How the ‘Federal Reserve Boom’ Ends

You’ve got me turning up and turning down
and turning in and turning ’round
I’m turning Japanese
I think I’m turning Japanese

– The Vapors

Dear Diary,

Are we all turning Japanese?

For longtime Diary sufferers it’s a familiar question…

We’ve been asking for almost 15 years — ever since we saw the US following in those Japanese footsteps, running from a big boom…to a big bust.

It all started for us when we were driving out to the country one evening many years ago. To keep the children occupied — there were five of them with us at the time — we asked them what they wanted to be when they grew up. Imagine our surprise. Among the fighter pilots and TV stars was one little boy who replied, ‘I want to be Japanese.’

Manga cartoons were popular at the time. So were Japanese video games. Japanese stocks, on the other hand, were not.

After hitting 38,000 points in 1989, Japan’s Nikkei stock market index (the equivalent of the Dow) fell to 7,000 in April of 2000.

Meanwhile, every smokestack in Nippon seemed to take a breather, every working man got 10 years older and every financial journalist wondered what was wrong with a people who had been so dynamic just a few years before.

We foresaw the same for US stocks and the US economy.

Maybe we were just 14 years — and counting — too early. Maybe we were just wrong.

Abenomics has been a disaster

The Financial Times managed a particularly lunkheaded editorial on the subject of Japan in yesterday’s edition.

After rehearsing all the prime minister’s failures, it concluded that although the exuberance had gone out of Abenomics, Shinzo Abe ‘must continue with his course and not allow himself to be distracted.’

On the evidence, the Japanese prime minister would do better going and playing golf. His interventions so far have been ineffective or disastrous, depending on how you look at them.

The poor man came into office promising to break a long losing streak. Since 1990, Japan’s stocks and real estate have been flattened…its once smooth-running economic machine coughs and sputters…its people are getting older and its population is shrinking… and its public debt load is getting bigger.

As the FT put it, Abe came into office and brought a ‘huge fiscal stimulus followed by a massive dose of quantitative easing. This appeared to jolt Japan out of its deflationary torpor.’

Until the second quarter of 2014…

Then it became obvious that Japan was in an even deeper torpor, with GDP shrinking for the April-to-June period at an annualized pace of 7.1% — the worst performance since the Tōhoku earthquake, tsunami and nuclear disaster in March 2011.

All that Abe really seems to have wrought is a tax increase…and Japanese government debt approaching 250% of GDP.

Airy claptrap

Abe is another data point that confirms our hypothesis:

Modern policymakers (central bankers most prominent among them) are either fools or knaves. Their programs are senseless and useless. Their theories are nothing more than airy claptrap.

But we admit that we live in an age of manmade wonders. We’re ready to be impressed. The trouble is the Abes of this modern era seem to lack imagination.

What is wrong with them?

Surely, there is something else officials can do, other than the same things that have never worked before. You cannot cure a debt crisis with more debt.

Why not try less debt?

And now Europe and the US are turning Japanese, as we predicted more than a decade ago.

Instead of Japan’s growth rates catching up to the rest of the developed world, growth is slowing to Japanese levels.

Instead of Japanese interest rates rising to match those in the rest of the world, in Europe and the US they are falling to match those of Japan.

And instead of Japan’s birthrate rising to keep the population more or less even with its rivals, women in Europe and America are having fewer children, too.

And we need not tell you that people in the developed world are all getting older, just like the Japanese.

How do officials react to the challenge?

They have also turned Japanese…


Bill Bonner
For Markets and Money


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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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