The Japanese have their general election coming up in December. In the lead up, the challenger from the Liberal Democratic Party, Shinzo Abe, is calling for ‘unlimited’ monetary easing from the Bank of Japan. The goal is to ‘beat’ deflation by targeting inflation of 2-3% and spending more on public works and defence.
Yes, with a public-debt-to-GDP ratio already over 200%, Japan obviously needs more public spending. Because that has worked so well to ease the pain of Japan’s burst credit bubble. Really though, do you notice the trend now globally?
Central banks used to be the puppet masters in the economy and the political system. They acted as lender of last resort to the financial system and the government. But as the debt crisis has consumed governments (after their bailouts of banks), central banks have now become hostage to growing government deficits. As Das explains in one of today’s other articles on the US debt problem, the Fed now buys 60% of US Treasury debt.
In simpler terms, central banks have lost even the appearance of political independence. Governments are so deep in debt, and so unable to win re-election by cutting spending or raising taxes, that the only way they can retain the appearance of legitimacy is to have the central bank pay for everything by printing more money.
Thus we reach the logical conclusion of the Nation State relying on the central bank to fund the Warfare/Welfare State. Money for nothing from the printing press provides money for everything that can’t be paid for with hard work or virtuous saving. Has there ever been a better time to own gold?
The jury is still out on how gold will behave during a deflationary collapse. But if you want to educate yourself on the matter while you still have time, we’d urge you to buy the on-line video collection from this year’s Gold Symposium in Sydney. Once your order is confirmed you’ll be able to watch all the videos from the comfort of your own home.
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