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Bank of Japan, in a Surprise, Adopts Negative Interest Rate (nytimes.com)
232 points by timr on Feb 2, 2016 | hide | past | web | favorite | 233 comments

Those who think Japan is unique in its condition and/or that the answer to its problems is more of the same old "advice" as proffered by standard issue economists and business types might profit from Robert Gordon's recently published "American Growth". (paper version: http://www.nber.org/papers/w18315.pdf) At least, it can offer a different, longer-term perspective on the issues.

It's not impossible that we will look back in 20 years and see Japan not as some sort of failure but simply as the first society that had to learn to live without growth.

But the growth problems of Japan is largely an illusion and myth caused by population decline. Growth per capita in Japan has been completely normal in the supposed terrible years. It is the population decline which causes the overall GDP growth to look anemic.

Naturally it is growth per capita which matters as this is what improves the living conditions of people. There are many countries with high GDP growth but which also has higher population growth causing everybody actually to get poorer. That is not something anybody should want to emulate.

But of course low total GDP growth looks bad to business because the markets for their goods does not expand.

What time period are you talking about? In 1991, per capita GDP in US and Japan were both ~$32k in 2005 USD. But now it's ~$38k for Japan and $47k for US.



Or, looking at even tighter bounds of GDP per working-age person, today the US is at ~$82k/year, and Japan ~$64k/year -- a slightly larger gap. I prefer this metric when talking about "the economy" in the sense that most people interact with it.

Per capita statistics encourage a false assumption of sharing. It isn't measuring what most people think it is.

I was responding to this claim by jernfrost: "Growth per capita in Japan has been completely normal in the supposed terrible years. It is the population decline which causes the overall GDP growth to look anemic."

Household disposable income looks normal enough


Zoom out to include 1995 (the limits of Japanese data for your source). Japan is mid-tier for growth in household disposable income 2010-2014, but consistently among the very slowest growing countries from 1995-2009. This is a difference of 1% average growth vs. 3% average growth across 15 years. That is a huge difference (16% vs. 56% cumulative growth), and very consistent with my claims about the stark disparity between the US and Japan in per capita GDP today.

"A look at the underlying accounting, however, suggests that, far from underperforming, Japan may have outperformed. For a start, in a little noticed change, United States statisticians in the 1980s embarked on an increasingly aggressive use of the so-called hedonic method of adjusting for inflation, an approach that in the view of many experts artificially boosts a nation’s apparent growth rate.


Japan was the "bad guy" in 1990, they had a lot incentive to downplay their position in subsequent years.

[ dang, is that you? chill, dude ]

the only illusion is that they have a good fiscal policy and are willing to change. they got in this mess by having one of the least transparent lending systems, where the government "chose" winners or hid things by lending to preferred groups; does this remind you of China at all? Hence they could fake things for a while.

Eventually that large budget deficit versus GDP (nearly triple the US) combined over the years with even more taxation just sucks the life out of an economy. Throw in a shrinking population and an adverse look at immigrants and its not fun.

So you have their central bank playing with the quantitative easing game for nearly ten years and not getting anywhere. This is mostly because government is borrowing all the money leaving corporate investment to occur mostly as a product of spending their own profits.

Japan is simply proof government cannot buy its way out of a problem, they have been trying for years. Classic money trap that certain economist love to ignore or worse claim the opposite by saying if they just went further, spent more... etc etc.

Oh well, China is similar but the US is too, the difference is the US has quite a bit of immigration to take jobs the locals won't

Population decline is here or in the near future, depending on where you stand on the planet.

Overall GDP growth is needed because it's the fundamental assumption behind both government and private debt.

The US has both had population growth and anemic growth since 2008. So it's not all population bust.

>But the growth problems of Japan is largely an illusion and myth caused by population decline.

The piece that many miss when discussing Japan's high quality of life despite lack of growth is that in order to maintain 0% growth over the last 20 years, the central government had to borrow and spend nearly 10% of GDP every single year.

They borrowed it mostly from themselves though which makes it more complicated and much less of a problem than it might at first appear.

I doubt the average Japanese saver would see it that way.

I agree, we're not talking about an external default, but monetization is still likely to severely impact the wealth of the middle class.

Monetization means inflation, right? That doesn't seem to be happening in Japan. In fact, it's almost the opposite of negative interest rates.

Compound interest isn't a physical system law though, its a human law. Just because it has worked previously because you could continue to extract productivity from labor does not mean that rule will continue.

What if capital loses its value and no longer earns interest? You can't say its not happening, when central banks are charging interest on capital.

I'm not entirely sure what you're referring to, but to clarify, I was discussing the potential impact of sustained deficit monetization on Japan's middle class savers via its effects on the monetary base and inflation.

My understanding of your comment was you pointing out the average Japanese saver would be upset about their savings rate being non-existent due to the debt owed to them being internal (and therefore, dependent on central bank monetary policy). My comment insinuated that Japanese savers may have no other options other than an insignificant savings rate due to internal monetary policy and a bleak worldwide investing landscape.

I should've expounded! My apologies!

>> It's not impossible that we will look back in 20 years and see Japan not as some sort of failure but simply as the first society that had to learn to live without growth.

They still haven't learned, they're trying really really hard to force growth. Negative interest rates can be seen as a tax on inactivity, and while it's been talked about in the US, I think it comes too close to taxing assets for the rich to embrace it.

> I think it comes too close to taxing assets for the rich to embrace it.

What's wrong with taxing assets (wealth)? I don't know the full economic implications, but I think it may be more fair than taxing income. Wealth is a much better measure of a person's financial strength. Consider:

* Because we tax income, a person with $1 billion in assets who makes $100,000 pays less tax than a person with $0 assets and makes $150,000.

* Because we tax income, a person who loses all their assets in the housing collapse but earns $100,000 pays more tax than the person whose assets appreciate $1 million but earns only $50,000 in income.

* If we tax wealth, future taxes are much more predictable, enabling more efficient long-term investment and planning. I could make a pretty good guess about what my tax bill will be next year, 5 years from now, etc. The billionaire can make much longer-term projections.

As a rough estimate of the wealth tax rate: One estimate of total wealth in the US is $80 trillion and the federal government takes in ~$3 trillion in revenue. By those numbers, the wealth tax rate would be 3.75% for the average American, if all that revenue were replaced by a wealth tax.

So, in essence, we punish responsible people who save for retirement. No thanks.

Also, one unintended consequence of this policy would be that the MINIMUM interest rate you would have to pay would be 3.75% because below that it makes more sense to just buy a gold bar and bury it in the backyard vs. lend it out.

Basically, the way you can imagine the impact of that is that your mortgage interest would (today) essentially double. Again, no thanks.

Generally wealth taxes (and many other taxes) will not apply to retirement funds (when said funds are in an account specifically for those)[1]

[1] http://guides.wsj.com/personal-finance/retirement/what-is-a-...

thats great, but 1) a 401k is not sufficient for retirement and 2) the other caveat (adding 3.25% to any interest rate) is far worse.

> the MINIMUM interest rate you would have to pay would be 3.75% because below that it makes more sense to just buy a gold bar and bury it in the backyard vs. lend it out.

I don't quite follow. I have to pay a tax of 3.75% of the gold bar's value whether I keep it or lend it. Even if I only can lend it at 2%, that's still better than nothing.

He's suggesting that you avoid taxes by hiding your assets.

It is used in practice in some countries, although mostly at a rate that's a fraction of a percent and excluding some lower tier.


But wealth isn't just a pile of cash under someone's bed. It's usually held as assets: homes, securities, land, etc.

