“In a time of universal deceit, telling the truth is a revolutionary act.”
- George Orwell.
Japan got there first. 15 years ago, we met a Japanese equity manager who made an astonishing prediction:
“Japan was the dress rehearsal. The rest of the world will be the main event.”
That seemed an extraordinary suggestion 15 years ago. Today, not so much.
In the aftermath of the late 1980s real estate and stock market bubble, and its subsequent banking crisis, Japan became a giant laboratory experiment for novel monetary policies. In 2001 the Bank of Japan tried QE. It was a policy that Richard Koo of the Nomura Research Institute described as the “greatest monetary non-event”. It turned out, not for the first time, that academic economists had it all wrong. Borrowers, not lenders, were the fundamental bottleneck in Japan’s recession:
“The central bank’s implementation of QE at a time of zero interest rates was similar to a shopkeeper who, unable to sell more than 100 apples a day at $1 each, tries stocking the shelves with 1,000 apples, and when that has no effect, adds another 1,000. As long as the price remains the same, there is no reason consumer behaviour should change – sales will remain stuck at about 100 even if the shopkeeper puts 3,000 apples on display. This is essentially the story of QE, which not only failed to bring about economic recovery, but also failed to stop asset prices from falling well into 2003.”
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