If Trump Unravels the Global Ponzi Scheme, What Will China Do?


On January 31, 2017, I wrote a column on Donald Trump and the Global Ponzi Scheme. Today’s piece is a continuation of that piece. Hence, Dear Reader, it’s best if you read the earlier piece, if you haven’t already, before you start reading this one.

One of the things that the new American President Donald Trump is trying to do is to cut down on the total amount of trade deficit that the United States runs with China. The trade balance is essentially the difference between the imports and the exports of any country. If the trade balance of a country is in negative territory, it is said to run a trade deficit, which the United States does.

Specifically, the United States runs a trade deficit with China i.e., it’s imports from China are significantly greater than its exports to China. Also, over the last three decades the trade deficit that United States has run with China has exploded. This can be clearly seen from Figure 1.

Figure 1: 

As can be seen from Figure 1, the US trade deficit with China has jumped from almost zero in 1985 to around $367.2 billion in 2015. The curve takes a dip in 2016 primarily because only the data between January and November 2016 is currently available. Once the December 2016 trade deficit data comes in, the trade deficit curve will no longer take a dip by as much as it currently does.

President Trump wants to bring down this trade deficit with China and he has been quite vocal about it. The trouble is that this is easier said than done. This was the topic of discussion in my column published on January 31, 2017. For the sake of continuity, I will repeat some stuff from that column.

On a recent visit to Baltimore I had the pleasure of listening to the famous economist Richard Duncan. Duncan’s book The Dollar Crisis has had a tremendous impact on the way I looked at the international financial crisis, in my Easy Money books. As Duncan put it: “President-elect Trump [Duncan was talking before Trump took over as President] believes the US trade deficit has been responsible for the loss of manufacturing jobs in the United States and the downward pressure on US wages that has occurred over the last several decades.”

Now take a look at Figure 2.

Figure 2: 

What does Figure 2 tell us? It tells us that the American import curve and the export curve are very closely matched. It tells us that the dollars earned by the countries which export goods and services to the United States (essentially imports for the United States), are used to buy goods and services being exported by the United States.

As Duncan puts it: “Over the past 35 years, that deficit has become THE driver of global economic growth. In fact, the entire global economy has been constructed around unbalanced trade.”

So, what will happen if Trump makes it difficult for the United States to import stuff from China and other parts of the world, as he has promised to do? If the American imports come down, so will its exports primarily because other countries won’t have the dollars required to import stuff from the United States. Also, with both imports as well as exports shrinking, the American trade deficit may not shrink.

There is a flip side to this as well and it is the Chinese exports and imports. Take a look at Figure 3.

Figure 3: 

Figure 3 like Figure 2 before it makes for an interesting reading. The Chinese export as well as import curves are closely matched (though not as much as the American curves). When China exports less it imports less as well. One reason for that lies in the fact that it has fewer dollars to pay for the imports. One impact of this is that the import of commodities from all over the world, falls. This will have a huge impact on commodity exporting countries like Australia and Brazil, to name a few.

Over and above this, it will have an impact on way things are inside China as well. As Duncan puts it: “If China’s trade surplus were eliminated, the negative impact on China’s economy would be devastating. In all likelihood, China would experience a severe depression, that could threaten the rule of the Communist Party. China might respond militarily – just as Japan did at Pearl Harbor after the US imposed an oil embargo on Japan in 1941. No one should underestimate the damage that could result from an economic crisis in China.”

Hence, the impact of contracting the US trade deficit is going to be far reaching. In fact, things are not going to work out well for the US either. In fact, the dollars that China earned over the years have found their way back to the United States and have been invested in the US government bonds (US treasuries) and other financial securities.

This flood of money coming from outside (and not just from China) has helped keep interest rates in US low. As of November 2016, China owns $1.05 trillion in US government bonds. Just this number should tell us very clearly that Trump shouldn’t fiddle around too much with the US-China trade relationship.

If the US goes back eliminating its trade deficit, by bringing down its imports, other countries may not have access to as many dollars as they had in the past. This would mean that the total dollars that come into the United States and get invested in American government bonds and other financial securities, will come own. This will mean that interest rates in the US will rise.

As Duncan puts it: “Higher interest rates would cause credit to contract and the US economy to go into recession. Higher interest rates would also cause a sharp fall in US asset prices. That, too, would also cause the economy to go into recession. Higher interest rates could cause a wave of credit defaults in the US and around the world, potentially leading to a new systemic financial sector crisis.”

