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My letter to the Financial Times, London re: Educating Mr. Abe

My letter to the Financial Times, London re: Educating Mr. Abe
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Re: Abe grapples with mystery of missing J-curve

Dear Sirs:
Perhaps I can shed some light on Japanese Prime Minister Abe’s missing J-curve; i.e., why Japan’s trade deficit seems to be increasing rather than decreasing after massive monetary intervention to reduce the purchasing power of the yen.  Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery.  Monetary debasement transfers wealth within an economy by subsidizing exports at the expense of the entire economy, but this effect is delayed as the new money works it way from first receivers of the new money to later receivers.  The BOJ gives more yen to buyers using dollars, euros, and other currencies, as the article states, but this is nothing more than a gift to foreigners that is funneled through exporters.  Because exporters are the first receivers of the new money, they buy resources at existing prices and make large profits.  As you state, exporters have seen a surge in their share prices, but this is exactly what one should expect when government taxes all to give to the few.  Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes.  Then the country is left with a depleted capital base and a higher price level.  What a great policy!

The good news is that Japan does know how to rebuild its economy.  It did it the old-fashioned way seventy years ago–hard work and savings.

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Patrick Barron is a consultant to the banking industry. He teaches Austrian school economics at the University of Iowa and Bank Managemant Simulation for the Graduate School of Banking, University of Wisconsin. Visit his blog. Send him mail.

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