Do you really want to require someone to sell 3.75% of their stake in a start-up every year so they can pay the taxes on it?

> Do you really want to require someone to sell 3.75% of their stake in a start-up every year so they can pay the taxes on it?

Yes. That's one of the many expected results.

That's a good point, about liquidity. However, not all assets are as illiquid as a stake in a startup; many people have cash, stocks in public companies, etc. Also, they can plan ahead: 'I'll need around $x next year for taxes'.

Eh, it can be a lien, payable upon transfer or death of the owner.

An inheritance tax?

i can't quite tell if this comment is assuming that everyone would agree that inheritance taxes are bad. i certainly would disagree with that assumption. i think inheritance taxes, if implemented properly, could be a great thing, both in terms of providing government revenue and in terms of creating a level playing field for society.

i don't think that a person should be able to give things, after their death, tax free, to their children, with no limitations. i don't think the right to give gifts as you please trumps the right of newborns to a fairer playing field. i think both rights deserve consideration, but i don't think the former is anywhere near absolute. kids should have to earn a living, and shouldn't get huge financial advantages solely because of who they're born to.

besides, if you transfer gifts while you're alive, you're not subject to such high taxes, right? and only gifts over a certain threshold from person to person get taxed anyway, right? if you don't trust your kids to not take the money and run while you're alive, maybe they don't deserve it. i don't think society gets to let you have your cake and eat it too, in terms of both passing on wealth through your bloodline and staying secure yourself. i understand that sort of lineage building is a pretty basic human desire, but there are lots of basic human desires that society doesn't indulge, let alone bankroll.

also, it's not like steep inheritance taxes kick in unless the inheritance is of a decent size.

in the spirit of full disclosure, i don't expect to get any sort of appreciable inheritance, so i'm biased by not having anything to lose here. but this is a thing that seems quite obvious to me, and has seemed obvious for a long time now.

The interesting thing is that countries that lean more to the left/socialism, don't have inheritance taxes. Australia, Canada, Israel, Sweden, New Zealand, Norway all have no inheritance tax.[1]

[1] https://en.wikipedia.org/wiki/Inheritance_tax

that is interesting. i'm not sure what to make of that. i have half-formed ideas about why that might be, or why that might be ok (or not ok), and whether that sort of solution is better in principle than an inheritance tax, if one had to choose. but none of those ideas are fully baked enough to mention.

do you happen to know why that's the case? for example, that wiki entry says sweden abolished the inheritance tax in 2005 (retroactive to 2004). was the motivation that it was unnecessary? did constituents complain about its existence?

Indeed, one may view it as the central banks' wealth tax to reverse (however small) income inequality which will lead back to more growth.

Growth for the sake of growth is cancer

Exactly, you cannot have infinite growth. Consumerism and planned obsolescence depend on ever expanding growth.

Why can't we just have...enough? Why don't we create things that last decades instead of years? We can scale down, consume less, pollute less. We could have fewer factories that produce higher quality products. We could pay people more. We could have a minimum income so we'd get more art and entertainment instead of useless plastic shit.

It's not possible because our current heavily capitalistic world view is ingrained so deeply in the minds of everyone in high income countries.

I've mentioned it before, but Debt: The First 5,000 Years is an incredible book that goes into the history of money, debt and slavery. It's a life-changing book.

I concur with your description of the symptoms and your desired outcome. However, the current state of affairs has less to do with capitalism in general and more to do with the western world's addiction to short term results resulting from subscribing to Keynesian economic theory.

What does keynsiean theory have to do with building low quality goods?

I think there's a Keynsian economist who denies that the broken-window fallacy is a fallacy -- who believes that it's better to have to build and continually replace shoddy goods. Does anyone know the details on this?

There's Keynes himself on generating employment by burying money in the ground.


I'm not sure if that example is exactly equivalent to breaking windows and paying people to fix them (for example, maybe it matters a great deal for his view that it's the government which is paying for the demand stimulus).

Found it: it's Paul Krugman who advocates for this -- at least if this link (disclaimer: just skimmed the article, didn't check it or its context for their political views) is accurate: http://www.economicpolicyjournal.com/2013/12/lol-more-proble...

"He who knows enough is enough will always have enough" -Lao Tzu

Yes, I would agree that implementing a basic income is not a problem of technical feasibility or lack of resources but a problem of user buy in. I've read at least half of Graeber's book Debt: The First 5000 Years, pretty interesting stuff which points out some of the false assumptions at the heart of the mainstream sociopolitical game. For anyone interested, here is the pdf version:


It will definitely change the way you view "debt" which is such an ambiguous term in this day and age of trillion dollar debts.

Unlimited growth in capital is impossible, see the Solow growth model taught in intermediate macro classes the world over. Growth in human capital, education, productivity and ultimately technology is much harder to analyze. On one hand, these things are subject to decay similar to capital depreciation; on the other, we've escaped every Malthusian catastrophe through innovation and technological growth.

I'd also recommend Byron Tully's _The Old Money Book_; its main advice is to have _enough_, to buy things that last decades instead of years, to scale down, consume less, pollute less... In short, I think you'll agree with what it's saying.

I agree, but we still cannot afford may things we need, such as providing adequate health care to all people.

A society without growth looks like Mandarin China. You want growth for the sake of people, to provide a rising standard of living.

The average fortune is dissipated in three generations. (The average medieval noble family was back to being commoners in three generations; and the average Chinese noble family... well, Chinese noble titles degraded by one rank every generation, and every generation had to pass the imperial examinations to get a lucrative government job, so there was a _lot_ of churn there.)

Even without growth, you have a lot of social mobility -- downwards as well as upwards.

Sure - shirtsleeves to shirtsleeves in three generations.

Surely Europe between, say 1760 and 1900 looks different than China in the same period. Perhaps 100 years from now, it will be decided that the Chinese Mandarins were right after all , but that's not consistent with how we look at the world today.

And given some of the posts I've seen here, maybe it will be like that. You didn't have to explain why growth was of value 20 years ago - outside a few odd cases, it was assumed.

It's really about being able to match growth with sustainability.

Tell that to your VCs.

We cut the VCs out then?

Do we agree on what "growth" means in this instance? Is is possible to have increased leisure/increased standard of living/increased health/decreasing cost of living over time, without having an incerase in GDP and an average positive return on capital? Or do we give up the expectancy of a better life for everyone if we give up economic growth as we know it?

> Do we agree on what "growth" means in this instance?

There's a disconnect between how economists use certain terms as well-defined technical jargon and how non-economists adopt them colloquially.[0] This leads to a lot of confusion when people try to discuss economics without understanding the precise meanings of the terms at play.

For the rest of this comment, I'm going to use the economic meaning of these terms, because there is agreement among economists about what "growth" means (though not how to accomplish it).

> Or do we give up the expectancy of a better life for everyone if we give up economic growth as we know it?

Yes, by definition. It would be impossible to have "a better life for everyone" without economic growth. "A better life for everyone" is economic growth, by definition (the creation of more value - whether tangible or not - given access to the same limited input resources).

> Is is possible to have increased leisure/increased standard of living/increased health/decreasing cost of living over time

That is considered "growth" to an economist, yes.

> without having an incerase in GDP and an average positive return on capital?

In theory, yes, but it turns out that an increase in GDP is so highly correlated with economic growth empirically, as well as so intrinsically linked from first principles, that they are usually used interchangeably in most discussions.

There are a few degenerate cases in which an increase in GDP does not actually correspond to economic growth, but they're pretty esoteric and not broadly applicable.