The global trade structure has morphed itself into a Ponzi scheme and that won’t be so easy to unravel. As I write in my the third volume of the Easy Money trilogy: “The United States is the biggest economy in the world. It accounts for nearly one-fourth of the world’s GDP. By virtue of this, it is also the world’s biggest market, where China, Japan, and countries from South-East Asia could sell their goods and earn dollars in the process. It is also the world’s biggest consumer of oil and consumes nearly a fourth of the global oil production. This meant that oil-rich states like Saudi Arabia could sell oil to it and thus earn dollars in the process.

So, the United States imported, and countries like China, Japan, Saudi Arabia, and other countries in Asia earned dollars in the process. These dollars were then invested in treasury bonds… as well as the private sector. With so much money chasing these American financial securities, the issuers of these securities could in turn offer low rates of interest on them.”

If the United States chooses to disturb this relationship, then it will get hurt in the process as well. His hatred for China notwithstanding, Trump should think about all the points highlighted here, before proceeding on this front.

(The column originally appeared on Equitymaster on February 7, 2017)

Economic Survey’s Spin on Demonetisation Doesn’t Quite Add Up


The Economic Survey for 2016-2017 was released yesterday. The Survey has a chapter on demonetisation and makes some very interesting points which I want to discuss in today’s piece.

One of the reasons offered for the Modi government carrying out demonetisation is: “Across the globe there is a link between cash and nefarious : the higher the amount of cash in circulation, the greater the amount of corruption, as measured by Transparency International.”

The Survey further points out: “In this sense, attempts to reduce the cash in an economy could have important long-term benefits in terms of reducing levels of corruption. Yet India is “off the line”, meaning that its cash in circulation is relatively high for its level of corruption.”

Is this really true? Is there a link between the total cash in the economy and corruption? Let’s take a look at the currency to gross domestic product(GDP) ratio across countries for 2015.


Source: The Curse of Cash, Kenneth Rogoff, http://scholar.harvard.edu/rogoff/curse_of_cash_data

As can be seen from the above table, India’s currency to GDP ratio is quite high at 12.51 per cent. But Japan’s is even higher at 18.61 per cent. What rank does Japan hold in the Transparency International’s corruption ranking? In 2015, Japan was the 18th least corrupt country in the world. Where did India stand? India was the 76th least corrupt country in the world.

Hence, Japan which has a higher currency to GDP ratio than India is significantly less corrupt than India is. This basically means that cash is a greater part of the Japanese economy than it is of the Indian economy, but still the Japanese are less corrupt than the Indians. This goes totally against the point made in the Economic Survey.

Also, Japan is not an outlying one-off example. Take the case of Brazil. The currency to GDP ratio in this case is 3.44 per cent. This is nearly one-fourth the Indian ratio of 12.51 per cent. This means that Brazil has largely moved away from cash or currency as a form of payment. Nevertheless, does that mean that Brazil is less corrupt? As per Transparency International data Brazil is also the 76th least corrupt country in the world, like India is.

There are other examples as well. At 1.45 per cent, the currency to GDP ratio is the lowest in Norway. At 1.53 per cent Nigeria comes in next. Norway is the fifth least corrupt country in the world. On the other hand, Nigeria is the 136th least corrupt country in the world.

Let me give you more examples. After Norway and Nigeria, come Sweden, Argentina, New Zealand and Denmark, when it comes to low currency to GDP ratio. Sweden is the third least corrupt country in the world. New Zealand is the fourth least and Denmark is the least corrupt country in the world. But Argentina comes in at 107th, much lower than even India, despite having a very low currency to GDP ratio.

Are we done yet? Colombia has a currency to GDP ratio of 6.79 per cent, which is significantly lower than that of India. But it is the 83rd least corrupt country in the world. Or take the case of Singapore, which has a reasonably high currency to GDP ratio of 8.46 per cent, but it is the eight least corrupt country in the world, as per Transparency International.

How about China? China’s currency to GDP ratio at 9.34 per cent is lower than that of India. But it is the 83rd least corrupt country in the world, a little below India at 76th position.

