As the Bank of Japan struggles to avert a deflationary future, it's being prodded to look back — 85 years to be exact.
Ben Bernanke's ears must be burning with the media convulsing over what the former Federal Reserve chairman did and didn't say in meetings last week with Bank of Japan Gov. Haruhiko Kuroda and Prime Minister Shinzo Abe. The gist of the reporting is that Bernanke, a student of the Great Depression, wants Tokyo to issue perpetual bonds. These would be of the non-marketable, zero-coupon variety that the BOJ could buy, freeing the Finance Ministry from ever having to repay. And, poof!, the government would have more room to stimulate growth without increasing a debt burden already risking downgrades.
The financial press is wrong to color such a move as new, fascinating and potentially unworkable. All you need to do is look back to 1931, when Korekiyo Takahashi was named finance minister and took the national balance down a similar road. Such unorthodox thinking earned Takahashi a reputation as Japan's John Maynard Keynes. It also eventually got Tokyo's greatest reflationist assassinated. Yet, not before he offered some vital pointers to Kuroda and Finance Minister Taro Aso on how to escalate — and perhaps win — Tokyo's war on deflation.