[0] As an analogy, imagine a bunch of non-programmers debating a CS paper about 'complexity' of an algorithm, and using the term 'complexity' to mean by their ability to understand how it works. That may be a relevant metric, and it may even be related to the technical use of the term 'complexity' (complexity class), but it's not really comparing apples to apples even though it's using the same word.

> "A better life for everyone" is economic growth, by definition (the creation of more value - whether tangible or not - given access to the same limited input resources).

But GDP only measures value that gets traded for money, not all value created. For example, if I care for my child at home for free, I'm creating value that isn't measured in the GDP. If instead I send my child to a child care facility, that is measured.

>It would be impossible to have "a better life for everyone" without economic growth. //

Can you go in to this more - for example I have a better life now on half the wage I had before, less means but more of the non-material blessings of life (time with family primarily). It seems if there was wide scale emulation of this that outputs in the [UK] financial system would decline but happiness/fulfilment would increase.

>That is considered "growth" to an economist, yes. //

Is there a name given to such metric generally? If GDP goes down but leisure time increases and leads a increase in health (and reduced health spending) then generally economists would refer to that as "economic growth"?

Great summary, thanks. This helps with my understanding.

So in other words, zero growth is very likely something we do not want, unless it happens to come with positive benefits that are currently not measured in dollars -- e.g. sufficiently strongly reduced long-term demand for fossil fuels that climate change will have a much smaller negative impact on people's well-being.

Fantastic analogy -will definitely be stealing that from you!

> Is is possible to have increased leisure/increased standard of living/increased health/decreasing cost of living over time, without having an incerase in GDP and an average positive return on capital?

My guess is a very emphatic yes. GDP goes up in a traffic jam; there's such a thing as "bad GDP" as well as "good GDP".

The backstory here is demographics. Japan has a shrinking, aging population and almost no immigration. With fewer people there are naturally less things bought, sold, and produced. Japanese authorities have been trying to pump the economy by deficit spending (central government borrows money and spends it), quantitative easing (central bank buys long term private debt, increasing the money supply for short term spending) and low interest rates. The central bank has to push people to invest in the economy, because without growth driving investment returns, generally people would rather the safety of a savings account giving a guaranteed if small interest rate. Negative rates are a way to push money into the investment economy even with no growth.

The irony of this approach is that the lower interest rates are, the more people need to save to reach their retirement goals. If this effect is stronger than the incentive to borrow and invest, low interest rates might actually curb consumption.

Saving for retirement using a savings account hasn't been a viable strategy in decades (at least in the US). People need to be encouraged to invest a significant portion of their money in other securities, and know that in the long term, they'll be much better off for it.

As a general rule of financial planning, higher yield means higher risk, so being "much better off for it" is a highly subjective, if not naive statement with respect to saving. Sure, in the long term it is possible to gain more investment returns with certain securities, and in other instances, one can lose the entire principal and be completely worse off. Saving long-term is not a model that totally works during 'catastrophic financial events' but it sure insulates a person from the occasional Enron or other significant event beyond their control.

That's why people keep droning on about balanced portfolios (with cash being a part of that balance).

Younger people are saving more cash than ever -- and I'm not willing to chalk it up to financial illiteracy. Even well-off individuals are sticking to plain savings accounts that do nothing other than gather dust with their 1% annual rate of return.

Why? Faith in the financial services industry has been utterly shattered.

The only exception is for tax purposes, eg: Roth IRA/TFSA, 401k/RRSP, etc.

But that's only for the long term. If you are in retirement, where you need to spend your savings, you want to keep your money in low risk assets. Central banks are trying their hardest to minimize your spending income by giving you no return on these less risky assets.

The comment I was replying to only mentioned people saving for retirement, not people already retired.

Not really. "The irony of this approach is that the lower interest rates are, the more people need to save to reach their retirement goals."

That statement doesn't necessarily assume people are just socking their money away in a savings account while working. The goal of saving for retirement is that you need your money to outlast you. If your can expect much lower income during retirement, you'll need to have a bigger pot at the beginning of your retirement (i.e. you'll need to save more while working).

> People need to be encouraged to invest a significant portion of their money in other securities, and know that in the long term, they'll be much better off for it.

Until equities and other securities no longer provide the return needed for long term wealth accumulation.

Wouldn't it be acceptable to just accept a shrinking economy and change policies in such a way to deal with it? i.e. shrink the police and armed forces, public services, cut needless spending, etc. Become more frugal as economy allows.

The key phrase here was 'aging population'. If the majority of Japan's population are retired then there will still be a huge deficit.

Japan needs to bite the bullet and accept immigration as part of its economic strategy.

> Japan needs to bite the bullet and accept immigration.

Immigration isn't going to solve anything, immigration from where ? Japan isn't the US, they aren't talking English nor their society is build in a way it can accept huge immigration waves.

Japan needs to work on techs that will solve its problems, not resort to a massive immigration wave that will only kick the can down the road.

Not to mention the change immigration could potentially cause in day to day life. In my opinion one of the best things about Japan is the homogeneous and pleasant (in most but not all ways) culture - if I lived there voting for increased immigration would be one of the absolute last resort measures I would vote for.

Alternatives include raising Japan's retirement age from 60 to 70, because they're already raising it to 65 and that's not going to be good enough to deal with the inevitable fiscal situation.

Edit: A lot of people saying "immigration won't work" but not offering alternative solutions.

That homogeneous and mostly pleasant culture is killing itself, apparently. We may get to witness a nation commit suicide, which ought to be interesting from the outside.

I hope the insularity ends up being worth it for them, but history is not on their side.

>That homogeneous and mostly pleasant culture is killing itself, apparently.

No, this is literally the post-WW2 boom dying off. Occupied Japan underwent a period of extreme population growth in the few decades after WW2 ended. They currently have 125mm people living in a land area the size of California which is 75% uninhabitable (mountains).

In my experience, the immigrants and foreign workers in Japan in the highly skilled jobs often don't need much Japanese to do their jobs, but the ones that learn the language have a much easier time and obviously advance quicker. All the people I came in to contact with low skill jobs that had spent any time in Japan, had amazing Japanese because they absolutely needed it because the vast majority of people do not speak any meaningful amount of English.

Japanese is not an easy language to learn, but its not impossible to learn. If people are allowed in then they will learn Japanese

They recently tried to bring over Brazilian Japanese immigrants but were sufficiently dissatisfied with the results to pay them to leave.


Thinking out loud.. the Olympics in 2020 will be a good chance to showcase the country as an attractive destination, not just for tourism. They could loosen their immigration policy to coincide with the timeline.

It would still be tricky because as a society Japan is famously homogeneous, so the idea of diversity would have to be phased in slowly.. but it could be a starting point. In the end it's about adaptation to ensure a future for the country.

> In the end it's about adaptation to ensure a future for the country.

I think that most Japanese would believe that a future Japan that wasn't majority Japanese was no future at all.

From the nationalist perspective, you're essentially saying "to save Japanese society we must destroy Japanese society." To these people Japan is more than just an island, it is Japanese.

I really can't agree with you enough. What's troubling though is that any ideas of nationalism are often confused with extreme right-wing or jingoism, largely (and possibly rightfully) due to history. So it sounds bad to even say Japan is a nationalistic society.

But you've hit the nail on the head - and it is something many foreigners have little to no concept of. Being proud of one's cultural heritage and history. Even if that means recognizing the bad stains on the tapestry.

I've recognized the ones who have the worst problem with nationalism are those who are completely full of guilt of their own culture/history.

