Today, the Diet Members’ League to Examine the Issuance of Government Paper Money and Inheritance Tax-Free, Zero-Interest National Bonds presenting its recommendations to the Ministry of Finance and the LDP Policy Research Council. If you can’t guess what they are recommending, this highly negative take on the two ideas should shed a little light on the issue. I’m posting on this issue again because a media report says that the inheritance tax reduction (apparently, the DMLEIGPMITFZINB has backed away from the “tax-free” idea) is “intended to increase the liquidity of personal assets”.
Now I don’t know exactly what the DMLEIGPMITFZINB means by “personal assets”, but we won’t be losing much by way of logic if we limit consideration to financial assets and real estate. It’s probably safe to assume that people do not have hundreds of millions of yen in paper money lying around the house unless it’s the kind of money that, to put it gently, they don’t want people to know that they have. Bank accounts are another matter, but I don’t see how using that money to buy government bonds “enhances” the liquidity of personal assets. They could sell government bonds already in their possession, but I again fail to see any changes in “liquidity”, the only effect being a trade-off between lower inheritance tax revenues for smaller interest payments whose consequences for the national treasury is dubious at best. If they sell corporate shares to purchase the government bonds, then you could argue that “liquidity” has been enhanced. However, in these times, you want to encourage people to buy shares, not sell them. Same thing goes for real estate, whose prices have resumed their downturn in metropolitan areas as well. (It has never bottomed out in the provinces.)
So far, I have implicitly assumed that the assets in question are domestic ones. But they need not be. In fact, if people sold off foreign assets to finance the purchase of the government bonds, the immediate effect would be that that government can finance its deficit spending without crowding out domestic borrowers. Although there is a whiff of that beggar-thy-neighbor stench, it might be a nice way for all those people who have been losing money in the forex market to recoup some of those losses through the tax break. But I detect no movement to limit the measure to overseas assets.
This idea is as bogus as it gets. So, if you see Kaoru Yosano, please tell him to read my blog so he won’t have a change of heart. Thanks.
As for government scrip, I still believe that it’s a dangerous idea. But at least it makes as much sense as helicopter money.