Times

TOKYO — In a surprise move, Japan’s central bank lowered its benchmark interest rate to a range of 0 percent to 0.1 percent Tuesday, a tiny change from its previous target of 0.1 percent but a significant move back into an age of zero-interest rates.

The Bank of Japan also said it would set up a new ¥5 trillion, or $60 billion, fund to buy Japanese government bonds, commercial paper and other asset-backed securities amid concerns over weakening growth in the world’s third-largest economy. The bank also kept its credit facility for banks at ¥30 trillion.

With the interest rate cut, a bid to kick-start lending in Japan’s moribund economy, the central bank effectively reintroduces a zero interest rate policy for the first time since July 2006. The decision underscores concerns that a strong yen and persistent deflation threaten the country’s economic recovery.

In a statement, the bank confirmed that it would maintain its “virtually zero interest rate policy” until it achieved “medium- to long-term price stability”— or an end to deflation.

Hirokata Kusaba, senior economist at the Tokyo-based Mizuho Research Institute, said in a note to clients that the bank’s move went beyond market expectations. “The latest move gives off a much more powerful impression than past, incremental measures, which had sparked market disillusionment,” Mr. Kusaba said.

“Though there will be debate over the effects of the monetary loosening, I believe the Bank of Japan has done all it can at this time,” Mr. Kusaba said. But that also meant that the bank “had now depleted most of its policy options,” he said.

The dollar rose against the yen on the announcement, climbing 0.7 percent on the day to ¥83.90 from about ¥83.55 before the decision.

“The central outlook for the economy, and prices, have worsened more than had initially been predicted,” Bank of Japan Gov. Masaaki Shirakawa told reporters following the decision. Working out a package of policies, Mr. Shirakawa said, would allow the bank to draw out their maximum effects. He said he would consider expanding the 5 trillion yen asset-buying scheme, depending on its effectiveness.

The unanimous vote to lower the key interest rate came after a two-day meeting of the central bank’s nine-member policy board. The Bank of Japan had been under increasing pressure from the government to take more drastic steps to shore up the economy.

In particular, Prime Minister Naoto Kan has called on the bank to do more to help battle the powerful yen, which has surged to 15-year highs against the U.S. dollar in recent months, wreaking havoc with the country’s export-led economy.

A strong yen hurts Japanese exporters by making their goods more expensive overseas, and eroding the value of their earnings. Despite the weaknesses in Japan’s economy, the yen tends to strengthen against other currencies in times of global financial uncertainty, partly because the country still runs a current-account surplus, making a run on the yen unlikely.

The yen’s value is also related to the difference between Japan’s interest rates, and those elsewhere. The lower Japan’s interest rates, the bigger the difference between interest rates in Japan and higher rates overseas.

That gives investors more incentive to sell the yen to invest in higher-yielding currencies, weakening the yen. More purchases by the central bank of government bonds and other assets have a similar effect.

After weeks of talking down the yen in what economists called “verbal intervention,” the government finally intervened in currency markets on Sept. 15, the first such maneuver in six years, selling about ¥2.125 trillion to tame the yen’s persistent climb. But a lack of international support has undermined Japan’s efforts, and the yen is back to levels seen before the intervention. Meanwhile, some investors have warned that other Asian countries could also try to weaken their currencies as a means to boost exports, sparking a “currency war.”

With intervention yielding little effect, many within the Japanese government have stepped up demands that the Bank of Japan lower rates and buy more government bonds, both steps that would bring downward pressure on the currency. But Gov. Shirakawa had been reluctant for the central bank to play a role in financing Japan’s public debt, fast approaching twice the size of its gross domestic product.

Moreover, future moves by the U.S. Federal Reserve to further ease monetary would again reduce the effective interest rate spread between Japan and the United States, limiting the impact of the Bank of Japan’s actions.

The U.S. Federal Reserve has also kept short-term interest rates near zero since December 2008. In the past week, momentum has build toward resuming large-scale purchases of government debt to help the flagging economic recovery.

Japan’s central bank had also long come under fire for failing to end deflation, the general fall in prices that eats into profits and wages that has weighed heavily on Japan’s economy for the past 12 years.