Except Japan is astoundingly horrible at recognizing "bad stains on the tapestry" like the Rape of Nanking and comfort women (in fact calling the now elderly women who were abducted and raped prostitutes with an agenda). Nationalism is a cancer and you're blind to it because of your country's thorough inculcation.

I don't understand why you are getting downvoted - there's nothing controversial or ridiculous about this suggestion. Unlikely perhaps, for reason stated elsewhere in the thread but that's another matter entirely.

Immigration will not solve the problem of aging population. In a generation or two, the immigrants would face exactly the same problem.

Because with immigration, you didn't solve the underlying cause of why people don't have kids. You just muddled the observable status for a while.

In politics, pushing the need to solve a problem into the distance for 30-40 years is a good thing.

> you didn't solve the underlying cause of why people don't have kids.

Exactly. And the cause is the mutually reinforced effect of capitalist consumerism and feminism.

I don't see how capitalism or feminism is the cause of Japan's low birth rate. Could you explain?

Capitalism could be indirectly responsible.

One of the causes why people postpone having children is financial insecurity. In their mid-twenties they cannot afford to have a home, they are unable to secure the costs of first few years of raising child, when they don't know if they will have a job in three months and they have zero savings. Add student loans to the mix, popular desires to travel the world, to "live" and it's obvious why the developed countries have problems with natality.

One of the reason of population boom in Czechoslovakia in 1970's was the policy of support of young families. Newly wed pairs were were provided security, they got their own homes, they had job security[1], they got financial support for raising children. It wasn't a luxury, you couldn't lead a lavish life, but you knew that if you have a child, everything will be OK.

[1] we are abstracting from the fact, that in socialist countries it was unlawful to be jobless. You were provided a job, but it didn't have to be a one you would like.

Does Japan have the same issues with student loans and such that USA might have?

Otherwise, thank you for the explanation and I do apologize for my ignorance.

(Also, I'm still confused about the feminism thing)

With the feminism thing, it was some other guy, won't help you much with that, sorry. I'm ignorant about that too.

Might be referring to the fact that many Japanese women choose not to marry and have kids because it is essentially career suicide. There's a very strong cultural bias against working mothers in Japan.

I think he meant the whole thing where women can now decide if the want to keep the baby or not.

Women have always been able to decide, with terrible consequences. Putting up your baby for adoption or abandoning it at an orphanage is pretty old?

Except for the whole part where they would get ostracized from society if people were to find out that they abandoned their child?

Immigration brings bigger problems than it solves. Japan would be better of accepting a lower standard of living than encouraging immigration.

Maybe Japan thinks it can benefit more from less congestion and higher wages.

"Poor Fiscal policy" is likely a better explanation.

If they need to "bite the bullet"; how about balancing the budget?

Very few countries, communities, or individuals are willing to accept a fate of involuntary, slow recession.

As suggested by previous commentators, social policies could possibly play a larger role in the long term Japanese recovery than fiscal stimulus. Opening the country to immigration may help rejuvenate the workforce, but would require significant upheavals of xenophobic Japanese culture. The government could use economic measures to encourage childbirth, but at a population density of 869 people per square mile, one must wonder how many more citizens the island can accommodate.

The rational assumption that Japan should "bite the bullet ... [and] balance the budget" is not what the country will do, as the circumstances of its plight encourage irrationality.

> Japan needs to bite the bullet and accept immigration as part of its economic strategy.

What strategy?

Getting replaced?

Or ban birth control, abortion, porn, and have more arranged marriages.

Do you have even one case where this has worked? You can outright drown your horse but even that won't necessarily make it drink.

Making people miserable is rarely a good strategy unless you're building ISIS.

I believe Communist Romania tried something like that to devastating effect: https://en.wikipedia.org/wiki/Decree_770

Is a Japan without any Japanese people still Japan? Culturally would modern Japanese tolerate a cultural mass suicide or did that go out of style at the end of WW2? USA has been talked into it, but would that work on modern Japanese?

Meanwhile there's a weird undercurrent of racism, if we just take Japan 2016 and person for person swap out for obviously superior foreigners (imperialism?) then magically everything is supposed to be better. However, in reality, that would obviously not be the case. If an Asian guy is sitting in a broken car, and the driver is removed and replaced with a foreigner, the car is still going to be just as broken. Likewise if the Japanese abandon their land and culture, that doesn't mean anyone else will necessarily do a better job of running the place. Or if there is a better way to run the place, they could save everyone a lot of bother, and implement it themselves.

Mmmm... the Japanese have problems even reintegrating Japanese Brazilians, i.e. Japanese who have moved to Brazil.

That reeks more of Japanese xenophobia than of some "Western imperialist racist conspiracy" to destabilize Japan.

GP used the phrase "cultural mass suicide" and then accused the west of doing that.

That's an alt-right white nationalist shibboleth.

> Mmmm... the Japanese have problems even reintegrating Japanese Brazilians,

That's no problem of the Japanese, but of the immigrants. They're the newcomers, they're the ones who should be putting all the effort to assimilate into the host culture.

And it isn't happening, not even with descendants of Japanese. Imagine what would happen with a radically different culture (no need to imagine, just look at Europe).

>"That's no problem of the Japanese, but of the immigrants. They're the newcomers, they're the ones who should be putting all the effort to assimilate into the host culture."

This rigidity and inflexibility is going to be the biggest problem facing Japan when they inevitability reach the population cliff. What you are asking for is unreasonable. There is no way immigrants can ever completely assimilate to that degree. The cultural gap and linguistic distance is simply to big. It doesn't help that Japan has historically been isolationist and based on anecdotal evidence, still seems to be pretty xenophobic. At best, you could hope for a compromise, where the immigrants do their best to integrate, and hosts make compromises and try to be more accomodating. You could try taking immigrants from nearby regions where the gap is conceivably smaller, but politics and history will get in the way.

Ultimately there seems to be no good solutions on the horizon. You will just have to pick the least worst from a selction of poor ones:-

1. Ignore the problem and see what happens. 2. Begin a reasonable program of immigration that suits Japan (there are number of ways to go about this), and deal with the problems that will come with it. 3. Try and hope for some technological breakthrough.

Why would a slightly more open immigration policy result in a Japan without any Japanese people? Nobody is proposing Schengen-agreement style open borders, anyways.

The culturally (and racially) homogeneous state is a myth. Even the Japan you might perceive as homogeneous is the result of many waves of migration stretching to pre-history (Jomon, Ainu, Yayoi, Chinese...)

Places that have relatively open borders (EU, US) aren't experiencing anything like "cultural mass suicide" - unless you buy the nationalist rhetoric coming out of right wing and neo-nazi camps.

All cultures are evolving, including Japan. Sometimes it is gradual, and sometimes it is faster (your example of WWII). Healthy societies accept that change is natural, and try to make sure that it happens in a constructive way.

If you're going to downvote, you should provide an explanation.

You're compounding multiple weak statements together, making responding to them all infeasible, people downvote and move on.

Thank you.

In general, it would not be acceptable. "A shrinking economy" can be interpreted as deflationary, and deflation destabilizes regimes in favor of something akin to "strong man" dictatorships. See the interwar period in the 20th century for details.

If you swing the value of holding just currency to where it grows relative to goods without doing anything, then people won't do anything. This spirals. Since nothing is being done, there's no work. You might have a black/grey market economy spring up but don't tell anybody about it.

Specific to Japan, I am not sure. Depends on whether the demographic slack is permanent or temporary.

You sure you realized what's the problem?! Because the solutions you're proposing will only going to make it worse (really quickly, really fast).

