The irony, though, is that Japan is the leader in printing money. They have been doing it for many years and their interest rate has been 0 or negative for two decades. Source: https://tradingeconomics.com/japan/interest-rate
Krugman has been shouting about this for at least more than a decade.
Think of Modern Money Theory as this crazy theory that challenges our intuition but actually makes sense if you really understand it.
> there is apparently at least some circumstances where printing money doesn't lead to inflation
If everyone in the USA (and the world) decided tomorrow not to hold the USD any more, you'll have hyper-inflation in the matter of a few hours. Printing money is just one variable to inflation; and not really a very important one if you have lots of money flowing already in the economy.
In his defense, he did win a Nobel prize in Economics.
How does one get to the point of understanding it?
There is a whole class of people that built fortunes just by sitting on money. Working people had to pay these other people and for what?
The productive capacity this money enabled. Except instead of the gov doing it 1000 miles away, they had skin in the game, took risks and monitored the situation to ensure success.
Not printing enough money. Sometimes the problem is not that you’re not doing the right thing, it’s that you’re not doing enough of it. Look at housing supply and prices in the US and in Tokyo. At one end you have places with a system designed to come as close as possible to a ban on new housing like San Francisco, with their never ending escalation of house prices and rents. At the other end you have places like Houston with quite moderate rises. In the middle you have New York which isn’t as bad as San Francisco or Seattle which has actually seen prices fall over the last two years they’ve built so much. Way over beyond that you’ve got Tokyo growing 50% in population in two decades with flat house prices and rents.
From 2016
> As FT’s Tokyo bureau chief Robin Harding wrote in the article, the city had 142,417 housing starts in 2014, which was “more than the 83,657 housing permits issued in the state of California (population 38.7m), or the 137,010 houses started in the entire country of England (population 54.3m).” Compare this, also, with the roughly 20,000 new residential units approved annually in New York City, the 23,500 units started in Los Angeles County, and the measly 5,000 homes constructed in 2015 throughout the entire Bay Area.
https://www.forbes.com/sites/scottbeyer/2016/08/12/tokyos-af...
Unfortunately there is no publication date but the meta tags in the sources and the dates of linked documents hint to ~1999.
Also, for people who don't have the context, check out the "Lost Decade": https://en.wikipedia.org/wiki/Lost_Decade_(Japan).
> The Lost Decade or the Lost 10 Years (失われた十年, Ushinawareta Jūnen) was a period of economic stagnation in Japan from about 1991 to 2001, caused by the Japanese asset price bubble's collapse in late 1991. From 1991 to 2003, the Japanese economy, as measured by GDP, grew only 1.14% annually, well below that of other industrialized nations.
When someone deposits money into their bank account, the bank isn't required to keep the full amount in a safe. Banks are actually allowed to lend part of the money without even asking anyone. When they do this, they create money out of nowhere and inflate the economy.
If someone deposits $1000, they can lend some percentage of that value to other people. Something like $500. That's newly created money that isn't backed up by anything and exists only as numbers in a database. It will only become real money when the debt is paid... However, modern economies seem to built around having as much debt as possible.
Printed currency is nothing compared to this.
not just part of the money. most of the money (fractional reserve banking.) and recently, the fraction to be held in reserve was lowered to ~0 iirc
Yes, I agree completely. I didn't remember the exact exact figure so I said "part of the money" in order to be less wrong...
> recently, the fraction to be held in reserve was lowered to ~0 iirc
Wow that is ridiculous... Is that in the USA? What country did this?
If withdrawals get out ahead of collections on debts held by the bank, FISA can (will) step in and make the withdrawing parties whole. The bank now owes FISA and can repay at leisure. This works even if the bank experiences a run, FISA has a bottomless wallet.
If credit issued exceeds 100% of "held" assets, that's clearly fraudulent, it will never work out. But compelling banks to hold some arbitrary amount of the leverage is pointless.
The bank is of course in trouble if defaults exceed the interest on loans, but that was already the case. A 0% balance surfaces this problem faster, and again, FISA pays out, acquires the outstanding debts in lieu of full repayment, and the bank goes bankrupt. No big deal.
A leverage ratio of 4% would mean that for every $1 of capital that a bank holds in reserve, the bank can lend $25. (1/25 = 4%)
https://en.wikipedia.org/wiki/Secular_stagnation
http://larrysummers.com/wp-content/uploads/2014/06/NABE-spee...
The only issue will be when Japan has an ungodly amount of old people with no money to take care of them because the gov spent it all. And no population to tax because they stopped having children.
And no goods or services because not enough people are providing them.
A situation with low inflation is not that.
The equity investment made with proceeds from yen denominated bonds, so it doesn't imply a bet on a weaker dollar (the debt would be more expensive to repay if the yen were to strengthen)
Berkshire has made large investments in companies (outside their insurance float capital) where they weren't buying 100% ownership. See their investments in Goldman Sachs, BofA, Pilot Flying J, Nebraska Furniture Mart, and others.
Buffett and Berkshire are attractive as an investor because they send a strong confidence signal and because they are known to be extremely hands off.
A second reason might simply be that he got an amazing deal. An interesting takeaway I got from reading University of Berkshire Hathaway is that people call him to buy their companies, usually not the other way around. It's possible that he got a call from struggling companies and decided it was a good deal.