Tuesday, September 4, 2012

Monetary Base/GDP Ratio Trends in Japan, U.S., Euro Area, and UK From 1995-2011

U.S. Adjusted Monetary Base/GDP since 1929 (St. Louis Fed)
In a speech given by Bank of Japan governor Masaaki Shirakawa at a conference sponsored by the Federal Reserve Board and International Journal of Central Banking on March 24, 2012 (Central Banking: Before, During, and After the Crisis), he presented a bar chart that compared the monetary base/nominal GDP ratio trends in Japan, the U.S., Eurozone, and the UK from 1995 to 2011. Look how Japan's monetary base/GDP ratio grew from below 10% in 1995 to about 25% in 2011, and how the U.S. grew from about 5% in 1995 to above 15% in 2011. Will the U.S. monetary base/GDP hit 25%+? To your right is a chart of the Adjusted U.S. Monetary Base/Gross Domestic Product ratio since the Great Depression.

I also threw up a chart comparing Japanese and U.S. interest rates "after the crisis" from Shirakawa's slides. Specifically their 10-year government bond yields, AA 5-year corporate bond yields, and 30-year fixed mortgage rates from Q1/2012. And bank loan rates and expected rates of inflation over the next 10 years from Q4/2011. Obviously the Fed is trying to spur inflation to breakaway from a potential Japanese deflationary spiral. But monetary policy has its limits as you can see. I'll post some recent vids featuring Richard Koo who is an expert on the Japanese deflationary experience ("balance sheet recessions"). Here is an INET speech and Bloomberg TV video from 2011. He believes that fiscal tightening will kill the recovery in a secular balance sheet recession (see GDP estimates if U.S. hits the Fiscal Cliff). And it looks like the U.S. national debt hit 16 trillion today! The debt limit is at $16.394 trillion.




Source: Bank of Japan

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