Question: if the government doesn't want people "parking their money" in government bonds at all... then why not just stop issuing government bonds altogether, thus giving banks no choice but to invest in the market instead?

Is that somehow impossible? Would it make the market illiquid? Are there laws concerning the required volatility caps for the securities backing savings accounts that would have to be relaxed?

This isn't about government bond rates. It's the rate for overnight deposits at the central bank. Here's an article that talks about the alternative to this: holding cash. http://www.economist.com/news/finance-and-economics/21679231...

Like most countries, Japan's government runs a deficit and depends on selling bonds for funding.

How does that work with a negative rate? Somewhat equivalently, how does that work with any rate whatsoever?

it means they can sell the bonds for less (i.e. pay less interest) because one source of competition, depositing the money rather than buying the bond, is less attractive for the captial. As with all credit - that's a great dynamic if you're using the funds for capital infrastructure to strengthen your overall situation, but kinda questionable if you're using it for living expenses.

They would presumably just invest it into other countries' government bonds? With the low interest rates, that has already been going on: borrow Japan money at low interest and buy a high interest government bond.

This isn't about the rate on government bonds, it's the overnight rate on savings deposits.

Government is charging commercial banks negative interest rates.

Have they tried changing their disastrous work culture so that Japanese citizens of childbearing age feel more free and energetic to form relationships?

Does anybody have any good links explaining what caused the population decline in Japan?

I do not understand this.

Japan imports almost all of its oil and commodities. Shouldn't low price of oil and commodities result in a massive surplus for a country that sells high value added goods ? Buy iron for cheap and sell robots for a high price.

Now the argument many people will make is that the people who are buying the high-value added goods won't have money anymore - but the argument can be made in the opposite way too - high prices of oil and commodities will result in lower surplus - meaning growth will be most in countries who produce oil and commodities.

Citing "low price of oil" as a reason for economic woes just seems like bad science - I though economists were better than this ?

I think you are confusing exchange rate mechanism and domestic economics and their interactions. Deflation does not mean that exchange rate of Japanese yen increases relative to other currencies.

Japan has free floating currency with inflation-targeting framework.

Japan's import-export balance adjusts more or less automatically because the currency floats relative to other currencies. Japan has very little foreign debt, so the huge national debt is not creating inflationary pressure trough exchange rates.

Japanese yen suffering from long period of low inflation and deflation (lost decade) is caused by the lack of structural reforms and demographics. Japan is getting old fast and people are saving for their retirement. Domestic consumption is not taking off

To put things into perspective:

Household consumption makes 61% of the Japanese GDP

Exports of goods and services is just 16.2%

> Deflation does not mean that exchange rate of Japanese yen increases relative to other currencies.

There is evidence that shows over the long run a currency's exchange rate will be favoured against those with a positive inflation rate differential.

Of course it does, but the effect is not linear and its mostly correlation caused by underlying mechanisms.

Too much inflation is usually sign of problems in the economy. Too low inflation is also sign of problems. The optimum rate of inflation is usually somewhere 1-4%.

Strong currency is not good thing in itself. It hurts exports and makes foreign goods cheaper.

Your instincts are not wrong, believe it or not. Unfortunately most economists fall short of the current state of their science. The first thing one needs to understand about economics is how rife it is with special pleading from selfish interests, because the output of economic science is so important to justifying public policy prescriptions. One thing that is constantly ignored is how government fiddling with the interest rate has a way of warping the capital structure into unsustainable configurations. You don't need an economics Nobel Prize to know that when Venezuela puts price controls on food the grocery stores go empty. But there are much more powerful special interests served by price controls on borrowed capital, so a lot of effort goes into willfuly bad "economics" aimed at justifying the practice.

Would you recommend Economyths by David Orrell?

Sounds like a really interesting book! I read the synopsis and the mainstream is sorely in need of a approach that acknowledges the extreme complexity and heterogeneity of an economy. Nothing irks me more than to see Paul Krugman speak of the world as if it can be quantified in a handful of "aggregate" variables and then blame his political enemies any time things don't go according to plan.

There are different effects of the lower oil price on Japan's economy. BoJ staff have weighted them and determined that the net of them will threaten to move inflation growth off target.

How is the growth of inflation threatened? The BoJ thinks business confidence in Japan will drop because of recessions in trading partners.

This is why it is responding with a policy that will hopefully be more aggressive in pursuing higher inflation and GDP to offset the foreign developments.

In BoJ's own words in point two in the press release: http://www.boj.or.jp/en/announcements/release_2016/k160129a....

Stable prices with a gentle growth are better for everyone. It's not important if oil is cheap or expensive in the long run, what matters is that you can make sensible forecasts and do long range planning without having to worry about one of your main inputs wildly fluctuating in price and causing havoc across the board.

No everyone - there's a lot of money to be made from volatile price swings.

Oil is cheap because China is having problems. And they were perhaps selling robots to China.

Yes, cheap commodities should benefit Japan but when they're cheap because demand is weak, Japan suffers from that too.

It can be said the main reason oil is cheap is for political reasons.

Saudi Arabia has saved up a large stash over the past few decades & it would not like its regional power states to be taken away in wake of the removal of Iranian sanctions. At least not for a while.

The Saudi oil ministry intentionally lobbied for increased production as soon as they became aware Iranian oil sanctions could be removed.

If game theory is used to analyse the situation, it serves them best to encourage the oil price to stay low & everyone else is incentivised not to cut production either.

The Japanese economy is dependent on exports of robots to China?

yes, and cars and electronics and everything else china consumes. even 7-11. you ever been to china?

I live in China, and previously in Japan. My point is that the majority of the Japanese economy is not made up of exports to China, which in turn are not in majority made up of robots, as the parent believes.

18% of their export economy is, which is a pretty large amount.


ELI5: a reduction in demand from china will have a huge impact on japan. i don't know what other weird yarn about robots you're trying to spin with my words.

You're not the parent; stop commenting.

> Citing "low price of oil" as a reason for economic woes just seems like bad science - I though economists were better than this ?

Yes it is, no they aren't

Especially "specialists" commenting in the press.

The problem with Japan is the complete stagnation of their economy. China makes it cheaper, internal consumption is decreasing.

Trying to "create inflation" is pretty much as effective as trying to defibrilate a dead corpse.

They keep hiking income tax rates before inflation ever materializes, that's a good way to keep deflation going indefinitely.

Cut taxes, especially in the lower brackets, you will find your inflation eventually. Japan just doesn't want to do that.

It's really about demographics. When people borrow money is created. When they stop borrowing money is destroyed as it's paid back, which leads to a deflationary collapse and other debts go bad.

We should have state issued money that tracks wealth created instead of debt that tracks boomer sentiment.

People don't want to use the phrase "worldwide depression", so they call it by another phenomenon that is highly correlated to it: low oil price.

Just substitute them. Economists are not this bad.

Maybe OT:

Isn't this just proof that Japan needs to let go of it's biggest barrier to growth? By which I mean it's non-existing immigration?

I've been recently to Japan and despite my fears Tokio was a really affordable place (leaving out the hotel prices of course). I thought this was due to the lack of growth and the recent quantitative easing and other government measures. Measurements that seem to be failing at the moment (thus the negative rates).

So cheap Tokio-Sushi is nice for European tourists, sure, but just a sign of how much growth Japan has lacked over the past years/decades that it suddenly becomes a tourist destination.

In contrast to that: I could imagine Japan, with its still high quality of living and modern, orderly society as a real draw for young and skilled talent from abroad if it were to open it's borders (and society).

