Japan’s decade long near zero interests rates has been the subject of caution for economists on how a central bank’s monetary policy can become ineffective as interest rates can no longer be lowered to stimulate growth. It is described as a condition of ‘liquidity trap’, where monetary policy is silent and the persistent lack of growth leads to a ’lost decade’.
On first glance, it might seem that Japan’s Central Bank might have done something wrong, and thus led to its pathetic position of having become absolutely powerless to use monetary policy as a tool in time of stagnation or even recession. However, in actuality Japan’s near-zero interest rates might be the result of making a ‘political statement’ rather than anything else, that the government has done all it could to help businesses, and there is nothing more that the government could’ve done.
In this sense, if companies fail, they would not be able to blame the monetary authority for not having done enough. In times of slow growth and persistent unemployment, conditions that are affecting more and more economies globally, this could be a condition that monetary policies could eventually converge to.
Are they going to be able to raise the interest rates any time soon? No, unless a bubble calls for an action on the interest rates, the rates will continue to stay near zero, to show that the government has done all it can for businesses. As a consequence, the populance might not have been pleased, but at least they are silent. The Central Bank might not be effective, but its conscience is clear and it rids itself of responsibilities from individual bad business decisions or other decisions outside of their control.
Take the near-zero interest rates as a given, rather than as a problem. This might be a better starting point in addressing other issues.
The 2012 Presidential Election is fast approaching
The GOP race is now a field of 4 with only Romney, Gingrich, Paul, & Santorum still standing. Who will be the next candidate to exit the race & who will emerge as the eminent GOP nominee?
Follow us on Twitter & join our 2012 election FaceBook page for updates & new blog articles.
Contact us if you are passionate about politics & want to blog with us.
