There has been quite a bit of discussion regarding monetary policy lately, specifically for Japan and the US regarding quantitative easing. Japan has again started their use quantitative easing again while the US seeks to reduce theirs. This begs the question what exactly is quantitative easing?
In it’s most basic form quantitative easing is a monetary policy that works by a central bank buying specific amounts of financial assets from commercial banks and private institutions (a bundled package of bad loans). This increases the portion of the commercial banks reserves that are held in the central bank, and the total currency circulating in the public, there-by lowering the cost of the assets.
This means that it increases the money supply making debts worth less. This is often seen as a last resort monetary policy and is aimed to put a failing economy back on track. While this can be very effective, quantitative easing has its flaws and criticisms.
Japan is now attempting to use quantitative easing, like the US did in the face of the great recession. The Prime Minister of Japan has a “Three Arrow Plan” that involves 1. Quantitative easing, 2. Financial stimulus, and 3. Reform. The major controversy with quantitative easing that economists argue is if it creates too much uncertainty and inflation. This leaves many economists asking if quantitative easing hurts more than it helps.
It has been noted that excessive growth rates of the money supply can lead to hyperinflation. That is why the US has started slowly reducing quantitative easing from 85 billion per month to 10 billion to month. While this still causes inflation, economists argue that small amounts of inflation are good for the economy, similar to the way that being exposed to small amounts of germs are good for the human immune system. The argument is that small amounts of inflation reduce the severity of a recession letting labor markets adjust more quickly in a down turn.
All things considered, it will be interesting to see the outcomes in the next few years for both the US and Japan regarding their economy and the inflation rates.
Whisky
Yamazaki 12 single malt
An ideal paring would be Yamazaki 12 single malt. Yamazaki is medium in body with a honey and fruit nose, like the sweet sound of a plan to get the economy back on track. On the pallet it has a scotch-like mellow taste, with a lingering dry finish reminding us of the lingering effects inflation can have on the economy.
Japan started producing whiskey around 1870 but did not gain international popularity until 2000, the same year that Japan first used quantitative easing as attempted monetary policy, which was the first try at quantitative easing in the world. Yamazaki is also a trendsetter, being from the first distillery in Japan and one of the first whiskeys to be made in Japan.
A Dram for Your Thoughts 