All these examples clearly show that there is no clear link between high cash in the economy and the prevailing corruption in the country. And even if there is a link, it is a very weak one. Given this, what do we say about the Economic Survey’s observation? To put it simply, the Economic Survey is published by the ministry of finance, which is a part of the government. Hence, not surprisingly, it is trying to bat for the government on the demonetisation front.

What else does the Economic Survey have to say on demonetisation? On page 55 it points out: “A cautionary word is in order. India’s demonetisation is unprecedented, representing a structural break from the past. This means that forecasting its impact is hazardous.”

This is a very interesting statement. What the Economic Survey is essentially saying here is that forecasting the impact of demonetisation can be hazardous. Why is that? This, for the simple reason that there is no past example of demonetisation in a country being carried out in a situation, like that of India.

As the Survey points out on Page 54: “India’s demonetisation is unprecedented in international economic history, in that it combined secrecy and suddenness amidst normal economic and political conditions. All other sudden demonetisations have occurred in the context of hyperinflation, wars, political upheavals, or other extreme circumstances.”

Given this unique context, it is risky and dangerous (other meanings of the world hazardous) to forecast the impact of demonetisation. If this is the case, it is worth asking on what basis did the government make the decision to demonetise high denomination notes, given that forecasting its impact is not easy at all. Or so the Economic Survey published by the Ministry of Finance tells us. Further, after warning the readers that forecasting the impact of demonetisation is hazardous, the Survey goes about making several forecasts (on pages 59-60).

Such silly blemishes that bat for the government, spoil what is otherwise a well-written Survey.

All Things Considered, The Mumbai-Ahmedabad Bullet Train Is Still A Good Idea

This column is essentially a follow up to the column titled In Defence Of The Mumbai-Ahmedabad Bullet Train which was published a few days back. In this column I will try and answer some questions that were asked by readers in response to the previous column.

One feedback that came through very strongly was that the Modi government has got its priorities all wrong and the bullet train is essentially a show-off project. This was very well summarised in a tweet in which I was asked whether I had ever tried taking a local train at the Parel station (one of the local train stations in Mumbai on the central line) in the evening? The short answer is yes, I have boarded local trains at Parel in the evening and at various other stations in Mumbai. And it’s a pain.

The point that the reader was trying to make was that taking the local train in Mumbai in the evenings (and the mornings) is very difficult. The trains are usually all packed and there is very little space to even stand properly. There are many more people packed into the compartments than these compartments are built to take in.

In fact, today’s edition of the Mumbai Mirror newspaper reports that ventilators on 80% of the trains don’t work. As the newspaper reports: “Over 400 commuters have died of heart attacks and other complications this year, triggered in most cases by suffocation. A majority of these deaths took place during peak hours.”

Long story short—forget standing properly, you can’t even breathe properly while traveling on a Mumbai local. Given this scenario, why are we interested in starting a bullet train between Mumbai and Ahmedabad? Why not use that money to try and improve the condition of the local trains in Mumbai? Has the government got its priorities all wrong?

This is a fair question. Nevertheless, it needs to be understood that we are not in an either-or kind of situation here. Most of the money to build the bullet train system between Mumbai and Ahmedabad is not coming from the current revenues of the Indian government or the Indian Railways for that matter. This means that the money is not being taken away from something else that the government could have done with that money.

This, further means that the money that will be used for the bullet train between Mumbai and Ahmedabad could not have been used to improve the local train system in Mumbai. It could not have been used for increasing the education, health, environment and road and highways budget of the government as well. It was available only for the bullet train.

So where is the money to build the bullet train going to come from? This money is being lent by the Japanese government at a highly concessional interest rate of 0.1% per year to be repaid over a period of 65 years (Yes, you read that right).

Why is the Japanese government lending this money at close to 0% interest? They are lending this money so that the Japanese Shinkansen Technology is adopted for the bullet train project. This is in the interest of the Japanese business which is currently going through a tough time. So the Japanese government is lending money to the Indian government to buy stuff from Japan. This money is not available for anything else.

Further, as the press release announcing the bullet train said: “Japan has offered an assistance of over Rs 79,000 crore for the project. The loan is for a period of 50 years with a moratorium of 15 years, at an interest rate of 0.1 per cent. The project is a 508 kilometer railway line costing a total of Rs. 97,636 crore, to be implemented in a period of seven years.”