Think about it in the terms of Gentrification: It's an artificially undervalued "part of town". One which value and (currently) cheap prices would sureley be appreciated by the pioneers this country needs.

Lots of people have tried immigrating to Japan, because it is awesome in so many ways. However, the drawbacks that keep people from staying seem kind of inherent to how society is set up:


It seems their calculus is:

Growth but at the risk of it not being Japan on its own terms (importing culture)

No growth but at least it's their own no growth (no imported population).

Japan being the nation and a people seeking harmony, I don't think they'd make the deal and risk losing their wa.

And you know what, good on them and good for the test of the world. I'd like to see how a country tackles no growth while maintaining a first world economy, without the subsidy of immigration because one day we'll all be there and we'll need some guidance. Perhaps Japan will offer that guidance if they figure things out.

And if it goes badly, just as well for me! I'd love to take a cheap vacation to Japan.

I can imagine the Japanese thinking that the solution to Japan not having "enough" Japanese (for what?), is not to import more non-Japanese.

Honestly, nationalism is a bit refreshing. By immigration what you then are implying white business individuals and/or non-japanese otaku would only be able to afford or figure out a way.

If you are thinking of poorer individuals. Why? Their business is doing well and what exports are not are likeky not solvable through a domestic workforce outside of marketing and/or tech.

If you want more babies in a country, I believe denmark had a much better idea than to enable immigration, do it for mom. The pioneers the country seem to already there. http://www.theguardian.com/environment/2016/feb/01/japanese-...

> By which I mean it's non-existing immigration?

That's not a bug, it's a feature. Japan enjoys the advantages of having a civilized, educated, homogeneous, high trust society, and they're not willing to abandon that in exchange of what, low skilled workers they don't need and ethnic conflict?

It's a feature for sure. I really am not blaming japan for something that most countries (especially non-americas) have ingrained in their culture. These days, my country Germany, however much it would like to See itself as immigration-friendly as the US, is experiencing exactly that cultural gene which is somewhat allergic to heterogenity.

But from an economical standpoint, it doesn't make much sense to stay "cut off". It never did in history. That's why even the other homogenity-friendly countries periodically had to ease their grip.

And because of economics, if the japanese really care about their nation's idntity and culture, they should make sure that their Numbers of growthless years do not climb too much higher than that of the other Nations. Because at some point even the nicest, Most harmonic society will crumble if some foreign spring break tourist can bend any rule because he can buy anything and anybody because of the decades-Long incompetitiveness. If you're looking for examples of this, I'd say "colonializm", "imperialism" or with regards to japan "convention of kanagawa" or "sakoku".

At some point non-growth will become harmful to what you try to save by avoiding growth: culture, norms, national identity or Even the nation itself.

I think that the parent specifically mentioned highly skilled young workers who would be attracted by the modern lifestyle in Tokyo.

I dont think high skilled young workers, will be looking forward to taking care of the large number of old people, when Japan hits its population cliff. That probably will be a big sector demanding immigration.

Old people could probably take care of even older people, will easily create lots of jobs.

That being said though, a number of potential applicants would probably be discouraged by the 10-14 hour work shift. I'm not sure how much of that is spent working, but that doesn't as much room for leisure, regardless.

Can someone explain to me why both cheap oil and expensive oil seem to be bad for the economy? Back when oil was >$100 per barrel everybody seemed to blame the weak economy on expensive oil. Now somehow very cheap oil is also a bad thing.

Cheap oil is bad for net exporters of oil and good for net importers. And visa versa.

I get the impression the media are always talking about an imminent financial catastrophe because eventually they'll be right and we'll forget how many times they have been wrong.

on the other hand, we know they'll be right eventually.

"cheap" is "bad" because it encourages "hoarding". Instead, those that run the economy would much rather put you on a treadmill of devaluation, which forces you to keep working harder (better unemployment figures!) and consume. Basically short shrift the working class of the value of their income - it's a backdoor paycut for workers[0]. It also forces the middle class into investing directly or indirectly (through pension funds, 401ks, etc) in the stock market, which is great for the ̶r̶i̶c̶h̶ economy and socializes the downside of entrepreneurial risk while letting entrepreneurs keep the upside.

[0] Don't take my word for that, it's in the words of nobel laureate Paul Krugman: http://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hig... "Yet when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation rate would lead to lower unemployment, not just temporarily, but on a sustained basis."

That inflation means decreased real wages is elementary and doesn't need a source support the statement. It completely misses the point, however.

What is needed to have a strong, growing economy with increasing prosperity for more than the one percent isn't high or low inflation, but stable price levels that makes it possible to plan for the long term and make investments into productivity and efficiency. When witch doctors in the Fed, ECB and BoJ arbitrarily manipulate interest rates and thereby inflation, they promote speculation over investment and move wealth to the 0.01%.

There weren't stable prices by any means from 1800-1900 but would you say there wasn't a growing economy? The US even was able to support the freeing of slaves and their entry into the marketplace as laborers over that term.

Expensive oil is bad for the economy because it's expensive to produce things.

Cheap oil is bad news for the economy, because it's an indicator in a fall in production, if the reason it's cheap isn't because of new fields, but because of lower demand.

Even if it is due to new sources (e.g. fracking) the perception that it's an indicator of global production may be sufficient to override any realistic benefits.

Oil price is a symptom of some other underlying problem.

During $100+ oil the problem was that supply couldn't satisfy the market (mostly due to Chinese growth and demand for energy). This raked the price up not just for the Chinese, but for everybody. Which was bad if your factory needs oil to produce your widgets: higher production cost leads to either thinner margins (and hence less future investments) or higher prices (and hence lower demand and ultimately - thinner margins).

So ok, the oil companies invested in expanding capacities, built refiners, oil rigs, etc. to satisfy demand. But now the world doesn't need as much of it as it used to. Well, shit. That means you still have to pay off loans for your new and shiny oil rigs, but you can't sell as much oil as quickly. What does that mean? Thinner margins.

Ad nausem.

Ignoring the obvious climate-change issues just for the moment to focus purely on the relation of oil prices and the economy...

From the global perspective, cheap oil is a very good thing. Cheap commodities in general are an unmitigated good thing. Cheap oil means that people spend less money to move vehicles around and heat homes, and can spend it elsewhere. Cheap oil means trade is cheaper, allowing goods to be produced in more-efficient places and then shipped instead. Cheap commodities mean that investors spend less money building oil rigs and mines, and can invest it elsewhere. Final goods and services where oil or other commodities are an input become less expensive, allowing other economic activity to be pursued.

The reasons cheap oil could be linked to bad stuff in the world economy are not because the oil itself is cheap, though. Cheap oil could be bad because it is a sign that no one wants to buy oil, which is a sign that people aren't shipping goods and other economic activity is depressed. (This is a cause of cheap oil, though, not an effect.) The other big reason it could be bad is that it is a sign that people have invested too much money drilling for oil and building oil-extracting machines and training people to be oilfield workers and the like. Too-cheap oil suggests that this investment was a bad idea and should not have been made, or at least not made yet, and now that effort has been at least partially wasted. But that's another cause of cheap oil, and not an effect.

The people who suffer from cheap oil are those who are involved in the production of oil: oil companies themselves, companies who provide services to oil companies, pipeline companies, railroad companies involved in shipping oil, workers out on the oil fields, companies involved in providing services in those regions (e.g. real estate firms in the right parts of the Dakotas)... and investors in any of those companies (including pension funds).