Core consumer prices, which had shown signs of stabilizing in 2008, have fallen since early 2009. Consumer prices fell by 0.9 percent in the year to August, according to latest numbers from the Organization for Economic Cooperation and Development.

As the American economy also flirts with deflation, some economists have warned of a Japan-style deflationary trap that could delay recovery for years.

Indeed, Japan’s experience shows that deflation can creep up on an economy — and can be difficult to shake.

It took about four years for Japan’s economy to hit rock bottom following its spectacular asset bubble burst in 1990, and another four for deflation to take hold in 1998. The following year, the Bank of Japan responded by lowering its policy interest rate to zero; by that time, however, the country’s economy was so depressed that even zero interest rates could not bring about recovery.

Critically, it was not until another five years later, in 2003, that the central bank sharply increased its purchases of financial assets to expand the money supply, setting the stage for a gradual recovery. Despite stable economic growth of about 2.5 percent between 2004-2007, however, deflation did not disappear completely.

Still, emboldened by a nascent recovery, the Bank of Japan raised its lending rate in July 2006, bringing it to 0.5 percent the following March — a controversial step some economists, as well as politicians, called premature.

Before that debate had fully played out, however, the global economic crisis ravaged Japan’s export markets, plunging the country into its worst recession yet since World War II. In December 2008, the Bank of Japan slashed interest rates to 0.1 percent.

The Bank of Japan’s perceived ineffectiveness has sparked a debate over its independence from the government in decision-making, guaranteed by a 1998 law that protects the bank’s governor from dismissal by the government, and prohibits the government from supervising the bank’s operations.

The law was put in place after criticism that the bank, overly influenced by government euphoria in Japan’s booming eighties, did not raise interest rates quickly enough, letting the asset bubble grow to massive proportions before it burst in 1990.

Your Party, an opposition group, plans to soon submit a bill to Japan’s parliament that would give the government greater influence over the central bank. Officials within the government have made similar suggestions.


  1. International Monetary Fund

    World Bank

    Financial Stability Board

    The globalization of currency and banking. Fewer and fewer in control of more and more.

  2. Stop the insanity of allowing China to buy US sovereign debt.

  3. It looks like I beat Q on this post by 18 minutes. I'm not quite sure how that happened.

  4. .

    I had it in word in a 'pending' file.

    I'm in the middle of writing an epic poem and didn't have time to post the article.


    Actually, other than a story on the new "sex survey" that is coming out Monday, this is the only big news I saw.

    I'm surprised that market futures haven't taken a bigger hit.


  5. Geert Wilders and hate speech, a perfect example of one Authoritarian's garbage being another Authoitarian's gold.

    Rather than letting the reader decide, the censors assume the power over what is acceptable decorum, for their society.

    Equivalency Rules!

  6. The premier US ally in the "War on Terror ...

    ... it is Pakistan's government, and not the Taliban, that has cut off NATO's supply route, bowing to public anger over US drone attacks and air strikes by manned aircraft on Pakistani targets. September saw 21 drone strikes in Pakistan, a record number, with three more strikes occurring so far in October, reports Reuters.

    200 trucks waiting at border ...

    Are they with US or against US?

    The question being asked, now, while the answer has be quite evident since 09SEP01.

  7. The Nikkei Stock Average was the best performer among the region's major stock benchmarks. It ended 1.5% higher at 9,518.76, getting a boost in afternoon trading, after the Bank of Japan cut its policy interest rate to a range between zero and 0.1% from 0.1%. The central bank also announced a 35 trillion yen ($419 billion) monetary easing program.

  8. Pakistan's Foreign Ministry has said the border crossing will be reopened "after public anger over the NATO strikes eases."

  9. Whit: The globalization of currency and banking. Fewer and fewer in control of more and more.

    Revelation 13:

    [16] And he causeth all, both small and great, rich and poor, free and bond, to receive a mark in their right hand, or in their foreheads:

    [17] And that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.

  10. You can only "pop" so many bubbles on a people before they say, "fuck it, I'm putting my money in the bank; I don't care if the interest rate is 0.01%. I'm tired of losing my money." The Japanese "people" are at that point.

  11. Non-Manufacturing ISM Rises to 53.2 last month.

    Another pretty good number.

