Thomas Mayer is emeritus professor of economics at the University of California, Davis. He previously taught at West Virginia University, Notre Dame University, Michigan State University, and the University of California, Berkeley. He is known for his work in monetary policy and economic methodology.
Zentuccio: Would you comment on Japan’s moves?
Thomas Mayer: It is another money injection into the global economy and it will lead to all sorts of changes in relative prices. The most visible are the exchange rates. That can cause pain in some countries. Asset prices are also changing. Traditionally these are fixed income assets in t e euro area, within the euro area core country government bonds, German, French, many Dutch. This – in my view – leads to new distortions in relative prices.
You mentioned relative exchange rate changes. What do you expect? We know the JPY is going to weaken, it is out of question. Is it difficult to stop that?
Thomas Mayer: Well, this is the big question. They are presently happy with the weaker JPY as long as the economy remains subdued, as long as the inflation rate is zero or negative. From that point of view a weaker JPY for Japan is not a problem. It could become a problem in two ways. If a sharply weaker yen creates a negative financial shock to the rest of the world, Asian economies could slow, that wouldn’t help. A collapse of the JPY could be very counter productive. The other effect of course is that a collapse in the JPY could raise the inflation in Japan. It is an interesting experiment but it has risks.
What about other currencies? EUR vs USD? Bitcoin?
Thomas Mayer: It is a new money injection to the global system. It will effect the other currencies in a way that they do not move in parallel. When you see other currencies go up in value it will put pressure on other central banks. This can lead to globally easier monetary conditions and this could raise the price of alternative money.
Do you think the ECB might also start printing money?
They can always print money. LTRO was a big money printing exercise.
What if the euro gets way too strong?
They can buy Japanese assets. They can’t buy federal government bonds because there is no federal government.