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<The Japanization through the disinflation>
The risks of global disinflation seem to have been recognized by financial and economic policymakers of various countries recently.
On the latter half of November, financial policymakers of Japan, Euro and US showed such a view one after another. As a result of that, the FRB will be likely to be going to continue QE3 which had been worried about its early closure. The ECB decided to cut policy interest rate to the lowest level with overcoming opposite opinions of a part of market participants who were worrying about distortion caused by lower interest rate.
In the background of such a tendency, there may be a view that today’s global economy are on the verge of shrinking and balanced contraction due to chronic lack of demand. These situations cannot be understood by neoclassical economics models which suppose equilibrium of supply and demand, and the plot of issues is similar to experience of our country in this 2 decades.
In fact, I wrote about something like that on the article “The fate of the competition of quantitative easing” 3 years ago. The essence of issues which are lying under both of the end of 90s of our country and today’s global economy is extinction of artificial bloated demand.
<The similarity between late 90s and today>
At the end of 90s, our economy had been cornered by the credit crunch occurred by the nonperforming loan problem, coupled with Asian currency crisis, consumption tax hike and turning into reduction of labor force population.
Business trends of the private corporate sector were focusing to eliminate excesses in 3 areas that is employment, production capacity, and debt. Its result can be seen on investment-savings balance by institutional sectors, where the corporate sector has turned into fund surplus and excess savings of the household sector have reduced. In addition, the redistribution function had been weaken by the political conversion to neo-liberalism of those days, including collapse of domestic interregional income redistribution and circulation system.
Those look like correct if seeing individually, but as a result of that, demand which had been bloated by debts or benefits decreased, and that also caused reduction of earning of creditors.