CHAPTER 11The Narrow Road to the Deep North: Fixed-Income Skew and Signatures of Japanification

What ails Japan, the United States, and many other countries is financial deleveraging. There has been much talk about “Japanification” because the Federal Reserve response to deleveraging is to follow the Bank of Japan (BOJ) policies but compressed into a shorter overlapping time frame. This imparts the look and feel of the Japanese experience. Aside from this policy compression, there’s nothing new in the policy brew. The monetary policy compression and fiscal excesses arguably have made the next step—a tax increase—even more imminent than when Japan instituted its consumption tax.

Central banks can salve financial system wounds, but the wounds must ...

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