Comments on: Davos Newbies Home http://www.davosnewbies.com/2001/11/19/davos-newbies-home/ A year-round Davos of the mind, written since 1999 by Lance Knobel Thu, 18 Feb 2010 09:26:21 -0800 http://wordpress.org/?v=2.8.5 hourly 1 By: Eric Mauro http://www.davosnewbies.com/2001/11/19/davos-newbies-home/comment-page-1/#comment-193 Eric Mauro Wed, 31 Dec 1969 16:00:00 +0000 http://www.davosnewbies.com/?p=470#comment-193 Economics: I asked my guru about Martin Wolf's article which you linked to a couple days ago, where he recommends that Japan inflate. To paraphrase his response, he said that Japan could never inflate now, because to do so would be seen as devaluing the yen against the dollar in a predatory way to encourage Japanese exports, and American industrialists would raise holy hell about facing competition from a weak yen during a time when America is in a bad slump. It seems to me that your picture of economic action is cloudy because you are viewing rate cuts as the only tool of central bank policy. Most action from the US Fed, however, occurs in the "open market operations" which are basically secret. I've written an article about how these operations have pushed the US into deflation and how they're killing Malden Mills, a local hi-tech manufacturer here in Massachusetts. <a href="http://qhead.weblogger.com/stories/storyReader$12" rel="nofollow">http://qhead.weblogger.com/stories/storyReader$12</a> The best solution would be for BOTH Japan and America to inflate decisively, at the same time, and admit that the Fed and the BOJ made mistakes, and clearly say how much the dollar and the yen will be worth. How does this relate: our Fed governors are unelected and basically immunized against political pressure. This is the model for the international institutions as well. When the Fed goes wrong however, there is no feedback loop (election) to tell them that they are screwing up. Our representatives to the WTO and IMF are not elected either, and they all, WTO, IMF, Fed, have an institutional bias to believe that popular (or market) opinion is probably wrong, and safely discounted. This is why people start throwing rocks and bottles, because the are not allowed to make their points politically. Economics: I asked my guru about Martin Wolf’s article which you linked to a couple days ago, where he recommends that Japan inflate. To paraphrase his response, he said that Japan could never inflate now, because to do so would be seen as devaluing the yen against the dollar in a predatory way to encourage Japanese exports, and American industrialists would raise holy hell about facing competition from a weak yen during a time when America is in a bad slump.

It seems to me that your picture of economic action is cloudy because you are viewing rate cuts as the only tool of central bank policy. Most action from the US Fed, however, occurs in the “open market operations” which are basically secret.

I’ve written an article about how these operations have pushed the US into deflation and how they’re killing Malden Mills, a local hi-tech manufacturer here in Massachusetts.

http://qhead.weblogger.com/stories/storyReader$12

The best solution would be for BOTH Japan and America to inflate decisively, at the same time, and admit that the Fed and the BOJ made mistakes, and clearly say how much the dollar and the yen will be worth.

How does this relate: our Fed governors are unelected and basically immunized against political pressure. This is the model for the international institutions as well. When the Fed goes wrong however, there is no feedback loop (election) to tell them that they are screwing up. Our representatives to the WTO and IMF are not elected either, and they all, WTO, IMF, Fed, have an institutional bias to believe that popular (or market) opinion is probably wrong, and safely discounted. This is why people start throwing rocks and bottles, because the are not allowed to make their points politically.

]]>