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What's more, economic recovery will come faster through tax cuts than through monetary pump priming.
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Japan's monetary pump-priming is "like a morphine addiction that is getting worse," Ryutaro Kono, chief economist for Japan at BNP Paribas, said Tuesday.
This is exactly what happened during the 1920s, as the Fed's monetary pumping was masked by rising productivity.
"There was a kind of excessive euphoria; undoubtedly the QE monetary policy pumped up asset prices but didn't do much for pumping up the real economy.
Interest rates on savings deposits are approaching zero as the Hong Kong Monetary Authority pumps money into banks in an effort to prevent the Hong Kong dollar from appreciating against the American dollar.
But as soon as the monetary authorities pumped money, Japan turned around on a dime.
Unlike previous pre-election periods, he has not felt obliged to pull fiscal or monetary levers to pump the economy.
The report, the third consecutive monthly downgrade by the Bank of Japan, came a day after the bank eased monetary policy to pump more money into the financial system in an effort to revive the economy.
And although loose monetary policy helped pump up the recent property bubble, there is much more debate about its contribution to the 1920s boom.Where study of the Depression is more helpful, though, is in steering clear of deeper trouble.
Both are effectively importing loose U.S. monetary policy, which pumps up asset prices.
The central bank is also widely expected to add to its already unprecedented monetary easing by pumping more cash into the economy later this year.
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