CHART OF THE DAY: Bernanke Rips A Page From Japan’s Suicidal Playbook
Courtesy of Vincent Fernando and Kamelia Angelova at Clusterstock
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Let’s hope that Bernanke doesn’t keep playing by Japan’s suicidal 1991 interest rate playbook for too much longer.
The chart below shows Japan’s 1991 – 2006 interest rates on top of our current U.S. interest rate cycle.
While Mr. Bernanke is trying to temporarily fight deflationary forces in the economy after the massive housing bust, don’t forget that Japan’s low interest rate policy lasted far longer than they had initially expected. And they lost a decade of economic growth by not allowing prices to fall when they should have. If we follow Japan, our rates would stay low until 2022.
Sure, the U.S. dynamics are different. Yet if Bernanke follows the Japan model for just a quarter as long as Japan did, while we might not lose a decade of growth, we might set off a decade of dollar-destroying inflation.
