TITLE:
Excessive Base Money and Global Financial Crisis in Relation to the Essence of the So-Called “Abenomics”
AUTHORS:
Goro Takahashi
KEYWORDS:
Financial Crisis; Abenomics; Excessive Money; Base Money; Money Stock
JOURNAL NAME:
Journal of Financial Risk Management,
Vol.2 No.4,
November
7,
2013
ABSTRACT: After the financial crisis of 2008, we are facing possibility of a global financial crisis further. Most of the financial crises have occurred in situations when there is so much money in the financial market, but they have not often occurred in cases when the market does not haveenough money. This thought, however, is not general common sense in the financial academic field. Based on general understanding, the cause of financial crisis is the lack of money with the rise of interest rates in the financial market. If the lack of money is the reason for financial crisis, then we have never met with any financial crisis, because most leading countries have much money in the financial market in nowadays. According to theory of Economics, government deficit plus current account surplus means surplus of savings in the private sector of the country. Currently, most countries with big-scale economy have big deficits in their national accounts. But there is enough money in the business sector. I focus on this aspect and then analyze the base money policy of the central bank of some countries, and analyze its effect or the meaning of excessive base money in the financial market. As a general economic rule, the excess of money in a financial market causes a low interest rate. On the other hand, governments are faced with less money. If enough money in the money market flows to the treasury account, the government gets national fiscal balance. But it is not easy for most governments to create the balance. The reason behind this is the failure of a national economic and fiscal policy, including tax policy. Many countries and communities are facing problems with the flow of money from the private sector to the government. This problem is one of the biggest international issues which should be solved immediately (Taylor, 2009). Of course, we cannot neglect the fact that there are countries having little money even their private sector like Greece, Italy, Spain, and so on. Economic growth is the only measure to solve the financial problem in these countries. I do not consider these countries in this paper. The financial markets that I focus on in this paper are the US, the EURO Area, China and Japan. Many experts and economic politician worldwide consider “Abenomics” noteworthy. It aims at increasing base money in the financial market of Japan. The biggest purpose of this policy is for breaking away from deflation. Japanese Prime minister Abe also expects devaluation of the Yen, and increase in Japanese export. Later in this paper, we will see that the amount of Japanese base money had been decreased by the Central Bank of Japan before the global financial crisis of 2007. The hypothesis is that the cause of a financial crisis in recent years is in the excessive financial resources in a financial market. This paper attempts to elucidate the relation between the trend of global base money and the financial crisis.