Ron Dore wrote:

>(a)the government running a fiscal
deficit....auctioning an equaivalent
>amount of JGBs.... BoJ takes a similar quantity of
them out of
>circulation in the name of qualtitative easing...
>(b) MoF simply paying its bills with yen it orders
BoJ to print...
>
Assuming that I understand you correctly, then, if the amount of fiscal stimulus is the same in your two examples, then there is no difference at all. In both cases, the amount of JGBs held by the BOJ is the same and the amount held by the public is the same. In both cases, the government has added an identical amount of real purhasing power to the economy with no increase in the debt held by the public. This, by the way, was what Bernanke proposed in his May 2003 speech in Tokyo.

>[And MOF-BOJ saying] We are going on doing this until
our models show
>that in a few weeks or months inflation will be
running at 5%.
>

>Surely, surely, the anouncement effect would overwhelm
any
>fiscal-stimulus/aggregate consumer demand effect in
unleashing animal
>spirits.
>
>

Not so surely. In fact, in my view, not at all. Studies have shown that an announcement effect can add to the potency of monetary stimulus in a conventional situation when conventional monetary stimulus works.
But Japan is in a classic liquidity trap. The problem lies not in psychology ("animal spirits') but in
reality: lack of consumer income, lack of a reason for firms to expect a postiive return on their investments except via exports. To me, this is like Herbert Hoover
saying: if everyone went out and spent and invested as if there were no Depression, then the Depression would be over. If this were how economies worked, there would be no need for Keynesian fiscal stimulus at all.

>And Shiller and Akerloff are
>really right about their importance.
>
I've not read the Shiller-Akerloff book but I've read their summaries of it. I completely disagree. The US financial bubble and bust lay not in "animal spirits,"
but in the spirit of "market fundamentalism" [bought and paid for by banker lobbying on Capitol Hill and the White House] that removed all sorts of prudential regulations and allowed massive financial fraud (it was the financiers themselves who coined the term "liar loans).Virtually no one has even been indicted, let alone convicted.

Richard Katz
The Oriental Economist Report