    Maybe the Fed needs to rethink their QE plans.

  12. Thanks all for your patience in my redecorating.

    It took me awhile to figure out how to do it but it was a good opportunity to relax and do something that I enjoy.

    Your criticisms during the process were useful and appreciated.

  13. To any and all readers...

    Dr Hiss is actual Rat aka Panama Ed, a known Jew hating, Israel hating troll.

    Please do not feed the troll.

    There is no discussion with him.

  14. .

    Everytime I stop back at the EB I like what you did more.

    The two bull elephants are pretty impressive when you first pull up the site.

    Like some of the new stuff you added too.


  15. Love what you did with the images...

    Now start deleting Dr Hiss and we'll have a nice place again.

  16. Love what you did with the images...

    Now start deleting Dr Hiss and we'll have a nice place again.

  17. Yeah, yeah, yeah,

    quit flapping your gums and go find us some tits, okay? :)

  18. Even as Congress has struggled unsuccessfully to pass an energy bill and many states have put renewable energy on hold because of the recession, the military this year has pushed rapidly forward. After a decade of waging wars in remote corners of the globe where fuel is not readily available, senior commanders have come to see overdependence on fossil fuel as a big liability, and renewable technologies — which have become more reliable and less expensive over the past few years — as providing a potential answer.

    U.S. Military Orders Less Dependence on Fossil Fuels

  19. Wio, you need to leave Rat alone. He was commenting on the Proprietor's post. He doesn't call for "your" censorship; you have no right to call for his.

  20. I agree. The air of civility has improved. Everyone is quite capable of deciding who to read and who to ignore. Or as our friends in France say, " à chacun sees gouts".

  21. We have friends in France?

    who knew?


  22. ASA Weekly Staffing Index back to Jan 2008 Levels

    I've been watching this one for awhile. I withheld comment to see if it was a head-fake, but I'm beginning to think it's not.

    This should start showing up in the "Household" employment numbers pretty soon, I believe.

  23. rufus said...
    Wio, you need to leave Rat alone. He was commenting on the Proprietor's post. He doesn't call for "your" censorship; you have no right to call for his.


    His usage of his handle "Dr Hiss" is a obvious slur.

    Would the bar be ok if my handle was "Nigger hater"?

    Or how about "Dead Crackers" or maybe "A dead Injun" Or how about "Die Wops"

    I dont think so, Rat uses a subtle handle to be a piss ant.. and last time I checked all I am doing is calling out his nazilike behavior for what it is..

    Don't like what I write?

    Ignore it....

    I just want to warn anyone that sees the his handle to understand what a piece of shit he is...

    Just adding context...

  24. NASCAR Going to E15

    This is, actually, a lot bigger deal than it sounds. Them Bubbas, and Bubbettes, Are heavily influenced by what their Favorite Drivers are doing. Really.

  25. Air of civility...


    So if the resident NAZI asks nicely for my genocide it's ok?

    Fuck that....

    I aint civil to anti-semitic asswipes...

  26. But let's all ask nice and civil for Rat to step on a nice land mine...

    How's that for civil....

  27. Wio, I took into consideration what you said, and I yahooed "Dr Hiss Nazi;" This was the first article to pop up.

    Dr Hiss

    I have no doubt that Rat likes to "yank your chain," but I'm not sure you can make the argument you're trying to make regarding the Hiss moniker.

  28. .


    Or how about "Dead Crackers" or maybe "A dead Injun" Or how about "Die Wops"

    I doubt anyone here gives a good shit what you call yourself WiO.


  29. I don't agree with a lot of what Rat has to say and we have had our differences, but i have never seen a single post where he ever called for anyone's death.

    He certainly is no friend of Israel. He likes to goad you, because you take the bait.

    He has become transfixed on the numbers of abortions in Israel and takes the logic to an extreme.

    His postings about it were meant to irritate and it did, but he never called for the violent end to anyone. In fact, he is more of a pacifist than anyone on this blog except for MLD.

  30. Or even a "fair to middlin'" shit. :)

    maybe not even a "strained, constipated" shit?

  31. ...and Rufus. Most men (who were draftees) who have seen combat (in the case of Rufus) are pacifists.

