Abenomics Recap
Record Japanese stimulus coupled with negative rates yield produced no inflation, a flat stock market, a strengthening Yen, falling exports, and a slowdown in bank lending.
Running Out of Road
Bloomberg reports Never Has BOJ Done So Much for So Little Benefit.
Even after arranging a record stimulus program and reducing a key interest rate to less than zero, the central bank has failed to boost inflation to its goal of 2 percent. Stocks are little changed from where they were in October 2014 when Governor Haruhiko Kuroda expanded his package of asset purchases. Exports are declining. One measure of bank lending is at a 14-year high, though loan growth is slowing compared with a year ago. While most sovereign bond yields have turned negative, corporate borrowing costs are lagging behind.
“Japan might be starting to run out of road a bit on the monetary policy front,” said Andrew Colquhoun, the head of sovereign rankings for the region at Fitch in Hong Kong. That “would tend to undercut one of the sources of support that the sovereign ratings have had.”
Inflation
“The BOJ is falling short of its 2 percent inflation goal, by measures that include and exclude energy costs. Inflation swaps also show investors expect consumer price increases to hold close to zero for the next decade.”
Exports Decline
Nikkei
Yen
Despite a decline in purchasing power in the Yen from January 2012 until mid-2015, Abenomics has failed to generate much consumer price inflation.
Since then, the Yen has strengthened by 12.65%.
Achieving Inflation is Child’s Play
Once again, I present Mish’s Sure Fire Proposal to End Japanese Deflation: Negative Sales Taxes, 1% Monthly Tax on Gov’t Bonds.
Mish’s Four Pronged Proposal to End Japanese Deflation
- Negative Sales Taxes
- One Percent Tax, Per Month, on Government Bonds
- National Tax Free Lottery
- Hav-a-Kid
For additional details, please click on the above link.
My Price
My price for this amazing plan is $0. It’s free for the taking.
It’s truly pathetic when you cannot destroy your own currency despite years of trying.
Mike “Mish” Shedlock
This is USA in the very near future. Abe was a fool afraid of his own shadow. A true Jap traitor to his own country. Now only Hari Kari left for him.
I would love to see that worthless bastard disembowel himself on national television. Don’t these guys have any sense of honor left?
Years ago Honor was the only virtue in Japan. It is now gone as is the country. I was there when honor was the most important, but this bastard Abe has been a traitor to the people and the country.
Sadly, he must now face his fate. Hari kari
No. Housewives fornicate with abandon because all Jap children look alike.
It is impossible to devalue your own currency when everyone else is trying to do the same thing.
“the central bank has failed to boost inflation to its goal of 2 percent.”
Duh
It’s the massive debt load, stupid
Until debt level addressed (paydown/writeoff) there will be no inflation.
“Experts” never/rarely mention the 800 pound gorilla in the room.
Crossing the zero boundary changes the sign. Negative interest rates cause the currency supply to contract. Result: deflation. Japanese households own safes. They pull money out of banks and out of circulation.
“Never was so much owed by so many to so few,” but in the ANTI-hero perspective.
Does anyone here understand the logic in economics that says reducing interest rates will increase inflation? Why would it?
Because it messes up the economy to the point where it no longer functions properly, leading to shortages and competition over basic elements, and a loss of faith in the currency.
Ironically, rate manipulation is designed to maintain the value of the economy on which it is based, but the degradation and reconstruction that is due to occur happens in a centrally managed way, as per across society.
If a given society were an enterprise and government in charge of it, you could imagine it as a public cause, but its aim is not an evolution of the enterprise, only the maintenance of it from a relatively narrow perspective. So the order is something in reverse – you end up with a continuous economic stall that avoids deflation where demand is kept neutral. This suppression and management of free financial activity may persist indefinately , but it concentrates all the weight into the hands of a few players that revolve around the government intervention, and short of a completely loyal or dedicated society committed to its choice of direction, I find it hard to imagine that the result will be a long lasting stability. It is more likely that miscalculation and corruption enter the scene, and that the population at some point will feel cheated for the burden on their possibilities.
So it is in a sense a reverse of expansive enterprise, capital is allocated as a ‘support’, and is taken from ‘initiative’ to do so. The resulting lack of evolution may prove costly , especially if society degenerates because of this…people will not be able to contribute properly to their society, which is one of the greatest rewards and incentives, instead they are asked to sacrifice themselves for it.
None of this makes any sense.
When you hear ‘interest rates are reduced’ what that really means is the Central Bank has decided to purchase stuff. Normally the CB will purchase something like the 3 month T-bill but with QE it could purchase long term bonds, even stocks or just about anything.
Normally the CB ‘sets’ the 3 month rate by deciding what they want to see and selling or buying the bills until the price lands there and stays there. But if you think about it this doesn’t really ‘lower interest rates’. If the market things the CB is going crazy and inflation is about to break out sure the 3 month rate might be ‘set’ but the long term rates are going to go up. If I think inflation is going to be 100% between now and next year, I’m not going to charge you 3% to borrow from me but more like at least 103%.
There’s no reason why the economy should be getting ‘messed up’. The economy is made up of free actors and free actors can and do write contracts with contingencies in them all the time.
