With current tendencies towards discount rates (the way they create expectations for the future versus now) our current thinking is more guided by the willingness to postpone policy decisions for making corrections into the distant future than now, what else do we expect in terms of announcements? The appearance of a change, not change itself, the way it ruffles the edges of volatility, one wonders what would happen when change would actually happen. 'Even lower numbers on inflation', would further postpone change to happen as wage-price stickiness would have more profound influence.

Social justice is the culmination of the principle of social equity when advancement to the living conditions are based on mutual cooperation where the least advantaged by virtue of their being so is not the reason why they should continue to be belittled when opportunities for making progress is being meted out; a sacrifice by some if it is needed should not be left to those who are already least advantaged.

Why don't we speak of government debt versus the government revenue, if that is not on strong wicket, what is the point in lamenting against austerity?

To exemplify the limit of current policy, let me take the "Apple problem" to the larger arena of the S&P 500, where cash and cash equivalents are at $1.4 Trillion, which is the excess cash over investments within the ambit of their businesses. As the businesses are generating a healthy bottom line, the ROE on the capital invested in the businesses need to be compared to that excess cash invested in financial assets, and the outcome of this comparison does not need any guesses, the financial assets are returning a fraction of what the capital invested in the businesses are returning. But there is a critical threshold beyond which the last dollars invested in the businesses would be generating any better ROE and in most of these companies that threshold has been reached. There is also a need for tax purposes that limits the cash to be brought back from abroad and that is also a reason why cash is locked in financial assets off shore. Given this situation there are two ways to act, either to change through further innovation where the last dollars invested would generate still comparable returns, or else release this cash to shareholders for them to reallocate capital to those sectors that have a better return possibility. This second option seems to be dumped by the boards, for the simple reason that its impact on the stock price in recent times have been negative; it is like saying, “we are returning the money as we do not know any better use of it in the company”. Given this scenario how does the QE do any better, as liquidity is hardly the problem and how does further credit easing make businesses do any better?

I am drawn into the inter-connectedness of the three very important parameters, that is,labor force participation rates, wage rigidity and inflation expectation, all of which have been influenced by the current monetary policy concurrently. Labor force participation rates have been falling, wage rigidities have remained steadfast and the Phillips curve appears to be moving downwards and leftward, while the inflation expectations have been kept ultra- low by the policy instruments for a protracted period of time as interest rates are negative that furthers the cause of liquidity preference. Even gold is not spared, which so far had been the harbinger of an unique one-directional upward movement for quite some time. This is a noteworthy shift propelled by a policy regime that has so far remained particularly rigid in creating and sustaining an inflation expectation, which is low. It is time we examine the critical elements of labor force participation rates around the zero lower bound interest rates that have so far stymied all inflation expectations and have ushered a downward spiral. Theoretical literature is agog with the suggestions of an ultra-low inflation rate as the optimal solution to welfare, but practically every Central Bank tries to create a positive inflation expectation regime to create a flow of jobs that makes easier adjustment to relative wages for the purpose of “greasing the wheels of the economy”, as Tobin et all in 1970 had written. But Akerlof, Dickens and Perry have also shown in 1996 that in the presence of downward nominal wage rigidity, a central bank which aims at an inflation rate which is too low will lead to higher steady state unemployment, thereby reducing welfare. Central banks have in fact now attained the limits of ultra-low or negative inflation expectation thus making the employment situation rather uncertain as wage rigidities is one single largest contributor towards making labor force participation rates dwindle for the worse. On closer inspection of the downward normal or real wage rigidities many authors have pointed out to this phenomena which is that a worker in a ultra-low inflation scenario does not agree to the wage on offer if it is too low as he is under the pressing assumption of inflation not ready to pick up any time soon and his desire to set a different wage rate than what is on offer stems more from the fear of losing the ability to get a better rate if the low rate on offer is accepted. Further to this the rigidity to not accept a low rate at the zero lower bound is due to a heightened period of inaction where workers wait for rates to stabilize in the hope that they would get better; this period of inaction is much smaller in duration when the inflation expectations are higher. More research to solve the individual and dispersed wage-setters dilemma is yet to establish the causal linkage of why the period of inaction should be longer when the inflation expectations are weak that may lead to eventual dropping out of the worker; in most cases the worker finally lands up in service sector jobs even when he is not enrolled as participating in the labor force, which is also a problem of polling and data gathering. Workers only react to inflation adjusted wages or the real wages. It is not that high inflation causes low unemployment (as in Milton Friedman's theory) as much as vice-versa: Low unemployment raises worker bargaining power, allowing them to successfully push for higher nominal wages. To protect profits, employers raise prices. So in a depressed economy when inflation expectations are negative, workers do not have bargaining power and the higher duration of inaction sets a downward spiral in wage and with further prolongation of this phenomenon the labor force participation rate falls.