So 80% of the money to build the bullet train line is coming from Japan. This loan comes with an interest rate of 0.1%, which more or less means that this is an interest free loan. It is to be repaid effectively over a period of 65 years. The loan comes with a moratorium of 15 years, which means that the repayment does not have to start immediately. It will start in 15 years time and will be repaid over a period of 50 years after that.

Given the long repayment period of the loan, the impact of inflation on the “real” value of the loan needs to be taken into account? As an editorial published in the Business Standard newspaper today (December 16, 2015) points out: “India’s average wholesale price inflation in the four decades between 1970 and 2010 has hovered at 7.6 per cent and consumer price inflation in that period has been estimated at an average of over eight per cent.”

At an inflation of 8% per year, by the time the loan repayment starts fifteen years down the line, the “real” value of the Rs 79,000 crore loan, in today’s money, would be around Rs 24,900 crore. At 5% inflation it would be Rs 38,000 crore. The broader point is that by the time the loan repayment will start the real value of the loan will be considerably lower.

This calculation does not take into account the fact that the loan will most likely be in Japanese yen. It does not take the currency risk into account. Currency risk is important because if the rupee depreciates against the yen, then the Indian government will need more rupees to buy the yen that it will need to repay the loan.

This was another feedback that I got in response to the last column. I was told that I did not take currency risk into account while putting forward my analysis. I did not do that because over a long period of time (65 years in this case), I think it won’t really matter.

In October 1996, one yen was worth 0.4 rupees (or 40 India paisa). Currently one yen is worth 0.55 rupees (or 55 Indian paisa). Since 1996, the worst situation came in August 2013(when rupee was rapidly losing value against the dollar as well) when one yen was worth around 0.69 rupees (or 69 paisa). Over the last twenty years, the general trend has been of the rupee depreciating against the yen except in the late 1990s when the rupee appreciated against the yen.

There have been periods of volatility where the rupee has rapidly depreciated against the yen, but over a two-decade period, the depreciation has happened at a very slow rate. Given this, even if the rupee were to continue to depreciate against the yen, it won’t really matter over a period of 65 years, especially once we take inflation and economic growth into account. The size of the loan by the time the Indian government starts repaying it, will be significantly smaller in comparison to the size of the economy as measured by the gross domestic product.

Another question asked by readers was that why is the train being started between Mumbai and Ahmedabad, which already has good connectivity? Given the nature of the project the train has to be run between Delhi and some place or Mumbai and some place (or Bangalore and Chennai). That is where the initial market of people likely to use the bullet train is, given that these cities have the highest number of air-travellers.

And given that among all India cities, Delhi tends to get the most money when it comes to building physical infrastructure, linking Mumbai with Ahmedabad makes immense sense. In fact, if the government has plans of a second bullet train, it needs to be between Bangalore and Chennai.

As far as the financing of the bullet train project is concerned, I don’t see any problems. The major problems will come in the implementation part. Getting the land required to build the track at a reasonable price and ensuring that the tickets are priced at a level, where the entire thing is viable and doesn’t just become a show-off project. That is where the real challenge is.

(Vivek Kaul is the author of the Easy Money trilogy. He can be reached at [email protected])

The column originally appeared on Huff Post India on December 16, 2015

In Defence Of The Mumbai-Ahmedabad Bullet Train



Over the last few days a lot of analysis has appeared in the digital media which has tried to project that the decision to launch a bullet train between Mumbai and Ahmedabad is a stupid one.

And this is how some of this analysis goes. India will spend Rs 98,000 crore on building thie bullet train between Mumbai and Ahemdabad. This is something it cannot afford. Now compare this to the amount of money that we spend on education, health, roads, etc., during the course of the year.

For the current financial year, 2015-2016, the allocation towards school education and literacy is at Rs 39,038.50 crore. The allocation towards higher education is Rs 15,855.26 crore. When it comes to health, the government has allocated Rs 24,549 crore to be spent during the course of the year. The allocation to the National Highways Authority of India which builds roads connecting the country is Rs 22,920.09 crore. The total allocation to the ministry of road transport and highways is at Rs 42,912.65 crore.

Further, during the course of the year, the Railways plans to spend just Rs 6,581 crore on 970 overbridges and under-bridges and other safety related measures, in order to eliminate 3438 level crossings. And if all this wasn’t enough the total allocation to the ministry of environment, forests & climate change is just Rs 1,446.60 crore.

Given the amounts that we are spending on such very important things how can we be spending Rs 98,000 crore on a bullet train. Can we really afford this?

