The spring weather in Cleveland has been pretty awful and, while it is bad for your golf, tennis, biking and hiking, a cold and wet spring has been great for TV. My wife has been hooked on “Chopped” for several years and I have to admit it is fun to learn something about cooking. My favorite part is when the 4 chefs find out what is in their baskets. It is inconceivable to me that the contestants can take rattlesnake, fennel, watermelon and peanut butter and come up with anything remotely palatable.
Without A Pantry They’d All Be Chopped
It has taken me a few episodes to understand it is all about the pantry. There is a stocked refrigerator with eggs, lettuce, nuts, butter, milk, cheese and a pantry complete with staples like flour and sugar, breads, vegetables, pastas, condiments etc. There is also every conceivable cooking appliance under the sun from a blast chiller and an ice cream machine, to a vacuum sealer and a deep fryer. It is really no miracle at all that the rattlesnake gets cooked just like chicken and put into a salad containing fennel and watermelon with a dressing using the peanut butter. The multiplicity of options saves the show and allows chefs to compete on creativity and experience. But they do make mistakes, and often experimental recipes are not successful.
How much different the show would be if there was no pantry and the chefs could only use one appliance- say a blender. Can you think of anything palatable that could come from using the bass o’matic to blend rattlesnake, fennel and watermelon and peanut butter?
Serving Great Meals With Only A Blender
In many ways the Federal Reserve Bank and central banks all over the world are facing the same dilemma and, with the exception of Japan, have been using blenders to apply monetary policy. If you want to lower interest rates you use quantitative easing techniques like the discount rate to banks, buying bonds in the open market and simply printing money. If you want to raise interest rates, you raise the discount rate, and stop printing money. These iron chefs have pretty skillfully manufactured prosperity from the depths of the Big Recession using only a blender.
But today their baskets contain some pretty strange ingredients. They have inflationary trends in some commodities but deflationary trends in others. They have pockets of wage inflation, but overall a relatively flat wage picture. They have dramatically rising interest rates but a volatile stock market that is certainly afraid of rising rates and an inflationary environment. On top of that they have a debt based prosperity that is 3x the size of the natural economy whose survival is completely tied to low interest rates. There are massive under-fundings in the state pension system and rampant risk taking to cure those deficits. The President is imposing tariffs and starting a trade war. The dollar is strong and rising when the country’s trade deficit begs for a weak currency. Finally, the Fed has created a balance sheet that only Michael Milliken would underwrite.
This is a lot of ingredients when your only tool is a blender.
Japan Invented The Monetary and Fiscal Pantry
Japan waited 20 years to discover that it had to invent a pantry. The psychology of deflation is pernicious. Savers who are not paid any interest at all actually profit in “real” terms if their deposits (or their cash) stay at par and the costs of good and services decline 2 percent each year. You prosper in Japan by sitting on your wallet.
This is what happened in Japan starting in 1991. Just recently Abenomics, named for Shinzo Abe, has started using a whole new set of appliances. Governor Kuroda, the Governor of the Bank of Japan, has come up with some pretty interesting tools for combating deflation. First he is charging depositors to keep their money in the banking system. Second he is trying to move savers into the stock market by causing it to rise by buying it for the BOJ. It is estimated that the Bank of Japan may own as much as 75% of the Nikkei. Third he has instituted a dynamic pricing mechanism for interest rates that allows for quick and dramatic fine tuning. Fourth, he has committed to a 2% inflation target—NO KIDDING THIS TIME! Ben Bernanke writing for the Brookings Institute summarizes BOJ’s QQE strategy as follows:
“Under Governor Kuroda, the Bank has adopted a policy of so-called quantitative and qualitative easing (QQE), including purchases of exchange-traded funds and other private assets as well as of Japanese government bonds. As a result of QQE, the Bank of Japan’s balance sheet has grown to a size equivalent to about 88 percent of Japanese GDP by the end of 2016. For comparison, the analogous figures for the Federal Reserve and the European Central Bank are about 24 percent and 34 percent, respectively.”
Mr. Bernanke clearly admires Kuroda’s pantry and supports its importance in manufacturing inflation to soften the worldwide cost of borrowed money. Remember, like chefs who get chopped, not all central bank recipes succeed. It would not surprise me at all to see The Federal Reserve System get rid of its solitary blender in favor of a pantry just like Japan. How else can the iron chefs of monetary policy make rattlesnake palatable to the unsuspecting public?