I do not know why the two most important indicators, jobs to applicants ratio and % growth in new job offers, never feature in the headlines. By any count U.S. far lags Japan in both of them (Japan has 0.85 as the first one and 1.5% as the second one till the last reports came in February'13).

Let me raise a related point when debt is also related to the relative ability to save in excess of the investments. The case in point is Corporate America. Corporate America is one of the highest savers and it has an excess savings over investment of close to $1.5 Trillion, most of it privately held. This savings glut could have been mellowed had there been investment avenues (fixed investments) in the businesses Corporate America operates in, as going by the earnings per unit of capital invested, the rate of return is higher than what one would otherwise have been able to muster through the current investments that are outside the ambit of their current business arena. The obvious reason is lack of demand and the capacity overhang which is already so huge in the businesses where they operate. I do not see how the monetary transmission alone could change this savings glut to move from those stashed in assets that are non-core to the business to shift to the ones that are core. Further rising of debt levels is a no-brainer to Corporate America.

Excessive money printing, not an ailment, right, as long as the 'explosion' in financial assets that ensues such money printing does not influence the inflation in non-financial goods and services; how sequestered the two worlds are, thanks to the wizards, that one is completely insulated from the other. But is that really possible?

I was only refering to the statement, "The propensity to misrepresent seems to be unrelated to measures of incentives for top management, to quality of risk management inside these firms or to regulatory environment in a region." How can the propensity to mis-represent be unrelated to the regulatory environment in a region? Does it not mean that the regulatory environment has failed to deliver? Bankers will remain bankers, as they are even now. The system must run regardless of what they are.

Asset quality mis-representation is a normal and routine phenomena, every transaction has a seller who tries this, starting from corporate to households, why single out financial intermediaries? Every marketer tries this on thousands of products and therefore we have governing regulation which must act to stop one side to profit at the cost of the other in an unfair manner. This is also related to asymmetries of information where there is a role and a broader question on regulatory capture.

Of the myriad of ways that the charts could be interpreted, the biggest remiss would be to interpret a causality or a non-causality of government spending with GDP.

Fully agree with you. The overwhelming might of the financial sector and its growing influence was so much in evidence in the run up to the crisis that saw unprecedented sequestration of public money in bail outs while the financial markets stopped lending and created the famous ‘inverse Turkey problem’, which was the root of the severity of the crisis. It has virtually taken the world’s polity to the knees into begging the sector to lend after financial deleveraging was orchestrated at a scale which dwarfs all previous bail outs. When regulatory capture is so completely biased to serving a sector that is the source of all prosperity for the ‘deserving privileged’, what would a frail Consumer Finance Protection Bureau do, with whatever little public support they gather from the rather naïve commentaries as this one?

The article by Bhagwati is quite a let down; for blaming the government and leaving the corporations go scot free, we are in fact creating an example of double standards as far as principal employer is concerned. We have always the done the opposite (BP, Exxon, etc) in the past and that is the right way. Chasing the Bangladesh government for things not done by them in the area of social progress is a different matter and should not be mixed with the corporation's responsibility and accountability.

4% inflation may not be bad, but the biggest beneficiaries to the low inflation regime, the banks, would be the biggest losers then.

Hi Pain, Your hopping train of words, missed the station That I was to turn off From my pane I kept the watch though Lest the perverse attraction of an opportunity Not go a begging in the trivia Of a binding engagement

One would be attracted to the much touted coordination issue as mentioned by Tim and it seems Japan is moving from Long-termism to now extreme short-termism where monetary and fiscal policy would be moving to one singular coordinated approach. This is in sharp contrast to the general acceptance of the thesis that the two authorities have independent view of how the economy works and central banks in general look at the long term view of things while fiscal authority (although not overtly mentioned) have a binding role to look at the short and medium term due to pressures from the polity. It is simply not the assumptions that lead to the different view, but objectives as well; however scatter plots of variables that augured well during a loose fiscal policy regime with that of M1, and the same with a tight policy regime with M1, did not show very high correlation either. It would be interesting to see the new experiment in Japan. Procyon Mukherjee