“U.S. Chides Europe, Japan for Overreliance on Monetary Policy”

A Benjamin Cole post

Some days, a Market Monetarist will feel the task ahead is Sisyphean, at best. Or, as Pogo once said, “We have met the enemy, and he is us.”

The WSJ tells us today that, “The Obama administration chastised Europe and Japan for excessive reliance on monetary policy to revive stagnant growth….”

You know, the Obamians have a point. Look at the rate of inflation in Japan…well, er, uh, okay, so without the recent consumption tax hikes, the Japanese are actually close to deflation, where they have been for 20 years.

Okay, scratch that and look at Europe….except much of the continent is in deflation too.

If Japan and Europe are guilty of  “excessive reliance on monetary policy” what does it look like when a central bank is too tight?

Well, my common sense would tell me that when a central bank is too tight you get slow growth and deflation or very low inflation. Um, like Japan and Europe.

And the United States.

P.S. Yes, every modern democracy needs an economic housecleaning, except politically it is impossible.

The United States points fingers—and we have a USDA, a huge and ossifying VA and defense complex, a silly ethanol program, a gigantic Social Security program, Medicare, food stamps for fatties, and while every major city or wealthy neighborhood in the country severely restricts real estate development, and pushes out factories?

You have to make monetary policy with the facts on the ground, not in economic utopia.

3 thoughts on ““U.S. Chides Europe, Japan for Overreliance on Monetary Policy”

  1. Well, in euro we really are in trouble. Especially when we are part of the euro area. We would need something like central bank financed cuts to income or consumption tax in addition to the ordinary QE. I’m not sure if that should be called monetary policy. Maybe it’s monetary policy motivated fiscal intervention or something like that.

    But yeah, we are in deflation and in very deep trouble.

    • Mr. Maata: So sorry to hear about your economy. Where do you live?
      I 100% endorse your idea of QE tax cuts. I call that “tax monetization.”
      My favorite idea is a tax holiday on payroll taxes, financed by QE. That is the central bank buys bonds and places the bonds into a trust fund to replace the lost tax revenue.
      For whatever reason, to date Huey has not resulted in much inflation. See Japan. The ECB appears to be suffocating Europe for no reason.

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