And the Winner in the Race to Financial Catastrophe Is…

What’s happening in Japan?

We ask because, in the race to financial catastrophe, Japan is ahead of us.

And this week in the Financial Times Japanese prime minister Shinzo Abe gave us an update.

You may recall, dear reader, that Abe came into office on a reform ticket. He had three arrows, he said. One for fiscal policy. One for monetary policy. One for other things that were never clearly identified but nevertheless needed to be killed.

As bold as he is dumb, Abe has let his arrows fly. Among his achievements so far, he claims his monetary arrow hit its mark. Deflation is gone from Japan, he says. Now, prices are rising. For the first time since 1997, the inflation reading — at 1.4% in April — is positive.

DIY Central Banking

Wait. In an economy of retirees, living on pension savings, how is that a good thing?

Don’t bother to ask, dear reader. And don’t bother to inquire about the cost, either.

The Bank of Japan is using the QE trick. It’s buying $75 billion of Japanese government bonds each month. At this rate, the central bank will have a balance sheet three times larger than the Fed (relative to the size of its economy) by next March.

The authorities are also directly intervening to buy stocks. Why depend on bankers and speculators to juice up your stock market? Do it yourself!

According to a report in British newspaper the Daily Telegraph, the Bank of Japan buys about $200 million of exchange-traded funds whenever it sees the stock market index stumbling.

In Japan, as in the US, bond buying is supposed to push down long-term interest rates. Low interest rates encourage borrowing…and bubbles…simultaneously trimming real investment and real output. Result: Consumer prices rise.

Getting the real interest rate below zero in a deflationary economy is an achievement. No matter how close to zero you go, you still have the price level below you.

But give Japan’s banzai prime minister credit. When we last looked the real interest rate was about MINUS 0.8% on the 10-year government bond.

Vandalism in Concrete

The fiscal arrow, too, has come to be a pain in the side of the economy.

For a quarter of a century, Japan’s strategy has been to replace the credit going to households and businesses with credit going to the government. In the US, people spent money they didn’t have on things they didn’t need. In Japan, the government assumed the role.

Now, it is doing more of it. This is great news for the cronies and zombies. The Japanese feds borrow citizens’ savings and give it to the insiders. The country gets more overpriced infrastructure (vandalism in concrete). The insiders get more money. And the old folks’ savings disappear.

The third arrow was the last to be sent off. Where it was going no one quite knew. But it pierced the flesh of Japan’s women.

Since I hoisted the banner of “womenomics” in Japan, 530,000 women have entered the labour market’, Abe boasted to the Financial Times yesterday.

Is that something to be proud of?

Women who had been happily tending to their families and their homes are now bussing and toting so that ‘economic growth can be sustained in Japan with its aging population and its falling birthrate.’

Also, putting women in the workaday world may depress the Japanese birthrate further. We don’t know. That’s why we’re so impressed by dynamic leaders such as Abe. He seems to know everything. He’ll help these working women get jobs by allowing them to hire foreign housekeepers.

‘Diversity’ is the key word in the labor market, says Abe.

This is news. We thought jobs and wages were pretty important. But no. Abe says ‘inflexible labor systems will be reviewed to enable all people, including women, youths, older workers and people with special talents, to fully display their capabilities.’

Way to go, Abe! Take their savings. Then put ‘em to work!

Regards,

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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