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It has always seemed to me that for a Ka-Poom scenario to progress into the Poom stage, it is required for the central bank to completely relinquish it's independence, promise to monetize the debts of the government (in sense of really ripping up the paper on its balance sheet as opposed to just keeping it there temporarily) and communicate to the government that it can consider certain debts it purchases to be completely forgiven.
At the current stage this "taboo" is not broken. The government still acts under a paradigm of balancing it's budget. Poom can only really happen when it no longer feels constrained in this way.
Now, what kind of event can cause a government to think in "consolidated balance sheet" terms, i.e. to act under the convinction that the central bank is firmly on their side rather than temporarily lending them support in the name of price stability?
I think historically the only kind of event that regularly brings about this paradigm shift is war. War is the excuse to completely relinquish the independence of the central bank. If no real war opportunity presents itself, an excuse may be used, or an emergency can even be staged or engineered.
Is Japan an exception to the rule? Its central bank has raised its inflation target recently, but it still acts with the intention to stabilize price growth at a certain inflation rate. It's a bit of a borderline case.
At the current stage this "taboo" is not broken. The government still acts under a paradigm of balancing it's budget. Poom can only really happen when it no longer feels constrained in this way.
Now, what kind of event can cause a government to think in "consolidated balance sheet" terms, i.e. to act under the convinction that the central bank is firmly on their side rather than temporarily lending them support in the name of price stability?
I think historically the only kind of event that regularly brings about this paradigm shift is war. War is the excuse to completely relinquish the independence of the central bank. If no real war opportunity presents itself, an excuse may be used, or an emergency can even be staged or engineered.
Is Japan an exception to the rule? Its central bank has raised its inflation target recently, but it still acts with the intention to stabilize price growth at a certain inflation rate. It's a bit of a borderline case.
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