Ben Bernanke once said that a determined central bank could always end a deflation. And I guess we’re about to find out whether that’s true or not. What’s currently going on in Japan is rather incredible. They’re throwing the kitchen sink, garbage disposal and all the plumbing at their fight with deflation. Here are some of the headlines from the last 24 hours via Bloomberg:
*NAKASO SAYS BOJ WILL NOT BE BOUND BY PAST POLICIES*
*IWATA: MONETARY POLICY FIRST INFLUENCES ASSET MARKETS*
*IWATA: JAPAN’S DEFLATION BECAUSE OF DEFLATIONARY EXPECTATIONS*
*KURODA SAYS HE WILL DO WHATEVER IT TAKES TO END DEFLATION*
This explicit targeting of stock prices, expectations and a “whatever it takes” mentality could change the future of economic policy. If it works the monetarists will dominate the future of policy. If it fails, it will be another blow to the school. I guess we’ll know the answer in the next 12-18 months….