As a recent analysis on Scroll.in points out: “The Mumbai-Ahmedabad bullet train budget is also 2.3X the entire spend of the Centre on schools. The corresponding figure for health and highways is 3.3 and 2.3, respectively.” [My numbers lead to slightly different ratios, but the broader point the Scroll article is trying to make doesn’t really change, so we will leave it at that].

If we look at the entire issue on the basis of the information that I have provided in the article up until now, spending money on a bullet train, when there isn’t enough money going around for health, education, roads and railway safety, seems out rightly stupid.

Nevertheless, all such analysis that has appeared in the media is essentially simplistic in nature. Allow me to elaborate. As the press release on the bullet train announcement points out: “India and Japan have signed an MoU [memorandum of understanding] on 12th December, 2015 on cooperation and assistance in the Mumbai – Ahmedabad High Speed Rail Project (referred by many as Bullet Train project). Japan has offered an assistance of over Rs 79,000 crore for the project. The loan is for a period of 50 years with a moratorium of 15 years, at an interest rate of 0.1 per cent. The project is a 508 kilometer railway line costing a total of Rs. 97,636 crore, to be implemented in a period of seven years.”

The bullet train between Mumbai and Ahmedabad will cost Rs 97,636 crore and will be built over seven years. Hence, the entire Rs 98,000 crore(approximately) will not be spent in one year. Given this, the comparisons with the health budget, the education budget, the road and highways budget, that have appeared in the media, are incorrect. A spending to be carried out over a period of seven years is being compared with spending carried out every year. A comparison of both over a seven-year period would have been the right way to go about it. But then things don’t look as bad as they do now.

It has been implied that the government is spending this money in one year, which it clearly isn’t. Second, the analysts forget to mention, perhaps unknowingly, that almost 80% of the project is being financed on a very soft loan from Japan.

Japan has offered a loan more than Rs 79,000 crore to be repaid over 50 years at an interest rate of 0.1% per year [Yes you read that right!]. Further, the loan comes with a 15-year moratorium. What this means is that India does not need to start repaying the loan immediately. It will have to do so fifteen years down the line.

Now what would repaying the loan entail? A loan at an interest 0.1% to be repaid over 50 years essentially means almost no interest is being charged. Once India starts repaying the loan, it would have to pay an EMI of Rs 135 crore per month. In fact, the interest is so low that the total repayment over 50 years will amount to just Rs 81,000 crore. This means an interest component of Rs 2000 crore over fifty years. The government of India can clearly afford this.

Also, this repayment doesn’t start for 15 years and has to be repaid over a period of 50 years. Hence, once we take inflation into account, the Rs 135 crore that will have to repaid 15 years down the line and over a period of 50 years, will be worth much less than it currently is. By then, the project will also start generating some revenue.

The question is why is Japan doing this? It “has been agreed that Shinkansen Technology will be adopted for the project.” In effect, the Japanese government is giving a loan to the Indian government at almost 0% interest, in order to be able to buy technology from Japanese companies.

Also, there is another reason for the Japanese largesse. As Bharat Karnad writes in Why India is Not a Great Power (Yet): “With an eye firmly on China as the main adversary and security challenge, India can synergize its engagement and role with the military, political, and economic capabilities of countries feeling threatened by Beijing to keep China at bay.”

Once these factors are taken into account the bullet train project between Mumbai and Ahmedabad will not be a drain on the government finances. Having said that the government will have to ensure that it does not become a “white elephant” as and when it starts. In order to ensure that the ticket prices of the bullet train will have to be lower than that charged by airlines.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)
The column appeared on Huffington Post India on December 14, 2015


Of Japanese deflation, global money printing and quest for economic growth

3D chrome Dollar symbolThe human obsession with economic growth has perhaps been best captured by E.B. White in an essay called A Report in January published in January, 1958. The essay is a part of a book titled Essays by E.B. White.

In this essay White writes: “The theory is that if you shoot forty thousand deer one year you aren’t getting ahead unless you shoot fifty thousand the next, but I suspect there comes a point where you have shot just exactly the right number of deer. Our whole economy hangs precariously on the assumption that the higher you go the better off you are, and that unless more stuff is produced in 1958 than was produced in 1957, more deer killed, more automatic dishwasher installed…more heads aching so they can get the fast fast fast relief from a pill, more automobiles sold, you are headed for trouble, living in danger and maybe in squalor.”