So why would lowering interest rates increase inflation? Well to lower rates you print money or release money into the economy by buying bonds from people who want to sell them. Why do they want to sell them? Because they want cash. If you are buying you are giving them cash. Why do they want cash? Well they either want to buy stuff or they want to invest with entities that want to buy stuff. If more stuff gets purchased then the economy has to supply more stuff, if the economy tries to buy a huge amount of stuff because a huge amount of money was printed, the supply side of the economy cannot keep up and people who supply stuff will have to raise prices rather than simply selling more stuff.
By setting rates via ‘printing’ the CB is eliminating/distorting the ‘value’ of capital, the price of assigning capital and its calculated future return. Let us take the extreme as an example, maybe this would be clearer:
If the CB lowers the cost of borrowing to 0% at all maturities, it eliminates the competitive benchmark of returns – in effect there are no losses that cannot be refinanced at no cost, so keeping any enterprise or debt viable monetarily at all times, forever. Try to tell me that under that circumstance the free flowing money will be wisely assigned and I will show you either chaos, or an economy directed entirely at the discretion of banks whose devisions are not based on returns, but simply their choice of winners.
In fact, under current circumstance, the flow of lending, the financial equilibrium, is being tailored by government spending, banking discretion, financial market reactions and legislative manipulation.
This is supposed to keep the show on the road in some sort of organized orchestrated trade off with society and business, but it is oppressive to individual competitive activity because it removes the fine edge of advantage that goes with private initiative and flattens it under the uncertainty of what government calls reassurance, but is in fact closer to stagnation when compared to what real activity should be.
Or to give you a political example, look at the reduction in EU yields due to ECB intervention. This has little effect according to you, but countries keep increasing their debt as a consequence, their spending ‘supports’ the economy and room is made to wash out the previous losses on poor asset valuations. On the ground though new activity and borrowing is stifled in spite of low rates. Why? Because there is no new economy being created. Why? Because the old economy is bought up and paid for by government, old demand is supported by new government debt, there is no public failure that occurs which might allow space for new activity. The private failures that occur are not replaced because of both the burden of government obligations and the lack of any dynamic in a system which is ‘fixed’. That can only continue so long, and then you end up with inflation, either relative to income or because the currency itself loses its worth as the economy it represents is found and understood to be of less value.
“If the CB lowers the cost of borrowing to 0% at all maturities,”
This is the fault in your argument. The CB cannot lower the cost of borrowing at all maturities. If the market feels the CB is increasing the risk of inflation in the far future, then longer term maturities will fall in price and yields will increase dramatically. Even if the CB tries to force up the price of gov’t bonds at all maturities that will not change the fact that the market can and will respond to the fear of increased future inflation by increasing the yield on non-gov’t debt.
The fact that interest rates have fallen over all maturities is a market decision, not a CB one. And it is confirmed by the fact that years have gone by now and inflation refuses to show up in any serious form.
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Exactly what ‘effort’ are we talking about here? The Central bank simply purchase high quality assets from the financial markets each month. I would say it has to print money to buy them but it doesn’t even print money, it’s all just entries in the accounting systems so no actual bills are printed so again what ‘effort’ has been expended here?
>It’s truly pathetic when you cannot destroy your own currency despite years of trying.
They will. It is just a question of when. There will be a positive feedback loop or death spiral at some point. There will not be steady 2% inflation for the next 10 years. People will not keep holding negative interest rate bonds for long once 2% inflation hits. As they dump bonds the central bank will have to print money even faster to buy more bonds. This will make even more people want to get out of bonds, and so even faster printing. The death spiral will come. We just don’t know when.
If inflation increased the price of a negative yielding bond will fall. At a lower price the bond will have a higher yield. that will be a loss for those who were holding the negative yield bond but just like a stock market crash, lower prices will induce people to buy rather than simply refuse to ever touch stocks again.
Current inflation shows just how much loot satellite bankers were confiscating over the years with their “fractional reserve system”. Local bankers secretly confiscated trillions in resources from Joe average each year by printing credit. That bank confiscation is why Joe average has been slowly going backward for decades.
QE is a more open confiscation of resources, but polestar banks have not yet realized just how much satellite banks were confiscating. Some in the fisc have started to realize how much bankers were able to confiscate, and have proposed letting the fisc confiscate via printing instead of bankers. Eliminating bank printing via fractional reserve, eliminating polestar banks printing to “lend” to the fisc, and instead directly printing part of the budget.
The problem is that printing not only slowly moves Joe average backward. Pringint also slowly produces a banana republic by tricking the private sector into misallocating capital. In the long run, printing is counter productive for a country, whether printing is by bankers or the fisc.
I don’t think you get it – they print money out of thin air , like the IOUSA and buy US$ and Euro’s and then buy hard assets, meaning Japan owns a huge chunk of Australia etc for no cost. Now I hear you say what happens when those US$ and Yen finally come home – er nothing except maybe the creation of a new US$ and a new Yen.
The USA emperor has no clothes, as does Japan the EU and China – but whose going to make them put on clothes – they each support each others grand pretence.
If the policy was failing the Yen would be falling in value – most of Japan’s debt is to its self.
Meanwhile they are the largest asset owners per capita on the planet or 2nd largest?
Australia just committed to paying $50bn for 12 subs – to save jobs at $17m per job – and you think you’ve got problems . If we had the luxury of Abenomics we’d buy 50 subs.
Cheers,