Lets Compare 90s Japan's Loose Monetary Policy

2021年5月19日

Its good to sometimes look and compare at what history has done when we governments allow loose monetary policies followed by sharp increase of interest rates. During the late 1980s, Japan growth was largely pushed by ease of borrowing and increasing money supply. By late 1989, inflation worries lead Japan to increase their interest rates which ultimately killed their stock market, causing a 60% drop in their stock market following the next 2 years. We can compare their loose monetary policy very similar to what we have today in our economy. We have continuous purchases of treasury bonds monthly thus increasing our money supply and worries of inflation, especially with latest CPI report. There are only 2 plays the Feds can do to combat inflation, limit the money supply by stopping purchases of Treasury Bonds or increase interest rates. Both will inevitable clap the stock market.

The charts are eerily similar and exactly half in both price increase and time. We could maybe see more growth with time, but no matter these are the actions caused by governmental involvement in the stock market.