This obsession with economic growth has been at play in the aftermath of the financial crisis which broke out in September 2008, when the investment bank Lehman Brothers went bust. The central banks and governments all around the Western world unleashed an era of easy money, by printing money and maintaining low interest rates.

This was done in the hope of people borrowing and spending more. So, with interest rates remaining low, people were likely to buy more homes, more cars, more consumer goods and so on. And in the process there would be more economic growth.

Most central bankers did not want the Western world to turn into another Japan. Right through the eighties, the Japanese stock market and the real estate market had huge bubbles. These bubbles burst towards the end of the eighties. And it is widely believed by economists that the Japanese economy never recovered from this. It entered into an era of deflation (the opposite of inflation, when prices fall).

When the economy is in a deflationary scenario, people tend to postpone their purchases in the hope of getting a better deal. Once this starts to happen, the business earnings start to fall. This leads to businesses cutting costs by firing people among other things. All this impacts economic growth. Businesses cut prices further, in the hope of persuading more people to buy things. And so a deflationary cycle sustains itself.

This is something that Western central bankers wanted to avoid. And this led to the unleashing of an era of easy money, which continues. In fact, as Raghuram Rajan, the governor of the Reserve Bank of India, recently said in a speech: “The canonical example here is Japan, where many are persuaded that the key mistake it made was to slip into deflation, which has persisted and held back growth.”

There is a great fear that what has been happening in Japan will happen in large parts of the Western world as well, if central banks don’t act and flood their financial systems with money.

In fact, Andrew Hallande, the Chief Economist of the Bank of England recently suggested the elimination of paper money. This would allow central banks to impose negative interest rates (which some central banks have already tried in Europe). When there is a negative interest rate on deposits, the bank will charge people for depositing their money in a bank account. This will lead to people spending their money instead of keeping it in a bank account, where its value will fall because of a negative interest rate. The spending that follows because of negative interest rates will lead to economic growth.

This is only possible if there is ‘only’ digital money and no paper money. If banks apply negative interest rates as of now, people can simply withdraw that money in the form of paper money and keep it under their mattresses or wherever they want to. Hence, Hallande’s suggestion of only digital money to revive economic growth.

Such suggestions come from the fear of deflation. But the question is are things in Japan as bad as they are made out to be? James Rickards in his book The Death of Money, talks about a speech where he heard a former deputy finance minister of Japan, Eisuke Sakakibara, speak.
He [i.e. Sakakibara] made the often-overlooked point that because of Japan’s declining population, real GDP per capita will grow faster than real aggregate GDP.”

What this basically means is that because of declining population in Japan, even if the overall Japanese economy does not grow or grows at a very slow pace, there will still be more economic growth per person in Japan.

As Rickards writes: “Far from a disaster story, a Japan that has deflation, depopulation, and declining nominal GDP can nevertheless produce robust real per capita GDP growth for its citizens. Combined with the accumulated wealth of the Japanese people the condition can result in well-to-do society even in the face of nominal growth that would cause most central bankers to flood the economy with money.”

In fact, Rajan made a similar point in his recent speech. As he said: “A closer look at the Japanese experience suggests that it is by no means clear that its growth has been slower than warranted let alone that deflation caused slow growth. It is true that after its devastating crisis in the early 1990s, Japan may have prolonged the slowdown by not taking early action to clean up its banking system or restructure over-indebted corporations. But once it took decisive action in the late 1990s and early 2000s, Japanese growth per capita or per worker looks comparable with other industrial countries.”

This becomes clear from the accompanying table:

In fact, one of the fears of deflation, as explained earlier, is that it leads to unemployment. Nevertheless that doesn’t seem to be the case in Japan. As Rajan said: “Japanese unemployment has averaged 4.5% between 2000-2014, compared to 6.4% in the US and 9.4% in the Euro area during the same period. In part, the Japanese have obtained wage flexibility by moving away from the old lifetime unemployment contracts for new hires to short term contracts. While not without social costs, such flexibility allows an economy to cope with sustained deflation

So, it’s time that central bankers take a re-look at the entire Japanese experience and revise their views on the idea of deflation.

Meanwhile, Japan seems to be getting ready for more money printing. As they say, the more things change, the more they remain the same.

The column originally appeared on October 9, 2015 on The Daily Reckoning