Richard Werner said...
I believe I am the originator of the phrase 'Quantitative easing'. The original Japanese expression is 'ryoteki kinyu kanwa' or 'ryoteki kanwa' for short. Both are, literally translated, 'quantitative easing'. Thank you Cassandra for your most wonderful description of the English translation.
I used the expression prominently in my articles in the Japanese press in 1995, 1996, 1997, 1998 (Nikkei, Japanese Economist, Toyo Keizai, Japanese Newsweek, etc.) to suggest the necessary and sufficient policy response to end the recession (I had predicted the Japanese banking collapse in 1991; in print see Discussion Paper 129, Oxford Institute of Economics and Statistics). I had already argued then that interest rate reductions, even to zero, won't help. What was needed was to stimulate the economy through the quantity, not the price of money - correctly done. I wanted to avoid expressions such as the figurative 'printing money' and the common 'expanding the money supply', not only because they would unnecessarily alarm Japanese lay readers, but also because these are traditional monetarist prescriptions, which I argued would not work (as the monetarists argued for an expansion of bank reserves). At the time I was chief economist at Jardine Fleming Securities (Asia) Ltd. and Assistant Professor at Tokyo's Sophia University and known as the BoJ's fiercest critic. The Bank of Japan adopted my expression in 2001 as its official policy. The BoJ used exactly my Japanese phrase, and in its English-language press statement literally translated it.
However, and this is a predictable irony of central bank behaviour, they used it is a cover, because they did not adopt true quantitative easing, and instead implemented simple monetarist expansion of bank reserves. As I had predicted, this could not work. Next year Japan will basically be in its 20th year of recession. One further comment: In my English-language articles and interviews that I gave I used the expressions 'credit expansion', 'liquidity expansion' or 'credit creation' (the latter being the most accurate description) instead of 'ryoteki kanwa', as the audience in the financial markets would then understand me more or less correctly. Anyway, shame I'm not getting license fees each time a central bank talks about 'QE'.
Professor Richard A. Werner, D.Phil. (Oxon), Chair in International Banking, Director of the Center for Banking, Finance and Sustainable Development, School of Management, University of Southampton. werner@soton.ac.uk
9:00 AM, May 14, 2009
Tuesday, May 19, 2009
Perfect Revelation
In my post, The Perfection of Quantitative Easing, I ruminated upon the linguistic perfection of the phrase, wondering aloud who might have conjured such a wonder. The answer has revealed itself in this kind note below that was too illuminating to leave buried in the comments section of the post...
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4 comments:
This comment may be a bit far (6 mo) behind in all of the discussion, but I'd like to see if I could clear something up in terms of the distinction between Professor Werner's Quantitative Easing (ryoteki kanwa) and the monetarist QE (what has been carried out in practice).
Theoretically, the arguments of QE assume a direct transmission line between bank reserves and lending, and pose it as a rational leap from one to the other ("let's just cut that pesky Gordian Knot...and there, a good solution").
In essence, agency in the deciding matters are then reoriented onto the banks (again), rather than directly dealing with the problems (surprise, surprise). We basically handed the keys over to the car, and assumed the bankers were good, well-intentioned drivers. Further, though the Professor made the point of bringing upon 'credit creation' as part of the solution, that also brings us further into the high debt economy. However, that's something that is easier to deal with when your not in stag-deflation.
Well Professor Smarty Pants, what do you think about qualitative reeming,
whereby the government commits risk management sepiku and then prints reems of toilet paper to cover it up, in the hopes that you might later be able to buy something a bit more risky with it?
Perhaps the professor is right.
In many ways I still prefer the Japanese term.
No way is English as direct.
Could there be a better phrase?
Heck no!
Understanding the English doesn't perfect it.
kenosis might be even a better term.
Responding to this comment:
"This comment may be a bit far (6 mo) behind in all of the discussion, but I'd like to see if I could clear something up in terms of the distinction between Professor Werner's Quantitative Easing (ryoteki kanwa) and the monetarist QE (what has been carried out in practice)."...
QE the way I originally defined it - as a policy to expand total net credit creation - does not assume a 'direct transmission line between bank reserves and lending'. That's what the monetarist prescription to increase high powered money or bank reserves does. Open market operations to inject money may help. But there are more efficient ways to increase credit creation, such as stopping the issuance of government bonds and instead borrowing from banks (I have recommended this in Japan since about 1996, and also for other countries). This does not increase debt, but it ensures that fiscal expenditure does not crowd out private expenditure, as bond finance does. Capital markets merely transfer existing purchasing power, hence bond funded fiscal expenditure has zero positive effect on growth and a negative effect on private demand. There are a number of other measures to increase credit creation.
We basically handed the keys over to the car, and assumed the bankers were good, well-intentioned drivers. Further, though the Professor made the point of bringing upon 'credit creation' as part of the solution, that also brings us further into the high debt economy. However, that's something that is easier to deal with when your not in stag-deflation.
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