The Inflationist Land of Cockaigne Remains a Pipe DreamNo-one can accuse the Japanese of not having done everything the Keynesian playbook said they should do, and in spades. Today, the government is burdened with the by far biggest debt of any industrialized nation and the central bank is printing money with gay abandon, while threatening to do even more of the same if it somehow fails to impoverish Japanese wage slaves by saddling them with rising consumer goods prices. Well, the verdict so far must be that at least in this latter respect, the latest campaign dubbed 'Abenomics' has already been quite a smashing success. Of course, 'Abenomics' is the same warmed over inflationism that has been tried since the times of John Law. It can, for a while, create an illusion of growing prosperity, but in order to realize that printing money and pumping water from one end of the pool into the other (=deficit spending) cannot possibly create one iota of wealth, one only needs a tiny modicum of common sense. This in turn proves beyond a shadow of doubt that our monetary and economic affairs are run by what Bill Bonner referred to as 'high IQ morons'. In Japan an especially virulent strain of same has infested the policy making landscape. The latest economic news from Japan was that “Japan Industrial Output Unexpectedly Drops” (sic - maiming the English language is a sine qua non for a Bloomberg headline.)
(emphasis added) In other words, they are raising sales taxes in order to bring down their perennial budget deficit, and in order to 'soften the blow', they are going to increase both their deficit spending and money printing. Sounds like a brilliant plan. The Nikkei Still Writes the NewsAs we previously pointed out, news reports on the 'success' or lack thereof of 'Abenomics' are directly related to the performance of Japan's stock market (see: “How the Nikkei Writes the News”, and this chart). Apparently nothing has changed in this respect. With the Nikkei recently wobbly again, we learn from Bloomberg that “Abe Bliss Broken as Foreigners Flee Topix in Biggest Drop” (yes, sic). So even the mainstream financial media are by now making the connection between 'Abe bliss' and the stock market's performance.
(Emphasis added) We hereby confidently predict that 'Abe bliss' will make a comeback as soon as the Nikkei rallies again. Since that must perforce coincide with a declining yen these days, it will ironically make Japan's citizens concurrently poorer. So the proper definition of 'Abe bliss' is: getting poorer and actually liking it! Public Hedges its Yen ExposureMeanwhile, Japanese household spending has rather conspicuously failed to get any noteworthy boost from the looming sales tax imposition. Real wages have continued to decline as well.
(emphasis added) So somehow, making the Japanese poorer doesn't translate into more spending on their part, aside from the fact that many of them are of course forced to spend more due to soaring energy prices. So are Japanese citizens not good Keynesians? It seems they are at least spending some money on useless trinkets after all, inter alia to hedge their exposure to the yen (they are apparently beginning to suspect its eventual demise):
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The eventual failure of 'Abenomics' is of course set in stone, what is open to question is only how and when precisely that point will be reached and how exactly things will play out thereafter. As a rule of thumb one can assume that the longer the policy is pursued, the worse the longer term consequences will turn out to be. The battered yen has lately stabilized a bit. Shorting the yen has become an extremely crowded trade, so some sort of reversal seems likely in the medium term – click to enlarge. | |
A long term chart of the Nikkei and Japan's discount rate (via our friend BC). Note in this context that a number of very steep bear markets occurred since the initial decline after 1989 without a prior inversion of the yield curve. Once the central bank's manipulated make-believe rates are stuck at or near zero, the yield curve no longer warns of recessions and bear markets – click to enlarge. |
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