Japan’s Desperate Lunacy

Japan hit the markets last week with a zany announcement. It said it was going to double its base money supply!

Reuters – The Bank of Japan unleashed the world’s most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows.
 
New Governor Haruhiko Kuroda committed the BOJ to open-ended asset buying and said the monetary base would nearly double to 270 trillion yen ($2.9 trillion) by the end of 2014, a dose of shock therapy officials hope will end two decades of stagnation.
 
The policy was viewed as a radical gamble to boost growth and lift inflation expectations and is unmatched in scope even by the U.S. Federal Reserve’s own quantitative easing program.

Will it work? Will it put some life into the Japanese economy?

Richard Koo says no. He maintains that this kind of monetary stimulus won’t do the trick. Because businesses and households are still rebuilding their balance sheets, paying down debt. The Japanese feds may make more money and credit available, he says, but the real economy won’t take it. Instead, the money just goes into the (speculative) stock market.

Yen fell on the news. The US stock market was unimpressed. The Dow fell 40 points on Friday.

What to make of it? The world’s third-largest economy. A jolt of money-printing unprecedented in world history. And the Fed, Bank of England and the European Central Bank all following along.

The BOJ says it just wants to get inflation to 2%. It says it will buy assets with money that didn’t exist previously…and keep buying…until inflation reaches 2%.

Then what? Well, we guess it will stop. And then what? Then, it will have an economy that has come to expect ¥70bn in new money every month. And an economy with a monetary base of BOJ assets maybe twice what it is today.

We don’t know what that will mean. Will the economy collapse when the money-printing stops? Or will the economy pick up…and the banks begin to lend…and the people go on a spending binge?

Or will investors all over the world dump their yen back onto the home islands… eager to get out of the Japanese paper money before inflation levels get out of control?

We don’t know. But neither do the Japanese feds. As Reuters describes it above, it is a ‘radical gamble’.

People make radical gambles now and then. Businessmen might take a chance now and then. Gamblers might go for long odds. Lovers might hope to get lucky.

Traditionally, central banks do not make ‘radical gambles’. They tend to eschew gambles of any kind, even of the most respectable and bourgeois sort. Central banks are meant to be stolid and boring.

Spiders should be able to weave their webs in front of their vaults and remain unmolested. Central bankers are not supposed to call press conferences and not supposed to have anything to say anyway; and all requests — whether for bailouts, interviews, or lunch — should be answered with an unyielding ‘no’.

For a central bank to make a ‘radical gamble’ bespeaks desperation and lunacy.

How this gamble will pay off, we don’t know. But we note first that all major central bankers are putting their money on the same colour…and that as the wheel spins…we urge readers to get out of the casino.

Neither in yen, euros, pounds nor in dollars, should we be. For when the dust finally settles on this wild riot of radical gambles by central bankers, gold will be the ‘last man standing’.

Regards,

Bill Bonner

for Markets and Money

Join Markets and Money on Google+

From the Archives…
Why Our Future Lies in the Mysterious World of Algorithms
5-04-13 – Sam Volkering

Is It Time to Sell Your Gold?
4-04-13 – Bill Bonner

The Australian Government’s Deficit Numbskullery
3-04-13 ¬– Dan Denning

How Economists Practice Economics of the Moron Class
2-04-13 – Dan Denning

On Gold — Billionaire Investor Eric Sprott Says : ‘I’m in Alex Cowie’s Camp’
1-04-13 – Dan Denning

Free report reveals:

10 ‘Big Money’ Mining Stocks for 2017
Markets & Money Free ReportAfter eight years in the doldrums, Aussie mining stocks are making a stunning resurgence. In the last year alone, the S&P 300 Metals and Mining Index is up 50%.

As resources analyst Jason Stevenson explains in his free report, this could be your final shot to pick up cheap, quality mining stocks before the commodities comeback kicks into overdrive in the months ahead.

Download this free report right now and discover:

  • Ground Zero for Mining Boom Part 2: This ‘wild card’ nation could spark the next iron ore boom as early as 2017. Government officials are signing deals to build 100 new mega cities over the next five years. Jason calls this nation the ‘new China’. And you’ll learn the stocks most likely to profit from it.
  • Why the Aussie Resources Boom Will Last another 18 Years: If you think the days of striking it rich with Aussie resource stocks are gone…you’re dead wrong. Jason reveals why the new resources boom — set to kick off in 2016 — will last until 2033.
  • The Top 10 Aussie Mining Stocks to Buy Now: These 10 quality Aussie miners are trading at fire-sales prices. This could be your last chance to buy them so cheap. Load up now and you could make a small fortune over the next two years…

To download your copy of The Top 10 Australian Mining Stocks for 2017, take out your free subscription to Markets & Money. Simply enter your email address in the box below and click ‘Send My Free Report’.

We will collect and handle your personal information in accordance with our Privacy Policy.

You can cancel your subscription at any time.

Bill Bonner

Bill Bonner

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 MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

To have Bill's reckonings delivered straight to your inbox subscribe to Markets and Money for free here.

Read more

Bill Bonner

Latest posts by Bill Bonner (see all)

Leave a Reply

3 Comments on "Japan’s Desperate Lunacy"

Notify of
avatar
Sort by:   newest | oldest | most voted
Clay
Guest
Bill, Not to be contrary, but (my mother told me once, that when you use the word but in a sentence that everything before it should be disregarded..lol..) allow me to play Devil’s advocate. There is one instance in history that I am aware of where money printing at high velocity did have a positive effect on a country. Notice I say positive not perfect. In the 1930’s a gentleman by the name of Takahashi Korekiyo blasted away and saw a 40% fall in the yen allowing Japan to exit the great depression the world found itself in, first among… Read more »
slewie the pi-rat
Guest

1) must.keep.checks.in.mail.
2) must.support.bankster.cabal.
3) the.end.

Remy van Nieuwenhoven
Guest
Remy van Nieuwenhoven

The new 2 % inflation-target is the smartest move of Japan of the past 25 years.

As long as savers are rewarded more then risk-takers in an economy, any sensible person bets on saving. On a macro-economic level, this slows down the economy.

With a positive inflation, savers are punished and risk-takers investing in the real economy are rewarded. In my idea, the ideal inflation is 5 %, what is a balance between price-stability and rewarding the risk-takers vs the savers.

(Limited) inflation is the best stimulus for an economy ……. and it is free of cost !
Remy van Nieuwenhoven


wpDiscuz
Letters will be edited for clarity, punctuation, spelling and length. Abusive or off-topic comments will not be posted. We will not post all comments.
If you would prefer to email the editor, you can do so by sending an email to letters@marketsandmoney.com.au