The Bank of Japan just ended 8 years of negative interest rates.
Indeed, this is the first interest rate hike for Japan in 17 years.
According to Keynesian economics, Japan should have experienced an economic boom from all that monetary stimulus. It did not. Prices were stagnant. Wages were stagnant. GDP growth was anemic.
Japan spent more than 1.2 quadrillion yen in deficit spending trying to boost its economy, and all they have to show for it is a debt that’s over 200% of its GDP.
Yet deficit spending remains the preferred policy solution of just about every damn country in the world.
Back in the dim mists of time (i.e., the 1980s), Japan Inc. was going to take over the world. That didn’t happen either. Instead, the Japanese bubble, based in huge measure on wildly unsustainable real estate valuations (“At the peak of the bubble economy, Tokyo real estate could sell for as much as US$139,000 per square foot, which was nearly 350 times as much as equivalent space in Manhattan. By that reckoning, the Imperial Palace in Tokyo was worth as much as the entire US state of California.”) popped. There then followed three decades of economic stagnation.
Many will point out that Japan’s shrinking demographics make it an economic outlier, but a whole lot of Western nations aren’t too far behind.
You can’t deficit spend your way to prosperity, and attempts to do so end in disaster.