The US is involved in a lot more oil production than it used to be, so some of that suffering partially mitigates against the awesomeness of cheap oil to the rest of its economy. (Partially. Most of the US is not involved in producing oil.)

Cheap oil is bad at this precise moment because of the enormous quantity of soon-to-be-impaired debt that was issued by the energy industry on the assumption of perpetually high oil prices. Debt contagion remains as a risk, just as it did in 2008.

The idea is that cheap oil would be caused by a worsening economy with less demand for it.

Most likely cheap oil is put Russia in place.

, Norway, Turkey and ISIS.

Honest question: why Norway? I thought it was more about Russia, Iran, Venezuela, ISIS and that Norway was simply collateral.

That article's lead picture is silly. I'm willing to bet that the woman in the picture is from my country instead of being an actual Norwegian. Shameful journalism, portraying Norway's economic problems like some sort of meltdown.

Big price swings are bad for the economy - everyone ends up wrong-footed.

They are great for investment opportunities however.

It's both good and bad for me. It's cheaper to fill my car up however my pension funds investments in the mineral sector have fallen.

Only in the long term will I know how I faired.

My hope is that I am buying in the down market and the producers are optimising for the next decade.

They cause different problems:

Expensive oil - costs more as you'd expect.

Cheap oil - good but leads to falling prices so savers leave their money in the bank waiting for discounts so spending in the economy falls.

The second one is an odd thing that only happens in a deflationary environment.

I agree - its sloppiness from our "leaders" in the field of economics.

Cheap oil is taken as a signal of deflation, and deflation is very bad because it happens when the economy is too broken to make investing worthwhile.

i think it isn't that cheap oil is bad for the economy but that cheap oil can be a sign of a bad economy, one where the destruction for the demand for energy has outstripped what should ought to be a tight supply.

I remember, in 2009, spending the effort to go through the code to make sure we had a check to set the interest rate to zero if it went negative in the simulation.

Because negative interest rates make no sense, right?

When the value of money falls very deep in a crisis and investors don't want to invest but keep their money liquid, then banks may charge you a fee for allowing you to park your money with them, instead of paying you for loaning it to them.

So yes, negative interest can make sense. And maybe you coded a bug into your application instead o a feature, based on wrong assumptions...

Negative risk free rates were theoretically possible, but thought at the time to be stupid. See for example the development of the Cox Ingersoll Ross model, "The standard deviation factor, \sigma \sqrt{r_t}, avoids the possibility of negative interest rates for all positive values of a and b."

Many interest rate models had been in the past either criticised for theoeretically allowing negative rates, or specially developed to avoid them.


Isn't it the case that a central bank primarily lends? In this case aren't they effectively paying banks to borrow?

Given 0% interest rates haven't led to desired economic investment and stimulus the approach of the ECB and BOJ seems like wishful thinking that "more of the same" will somehow create different results.

While it's clear the stock market benefits from the increased investment, it's not clear that this addresses the lack of aggregate demand in the economy (which as mentioned seems highly influenced by demographics).

Then again this is probably more about lowering currency value than stimulating domestic demand.

They are effectively paying banks to lend. The aim is to stimulate investment, and also to drive inflation by making money less valuable.

Negative yields have been very common in the last 2-3 years, perhaps not when the bond is initially sold, but certainly after the bond starts trading - when the negative yield also takes into accounts expectations around currency risk. A currency that is expected to hold it's value (like the US Dollar) - is a very desirable place to park your money if you believe other currencies will drop. And, as you purchase those bonds, and drive up the price, you drive down the yield.

So, while negative yields on savings accounts are pretty new and strange thing, negative yields on bonds aren't entirely unexpected.

I should have specified I meant negative risk free rates, not negative market yields.

Look at the balance sheets of all central-banks: they show hockey-stick growth and correlate with government debt. We're in the last stages of the self-destruction of a fiat money regime. Rates themselves don't reflect anything about the time-value of money, but much more about the banking system. Anyone who doubt this can ask himself what is going to happen when banks and governments need more trillion dollar bailouts.

No need to read up on von Mises to read speculation on what happens to an economy without a fiat currency. Greece has no control over its currency, thus essentially may as well be on a gold standard. It's a hard road.

But it did not work in the 1990s for Japan, why would it work better a second time?

The zero lower bound problem refers to a situation in which the short-term nominal interest rate is zero, or just above zero, causing a liquidity trap and limiting the capacity that the central bank has to stimulate economic growth" https://en.wikipedia.org/wiki/Zero_interest-rate_policy


I was reading the Wall Street Journal analysis recently, which agrees this won't help much, nothing that while it's designed to provoke investment "the gap between corporate cash flow and investment stands at a record 6% of GDP. If firms wanted to invest, they could go to their own vaults."

They recommend this measure only if combined with structural reform (especially labor reform), observing "Japan’s rigid labor system has led firms to refuse to hire more “regular” workers, whom they cannot lay off during slack times. Instead they hire “nonregulars”" and do not invest in training and human capital and doing little for these workers' futures. After that they suggest fiscal stimulus, but observing that past "fiscal stimulus" has been mostly handouts to inefficient farms in rural districts to buy votes they instead recommend measures like making public high schools free (!!) and getting sewage systems to the 40% of the population that doesn't have them (!!!).

http://www.wsj.com/articles/negative-rates-wont-save-japans-... (usual paywall dance applies)

> a sign of the continuing global trouble from plummeting low oil prices

Gas is one of those things I have no control over. If it's expensive I have to pay, if it's cheap I have to pay. I'm dependent, and in a city like Los Angeles the alternative is impossible. They raised the price of public transport to a point where it is not even convenient.

So when I go to the gas station and it's cheap I'm happy. I fill it up and have a smile on my face. Am I doing it wrong?

Generally it isn't bad for you if you're not in the oil industry or an oil-dependent country. Places like Venezuela, Nigeria, and even the fabulously rich KSA are in trouble though.

It may be bad if you're in an energy-intensive business that's just made investments in reducing its fuel costs, because now the payoff for those investments is worse.

The US was just starting to transition to an oil exporter due to unconventional oil, but now the price has collapsed the boom in North Dakota etc goes away.

If it's cheap because demand is low, and you work in an industry which is susceptible to world demand, then a low oil price might mean your industry might be about to enter a downturn. So while you might be happy about the cheap oil, you might worry about your job prospects.

If the price you pay doesn't cover the externalities (i.e. tax that includes the cost of cleaning up an equivalent amount of CO2 etc. emissions) then yes you're doing it wrong. If you're covering all that then sure, enjoy.

In the more general case, rapid price swings cause trouble all round (they make it hard for everyone to plan) even when the price adjustment is "correct". For the economy as a whole, low prices are better than high prices, but a stable price would be better than a volatile price even if the volatile average price was lower.

This is going to be great for the U.S economy:


> Definition: The yen carry trade is when investors borrow yen at a low interest rate. They exchange it for U.S. dollars or any currency in a country that pays a high interest rate on its bonds. They receive a low-risk profit when they receive high interest on the money invested, but pay low interest on the money borrowed. The broker pays the difference into the account each day the trade is open

>The yen carry trade is alive and well in 2015, but not with the U.S. dollar. That ended in 2008 when the Federal Reserve dropped the Fed funds rate to near zero. It continued with high-yield currencies such as the Brazilian real, Australian dollar, and Turkish lira. For example, many forex traders borrow near-zero yen to buy Australian dollars which have a 4.5% return.

This is where all the money lent out is going to go, from the Japanese negative interest rate to the new slightly above zero U.S bond yield. Keeps the party going for a little while longer. Follow the money.

