Doorsteps of a Currency Crisis
Economic Illiterates Debate Monetary Policy; Monetarist Mush
Japan's grand experiment of decades-long QE coupled with Keynesian foolishness is about to take one last gigantic leap forward before it plunges straight off the cliff into a massive currency crisis.
Please consider the New York Times article, "A Call for Japan to Take Bolder Monetary Action":
For years, proponents of aggressive monetary policy have offered this unusual piece of advice as a way to end Japan's deflationary slump and invigorate the economy. Print lots of money, they said. Keep interest rates at zero. Convince the market that Japan will allow inflation for a while.
Japan's central bankers long scoffed at such recklessness, which they feared would ignite runaway inflation. But now, the bank's hand could be forced by an unlikely alliance of economists and lawmakers who have argued for Japan to take more monetary action after more than a decade of weak growth and depressed prices.
Championing their cause is the former prime minister Shinzo Abe, who is favored to return to the top job after nationwide elections next month. Otherwise deeply conservative, Mr. Abe surprised even his own supporters by calling for the Bank of Japan to be much bolder in tackling deflation, the damaging fall in prices, profits and wages that has choked Japan's economy for 15 years.
In escalating remarks over the last week, Mr. Abe has said that he will press the Bank of Japan to act on government orders if his Liberal Democratic Party wins the Dec. 16 election and even rewrite Japanese law to reduce the bank's independence.
In a speech in Tokyo on Thursday, Mr. Abe said he would call for the Bank of Japan to set an inflation target of 2 to 3 percent, far above its current goal of about 1 percent, with an explicit commitment to "unlimited monetary easing" — an open-endedness that has caused jitters among some economists. The bank's benchmark interest rate should be brought back to zero percent from 0.1 percent, Mr. Abe added.
He went even further over the weekend, saying in the southern city of Kumamoto that he would consider having the bank buy construction bonds directly from the government to finance public works and force money into the economy, according to local news reports. That raises concerns, however, the bank may be called on to bankroll unrestrained spending on more roads and bridges that Japan does not need.
Economists cite several missteps by the central bank that have entrenched Japan's deflationary mind-set and made consumers and businesses wary that the bank's policies will stick. In early 1999, as the country's economic woes deepened, the bank lowered a benchmark interest rate to virtually zero and said it would keep rates at zero until deflationary concerns disappeared. But an economic uptick in mid-2000 caused the bank to raise that rate to 0.25 percent despite protests from the government that the move was premature.
Anyone who thinks an interest rate hike from 0% to .1% or even .25% has much influence on economic growth has "monetarist mush" for brains. Seriously.
The NYT does not name the economists but I have no doubt they exist. Highly respected (for no reason) Richard Koo is one of them.
I have written about Koo on numerous occasions. From Japan's decade long experiment resulting in public debt of a 1,000,000,000,000,000 yen (a quadrillion yen), Koo reckons Japan failed to defeat deflation because it did not do enough!
Japan is in a crisis all right, and it was entirely self-made by politicians listening to clueless economists all begging Japan to do something.
One Thing Worse
Central banks are bad enough on their own, but history shows that one thing worse than central banks acting on their own is central banks acting under control of politicians.
Committing to a little inflation will push stock prices higher, while a weaker yen will bolster Japan's exporters and strengthen corporate balance sheets. Incomes will rise, fueling consumption and raising tax revenue for the government, said Kozo Yamamoto, a lawmaker of Mr. Abe's Liberal Democratic Party.
"Basically, it's what the Bank of Japan should have been doing for the past 15 years," he said. "A few percent of inflation is nothing to be worried about."
US Populist Position
It's not just Japan loaded up with populist fools. The US has its share of them as well.
For example, Ellen Brown wants to end the Fed and put California politicians (state politicians in general) in charge of printing money to support "growth" as well as union causes.
As I have said, the one thing worse than having a Fed in charge of monetary policy is having politicians in charge of monetary printing!
For a discussion and an absurd video by Ellen Brown, please see Lawmakers Threaten to Take Over Monetary Policy.
Economic Nonsense Regarding Inflation, Consumption, Wages
Kozo Yamamoto preaches widely believed economic nonsense.
