Japan should stop stimulizing its economy...

Low economic activity and growth-rate is Japan’s real problem and not unemployment... Therefore, if it is not unemployment, it must not be a demand-problem... because people are employed... unemployment in Japan is near the natural-rate... Japan is a developed economy and its people’s income must be highest among its counterparts elsewhere in the World, but, not sure about real-wages, lower prices will help... So if it is not a demand-problem then it must be the supply-side... And, i would not completely disagree that it is a glut...  ‘coz when the central-bank and the government is committing a stimulus, suppliers begin expecting high demand ahead and they are supplying more which has put the economy in a deflationary-liquidity trap because in liquidity-trap people delay purchases that set the economy in a deflationary spiral... Suppliers see low-interest-rate as a signal for investment, they are supplying more and when the economy is in deflationary-liquidity-trap, lower-prices make suppliers expect that demand will go up... they are supplying more... more supply means lower-prices ahead... Japan should stop using stimulus in order to boost income, demand and growth... Its labour-market is cleared and must clear the Goods market... No matter from where Japan started, now, it does not have unemployment-problem... lower-prices help clear-market... No matter how hard you try to achieve inflation/profits but at Zero-Lower-Bound it would not work...

... oil-prices,apart, the US...

Recently, the US economy climbed to a decade high rate of growth of 5% which has reinforced the expectation that the recovery, that began 5 years ago, has now reached a level where we can steer the economy at a high-speed in order to achieve the goals the policy-makers have set for themselves and have borrowed heavily from the future, actually the debt will be paid by the next-generation... Nevertheless, debt (i think) should not be rolled-over to the Gen-X because that will be a burden on their resources... Atleast, this looks rational... Why somebody would pay for your excesses? At first glance it does not look wise... Any ways, all – savings, investment & interest-rates – have a high effect on the growth-rate... Low interest-rate has a good-effect on growth-rate, unless we are in liquidity-trap... A commitment to keep interest-rate low for a long-time should be good for investment and growth-rate, unless.... The Fed decision to increase key rates somewhere in the middle of 2015 should be based on the investment figures (rate of change)... what a central-bank normally does... It takes gauge of inflation and the rate of investment to decide for a rate-hike... And, sometimes when investment (read also employment) is low the bank may decide to tolerate high inflation... This is what the Fed intended to do since Recession-2008... But... (there is a big-one)...  why the Fed is not taking in to account the rate of change in savings and investment, and try to equate them with the US’ potential growth-rate, the rate of change in population, near 10% (decadal)... To achieve this potential growth-rate the US-economy must grow 10% every-year... Therefore, savings and investment must also grow 10% every-year... This is too early to even think of a rate-hike... The economy is just growing half of its long-run potential...

Well-done Rajan...

Now, even if we replace the base-year effect with a more normal-year, inflation will be well within the RBI and the government's (too) comfort zone... Government is the biggest spender in the room... it also loses the value of its money when inflation goes up... it will have to find more sources of revenues... which when inflation is high kills demand more than double... at one place the demand has gone down due to high inflation and taxes will squeeze the situation too... people will demand more income... wages and incomes cost will go up... prices will go up more... the chain reaction will go on a few rounds as long as inflation remains near the target... INDIA still does not have food-security which is likely to put pressure on prices of food... same like before.. Fuel prices have become favourable... So we need to pass its fullest benefit to the economy... for maintaining strategic reserves, too, or explore Shale-wells... Our only problem is vegetable prices which are too much volatile and signal more investment even in imports... Why INDIA is shying away from satisfying its people's needs ? A simple zero import duty/tariff will be a great incentive... The long-run path of the prices all over the World has shown a downward trend... Imports will help lower prices in the economy or reduce volatility, means lower inflation... good for demand and growth... means (again) more expansion...  The economy is on the right track... Well-done Rajan...

Lower- prices...

I liked his  ...Arvind Subarmaniam's... idea of boosting public-expenditure when monetary-policy is concentrating on lower prices and interest rates... this is the right way of running the government and central-bank “...,for the people,...” lower prices are always a relief... because when you try to showcase yourself by trying to push growth-rates to increase you investment score, you stoke both, inflation and no doubt income too, but the pace (of inflation and income) may or may not be constant to keep the value of money (at least) constant to keep demand and growth rate intact, or actually pushing them higher... For this objective both, the government and the central-bank, needs data... this is now a must for good and credible solutions, and faster data for quick decisions... So there could be a mismatch between the government’s decision and that of the RBI... So, therefore, the whole point ( i think) is that the government should run the government “again”... “for the people” and the RBI should (now ) { i think}  should try to increase the value of money... so the consumers  demand more and producers supply more... Lower prices are good as far as income does not go down... And we have evidences supporting this line of thought... falling-prices and nominal downward wage rigidity... helpful for growth-rates....