This is not that clear cut.

Dollar will appreciate against the yen. This will be advantageous to imports from Japan and disadvantageous to U.S. exports.

I can't speculate on the intensity though.

Those yen loans will buy our bonds though. This will increase credit availability. The whole system runs on credit availability. The housing bubble should have made that clear.

Credit slushes around like crazy for years. These days it flows into an S&P trading near 20 P/E, negative government bond interest rates, corporate bond interest rates below historical default rates, reinsurance treaties and cat bonds trading below expected value, and what else?

Demand needs to pick up with credit availability or it just leads to asset bubbles.

Here we have Grand Poobah of Keynesian economics and Nobel Laureate Paul Krugman in 2002 calling for a Housing Bubble to replace the NASDAQ bubble:


>To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

The American economy loves a good asset bubble.

That's completely out of context. He's not suggesting that it's a good idea, he's discussing the Fed's motivations.

Normally, sudden financial movements are bad for all involved parties.

I understand the economic theory behind encouraging banks to lend, but I don't see how this will encourage companies to borrow. I've been under the impression that companies aren't willing to borrow because expansion/growth is very risky right now primarily due to the population not wanting to spend money. If people don't spend money, then expansions will fail simply because the company wouldn't be able to bring in positive cash flow to pay back even a 0% interest loan. And people aren't spending money due to several factors. Some big ones being:

1. The general population doesn't want to spend money because of the lack of/slow income growth. So savings appear safer.

2. Aging population means fewer youths and more elderly people every year. The elderly population would be living off of savings/pension so they are essentially on a fixed (and slowly depreciating due to inflation) income. Spending cannot increase here.

3. Youths, meanwhile, are faced with entering an economy that isn't expanding (direct result of companies not wanting to spend). So you aren't exactly boosting the number of spenders in the economy.

Then there is the very quiet startup economy which is not helped by Japan's hiring system. Salaries are seniority based and there is far less jumping between companies because of that. Also, if a graduating student misses out on the annual hiring season, they are very much unlikely to get hired for a stable job until the following year at which point they will have to compete with a fresh batch of graduates. So if you choose to go the startup route, every year you do so results in worse earnings and a far more difficult road to stability should your startup fail (which most do no matter what country you live in).

So what I'm wondering is: How is the negative interest rate supposed to fix the borrower side of the equation?

Supply means nothing if there is no demand. I haven't read much about Abenomics, but the couple of things I have looked into all point to Abe focusing only on the lending side. There doesn't seem to be anything that is promoting confidence on the borrower & buyer side. What have I missed here?

There's a huge difference between negative interest rates on the part of the government as a lender and as a borrower.

As a lender (ie, giving out loans that only need to be paid back in part), they mean the gov is essentially giving away money (which constitutes an incredibly corrupt bargain with the banking establishment, but is obviously distortionary on face regardless of who's getting the deal).

As a borrower (ie, charging to hold money at the fed) they're essentially collecting a fee for various regulatory and quasi-seigniorage services. For instance, if you require assets to be held in certain forms (central bank deposits, government bonds...), a negative yield is basically charging for providing an asset that satisfies those regulatory requirements.

The Euribor, widely used in EU, has also been negative for about a year now:


Negative Interest Rates happened in the US in late 2008:


Instead of pushing people to reinvest into the economy, there is a more sustainable way:



3. BASIC INCOME FOR ALL, growing as tax revenues grow

This will let a shrinking population be more productive and align the resources more usefully for everyone - including old people - to spend on their needs.

This, this, and this again.

I just don't understand how lending to banks at negative interest rates is tried before basic income. Or better, I can imagine a few reasons, none of them good.

Really, I don't get how people even accept bank settling rates that are smaller than the short term government bonds. That's just taking money from the people, and sending it for free to banks - no strings attached.

The population isn't shrinking fast enough. Take a look at youth unemployment in Western Europe.

> As Japan’s economic doldrums have lingered, its leaders have tried a number of tricks over the years, from ... to flooding the financial system with cash.

How was that done exactly and why it didn't work?

I believe it was done through quantitative easing. https://en.wikipedia.org/wiki/Quantitative_easing#Japan_befo...

I'm sure none of the hedge funds that were recently discussed as betting against the Yuan had any insider information there.

"[...] ,in a Surprise, [...]"...riiiiiiight.

Yen != Yuan.

I know but one of China's plans to strengthen the Yuan is moving away from the $ towards a basket of currencies which includes the Yen (or at least having that option). That option is weakened quite a bit by this move.

Is 0 interest actually a special value? It seems to me that interest rates are only interesting relative to other investment options

This article is a few days old... It's not a surprise anymore, and even 5 days ago it wasn't a surprise, but expected.

I am wondering how can japan sustains such an interest rate? Also, will this create a real estate bubble?

Japan is the future of us all, and it needs to transition to steady state economy where the interest rate pays back in technology and efficiency, not Yen. To be so rich, yet so poor because of how economies are structured is ridiculous.

How is this supposed to create more creditworthy borrowers?

This was news.... 3 days ago. I don't understand how it's rocketing up the HN front page only now.

We put it in the second-chance pool (described at https://news.ycombinator.com/item?id=10705926 and earlier posts linked from there) because the story seems significant and it wasn't discussed earlier. That gave it a few minutes near the bottom of the front page and user interest took it from there.

Lord help us if we're not interested in things from 3 days ago.


By linking that thread you're giving it more attention which is counterproductive.

Yes, because supressing and self-censoring certain subjects works so well to solve them. /s

You just had to find a way to pull the gender issue into a thread that has nothing to do with it right?

Completely off topic, sorry.


I see. And of course I take that wikipedia link to sarcasm for sarcasm.

Anyway, the heavy discussion around this post seems to disprove your point making your sarcasm harder to spot.

We have a winner here. If you don't like what people discuss here, go to Financial News.




> OK. Settle down now, princess.

This breaks the HN guidelines badly. We ban accounts that comment like this, so please don't do it again.

Linking to a troll thread, taking this one wildly off-topic, and pompously posturing about how you're better than the rest of HN are bad too.

Let me get this straight: you call the article I've linked to a troll thread yourself, but me complaining about this troll article reaching front page is "pompously posturing that I'm better than the rest of HN"? Is this what you are saying?

It's not that you're complaining about the article reaching front page. It's the insulting way you're doing it. You were out of line in the line that deng quoted (per HN guidelines).

Second: deng is a (the?) moderator here. He's not taking sides in a dispute; he's trying to keep things within the HN guidelines. He can say that the article is a troll, and say that you were out of line in the way you complained, because both the article and you were out of line.

Yes, the "princess"-comment was harsh and I see how it violates the guidelines. I agree with that.

But as I understood dang, additionally to the warning he/she made a judgement regarding my general tone. And I don't understand why it's "pompous" of me to make fun of ridiculous content that dang him- or herself concedes is bad.

It doesn't add any positive value to the conversation.

What I called pompous posturing is going on sarcastically about HN ("ridiculous preferences of HN readership", "HN has more important things to do"), which is a supercilious way of speaking about a community you're participating in. People frequently do this as a rhetorical device to implicitly put others down, which means it's uncivil, which means it shouldn't be on HN.

But wasn't the troll article upvoted by the majority of HN users to get to the front page? Isn't that worthy of ridicule?

I could, of course, press the "Flag" link and in doing so achieve absolutely nothing: I'm in the minority here.

I'm honestly at a loss here. I did expect HN to moderate the discussions, but I didn't expect such strict policing of my behaviour.

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