  32. It's about time you rolled up that archive mess.

    Remember less is best.

  33. Unless of course Rufus is talking about tits.

  34. Deuce: In fact, he is more of a pacifist than anyone on this blog except for MLD.

    How about that home team getting some points on the board!

    Drone aircraft operated by the Central Intelligence Agency killed several militants with German citizenship in the mountains of Pakistan on Monday, according to Pakistani and American officials.

    Many years from now, your grandchild will ask inquisitively, “Grandpa, will you please tell me the story about that time the robots from the CIA killed the German people in the mountains of Pakistan?”

  35. It's true. I believe there are cases where you have to fight, but I also believe that you have a duty to the soldiers (and the people in general) to wrap it up as quickly as possible, and get the hell out of dodge.

  36. deuce

    In fact, he is more of a pacifist than anyone on this blog except for MLD.

    total horseshit....

    as for your lack of depth when it comes for rat's masked calls for the genocide of Jews that's your lack of understanding.

    I do not call anyone a Nazi unless I am fully convinced at the evilness of that person's soul.

    Rat's is to smart to be blatant in his genocidal rants. That's what you guys call being civil...

    From where I stand?

    He long passed the jew hating, israel hating, ADVOCATING GENOCIDE red line...

    No offense, if you don't see it?

    Your blind.

  37. How can you tell they are not gay?

  38. Horseshit, Wio, take it down the street. You used to call Me a nazi because I oppose many of the government of Israel's policies. I'm not a "Jew-hate," and Rat's not a "Jew-hater."

    You, however, are an extremely tiresome person. Anyone incapable of differentiating between "dislike of Zionism," and anti-Semitism probably doesn't have the intellectual chops to appreciate this blog.

  39. .

    Those elephants are sexy.

    I tell you Stella, when you call up the blog, they hit you right between the eyes.

    Pretty dramatic.


  40. Maybe she thinks they are "Gay."

  41. "How can you tell they are not gay?"

    Because women can just tell these things.

  42. .

    Because women can just tell these things.

    Hell, anyone can.



  43. Well, then for that matter how can you tell if they are not lesbians?

  44. rufus said...
    Horseshit, Wio, take it down the street. You used to call Me a nazi because I oppose many of the government of Israel's policies. I'm not a "Jew-hate," and Rat's not a "Jew-hater."

    Actually no I never have...

  45. Rufus: You, however, are an extremely tiresome person.

    I agree about that....

    Rufus: Anyone incapable of differentiating between "dislike of Zionism," and anti-Semitism probably doesn't have the intellectual chops to appreciate this blog.

    One standard for Israel and a different (lower) standard for everyone else is anti-semitic

    I have no problem with those that have issues with Israel, However those that apply ONE standard to ISRAEL and do not apply those exact standards to all others?

    That is bogus...

    I wonder if YOU can tell the difference....

  46. Thanks so much for linking to me! Looks like your blog gets A LOT of visitors! My traffic has gone up thanks to you =)

  47. This comment has been removed by the author.

  48. you are welcome. feel free to post and let us know about your work. feel free to make links to your posts.

  49. .

    Damn, I keep leaving the bar and coming back just to get the impact of the elephants.

    The rush, while admittedly only momentary, is better than from my pain pills.

    It's kind of like a jack-in-the-box.


  50. .

    Deuce, did you photo shop the picture to enhance it?

    When you first put it up, I didn't notice the tusks on the big one being so evident.


  51. Quirk I keep doing the same thing.

  52. I actually took the photo, reduced it to 50% opacity and then air brushed it in places to give it better depth.

  53. Them is some kind of eliphents; that is for sure.

  54. blurring it around the perimeters heightens the action.

  55. wanted to make them mean like me.

  56. 'Course, I'm a "Tit" man, myself.

  57. I almost want to put that meanness on my freshly painted chocolate brown wall.

  58. Just pretend they are girl elephants with…really big tits.

  59. When ѕοmeone wгites an
    pieсe of wгіting he/ѕhe retаins the imagе οf a user in
    his/hеr brain that how a user can understanԁ it.
    So that's why this post is great. Thanks!

    Here is my weblog :: Same Day Payday Loans