US, INDIA, Europe...

The World against the back-drop of the 2008 recession in the US has seen many dramatic turning-points in terms of the stances held by the world’s most important central-banks... The monetary-policy since the crash has been the most favoured tool to boost sagging demand... in line with the fall in economic-activity and growth-rate... The other tool (fiscal-policy) was already too much burdened due to historical low interest rates... Both, the public and the government borrowed heavily and the banks, loosely regulated, lent heavily beyond the reserve requirements... Many banks failed in the West and the government, instead of following economics, followed wrong voices to decide a customary bail-out to large investment banks in haste... without thinking too much... the government did not see the unemployment figures... otherwise it had not used  wrong levers... to correct the problem of unemployment... It should have directly used the fiscal-policy, whatever money it had, to correct unemployment figures... and not balance-sheets... Actually, it was an occasion to teach banks a lesson for theirs excesses... And, this was going to see a major change in the central-bank policies all over the World... Following the United States... And, again, everybody else embarked on expansionary monetary-policy...

Here, in INDIA, too, the government and the central bank gave the economy high doses of stimulus to avert a downturn... These stimuli helped the economy to achieve its potentials, but, INDIA is a developing economy and more than half of its population still survives on $ 2 per-day.... Nevertheless income levels have also risen but not in accordance with inflation which remained the dominant story in the region since the stimulus 2008... The government, totally, ignored over-employment and this created pressure on domestic-resources when markets are not that developed and due to the supply-side-bottle-necks... The government did not see the economy overheating...  Which affected our savings and sent the interest-rates high which stifled the Indian growth-story later... Nonetheless, changes at the RBI and the government recently have now turned the economy... Close to low inflation and low interest-rates... good for economic-growth... The new RBI Chief in INDIA loaded with latest insights, inflation-targeting and all... has succeeded in sending the right signals... He agreed everybody that he is conscious about inflation and has guts to convince the government about its policy... Moreover, the fiscal-stimuli which is nothing other than public-spending, revenues apart, has also been better-targeted to the poor, to reduce the inflationary pressure with the demand it is generating...  This has reduced inflationary expectations, too, actually the wage-push-inflation because higher inflation will lead to demand for increase in wages and incomes, the economy would lose demand internally and the exports will lose competitiveness globally... current account deficit becomes unfavourable... We have always tried to take a gauge of variables affecting the economic growth but never included price-level as a major force driving demand and economy... Which has lately become the most important factor in shaping expectations,. Firms supply when they expect higher prices ahead... even agriculturists... But, this does not mean that lower prices are against the idea of growth, actually, growth-rates. Lower-prices, very few would tell you, are more expansionary, but a Harvard economist would not disagree, completely...

The long-term data for the developed countries has shown us that, despite, so massive increase in the monetary-base the price-level in the regions has gone down significantly and they have actually excelled the rest of the world... The standard of living has improved a lot, beside a lower level of unemployment and temporary blips in the full-employment, the nairu-rate... developed countries are a good example, and especially Germany, that lower prices are helpful in maintaining demand and employment, and ultimately the growth-rates...  According to experts, if Germany had its own currency, it would be more right footed vis-a-vis dollar and euro, actually stronger... lower prices in Germany has increased the value of euro in Germany relative to regions having more inflation... Euro is more successful in Germany that rest of the peers in the Unions... which also calls for a fiscal-union... Without which euro is destined to fail... The point is every country has many states which have a common national currency... And, they survive with each other... but, there should a fiscal-union to match spending with revenues... If you have not control of revenue how you will manage expenditure, especially government... it is like hitting the bird with closed-eyes... Monetary policy indirectly affects income which is the single most determinants of the level of all types of taxes... You have lost control over you country’s people income; you cannot increase it with monetary-policy... World is moving toward decentralization, and Europe is moving back.... Europe is moving towards a fiscal-union or a monetary-disunion...????