Inflation will not raise consumption. People do not stop buying things just because prices are falling. Computers are proof enough. Prices of computers and electronic goods have been falling for decades, yet every year the volume of merchandise sold reaches skyward.
History suggests people buy things when they need to or want to not just because prices are rising. Government interference and tax breaks can shift demand forward by a few months (for no real economic benefit, of course). There is only so much room to store things.
How much food or clothing can you store? Will you buy a coat you do not need just because prices are going up?
US QE Example
Take a look at the US.
QE has put a floor (for now) on asset prices but it has not done a damn thing for wages.
I discussed this at length with Lauren Lyster on Capital Account on November 3: Mish on Capital Account: Jobs, Real Wages, Income Distribution, Fiscal Stimulus. I come in at about the 3:00 mark but the first few minutes of Lauren are entertaining as usual.
Average Hourly Earnings vs. CPI
Average hourly earnings has been falling for years and lagging CPI inflation since September 2009. Simply put real wages have been declining. Add in increases in state taxes and the average Joe has been hammered pretty badly.
If inflation and QE forces wages and hiring up, then why didn't it?
The fear for Japan should be rising interest rates not deflation. If interest rates rise a mere 2%, interest on the national debt will consume 100% of government revenues.
When that happens a currency crisis awaits. I have long stated a currency crisis would happen far sooner in Japan than the US, and I believe we are about to find that out soon enough.
Posted by victorbarney on 11/26/12 05:14 PM
I'm sticking with Revelation in the Hebrew-Inspired Scriptures. More specifically, Revelations chapter 16:12 identify Iran & Iraq as the false prophet & part of the "Beast" and this sixth angel poured out his vial upon the great river Euphrates; and the water thereof was dried up, that the kings of the east might be prepared. Verse 13: "And I saw three unclean spirits like frogs come out and out of the mouth of the beast and out of the mouth of the false prophet. For they are the spirits of devils working miraclesm which go forth... and out of the whole wprld, to gather them to battle of that great day of El Shaddai. 15: Behold, I come as a thief. Blessed is he that walketh, and keepeth his garments lest he walk naked and they see his shame. Verse 16: he gathered them together... called in the Hebrew tongue Armageddon. Yes, there will be a cashless society, but even that lasts only 3 1/2 years! Again, just saying what's already been written...
Posted by Danny B on 11/25/12 01:57 AM
This is a very good article on the problems in Japan.
Click to view link
There is an excellent essay in "comments" indicating the the Japanese mafia draws off huge sums.
Posted by victorbarney on 11/24/12 03:16 PM
Obama, inspired by his MARXIST(ANTI-CHRIST) mentor, Bill Ayers, was actually RAISED IN THE AYERS HOME! Remember the 60's terrorist Bill Ayers, predicting a black president and using the UN to have BLACKS RULE OVER AMERICA, but WITH "WHITE" MARXIST BILL AYERS ACTUALLY BEING THE BOSS? TALK ABOUT RACISM? DUH! However, that's REAL 60's CHICAGO HISTORY FOLKS! Just saying... Therefore: WATCH!
Posted by Danny B on 11/24/12 11:11 AM
Here's an article relating currency debasement to social problems.
Click to view link
Posted by Danny B on 11/24/12 01:24 AM
Yup, Japan may be the first black swan to go splat. The FED is still in the race though.
"Janet Yellen spoke a week ago, she talked Evergreen:
The three elements of forward guidance that were adopted by the FOMC in September 2012 would have been unthinkable in 1992 and greatly surprising in 2002, but they have, in my view, become a centerpiece of appropriate monetary policy.
Right. What was, not so long ago, "unthinkable", is now the "centerpiece". These people are actually proud of this "accomplishment".
Click to view link
Millions worldwide have been forsaken by their god. Keynes last words of advice: " We're all dead in the long run."
Global wage arbitrage wiped out Japan. The economy should have shrunk enormously. The banking industry should have shrunk enormously. GOV printed to prop up that which couldn't survive on it's own. GOV liquidated the life savings of the entire country trying to save a system that was a horrendously outdated model for the current economy.  The price of commercial RE in Tokyo fell by 99%. Isn't that a strong enough indicator that a new paradigm was in force?
If nature had been allowed to take it's course, the Japanese bond market would have collapsed. The liquidation postponed the inevitable Austrian day of reckoning.