The Japanese economy is actually worse than it might otherwise appear. As I broke out this morning, three of the past four quarters have seen negative GDP placing the break toward recession in the last three months of 2013 (not with the tax change as is being proclaimed). The average growth over the past year is -1%, with two -1.6% quarters bookending a quarter at +6.7% more than canceled by the next sinking -7.3%. The Bank of Japan’s response to that is to try to boost “inflation” even more.

That “job” has become much “harder”, as even the BoJ stated in increasing QQE at the end of October. They were referring to the global drop in the price of crude oil and its downstream energy products.

That highlights a very curious aspect of modern orthodox thinking with regard to prices, an incompatibility and ultimately a paradox from which it can never really escape. “They” just hope you never notice.

We can clearly see this in the commentary about oil prices in the US:

The windfall [collapsing oil and gasoline prices], experts say, comes at a critical moment, with the American economy on the upswing but facing headwinds from other quarters, including weaker exports because of slow growth overseas. Gas prices recently dropped below $3 a gallon for the first time since 2010, while crude oil prices have fallen by more than $25 a barrel since midsummer, settling on Thursday just above $74.

“If oil prices stay between $75 and $95 a barrel, we would see the kind of stimulus package that the Federal Reserve or Congress could never do,” said Douglas R. Oberhelman, the chief executive of Caterpillar, the multinational maker of heavy construction equipment.

That is more than curious since the same media outlet has relayed countless stories derived from orthodox economists that “deflation” is an unqualified economic dispirit, something that is evil incarnate in the modern economist’s bible. Seriously, falling prices are never, ever given this type of treatment in orthodox narration, suggesting that there must be some kind of special carve-out for a decline in energy prices, but only at certain times and under certain circumstances. Given that there is clear nervousness about the state of even the US economy, I suppose it “makes sense” that oil prices falling now (on nothing but over-supply, of course) is attributed positively where it would not have been in, say, 2013.

Yet, here we are taking in conversation about how lower prices are somehow now a “windfall” in the manner of “stimulus package that the Federal Reserve or Congress could never do.” It’s a cute sentiment but isn’t really accurate, as the Federal Reserve would never intentionally allow prices to drop, as the BoJ “helpfully” illustrates via more QQE. In that sense, the central bank’s primary purpose is to see that consumers are never given such windfall.

That orthodox definition actually applies more broadly, including as it does wages in the definition of “inflation.” That makes about as much sense as “despising” lower oil prices, but the fact of the matter is that in pegging an inflation target the Fed takes the other “end” away from consumers too. In other words, if wages start to rise by “too much”, the Fed will engage in methods to stamp it out.

So a central bank is really dedicated to making sure if wages rise or energy prices fall, the benefits of either of those are never realized for very long. I’m sure it all makes sense to those trained statisticians looking at their regression equations of variables pre-programmed to yield such multipliers as it takes to express that, but in the real world rising wages, even “too much”, are a signal of a healthy economy while falling oil prices are always and everywhere welcome – especially since their nearly decade-long stretch of flirting with $100 per barrel is due entirely to the same monetary intrusion that actively seeks both high oil prices and low wage growth as a matter of ingrained policy mechanics.

Absurdities abound in monetary economics, but only some of my commentary here is actually and likewise absurd. If you stop and think about it, outside of all the math and rhetoric, that is what central banks aim for even if it they take a temperance approach to “inflation.” Further, that is why the global economy is in such a shape, as despite all the ideas of “managing low inflation” it never turns out that way and people and businesses know it. But in the darkest times they will accept this paradox, briefly, in the despair that anything is better than the possibility that prophecies of deflationary doom come true. Unfortunately, a few months of “needing” some “inflation” has turned into seven years of malaise, exactly as you would expect of just such priorities.