And so the game continues: One printing press has been shut off and another cranked up.
Japan took the markets by surprise when its central bank decided to increase the monetary base by increasing bond buying. The announcement came after the US Federal Reserve ended its quantitative easing.
Japan is once again close to deflation. But the post-2009 experience shows that while unconventional monetary policy initially helped stabilize economies hit by the financial crisis, the impact on real activity has been modest. Global demand remains weak, but financial markets have become hooked on the opium of easy liquidity. Central banks in rich countries have offered investors cheap put options, while their emerging market peers have struggled with the effects of surplus global liquidity: asset bubbles, excess corporate leverage and appreciating currencies.
Drugs can ease pain, but can’t cure the patient.