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Belmont Club

Godzilla Cometh

April 5th, 2013 - 7:20 pm

Forbes writes that Japan is about to show Ben Bernanke and Draghi what real quantitative easing looks like. Governor Haruhiko Kuroda of the Bank of Japan “announced an aggressive expansion of the central bank’s asset purchase program in an effort to reverse two decades of deflation and produce a targeted 2% annual rate of inflation. The BoJ announced that it will boost its buying of Japanese government bonds by 50 trillion yen ($520 billion) per year and begin buying bonds with maturities of up to 40 years. “Total expansion of the monetary base will be about 10% of Japan’s gross domestic product.”

That is 47 percent larger than anything Ben Bernanke has ever tried. “To put that into perspective, the Federal Reserve’s $85 billion in monthly purchases of U.S. government bonds and agency-backed mortgage securities amount to 6.8%” ZeroHedge writes, “Japan’s QE is the equivalent of the Fed monetizing $200 billion per month.”

The Guardian is ecstatic. At last, someone realized that all government has to do fix the economy is create more money.

British policymakers have more reason than most to learn from Japan’s bold monetary moves. George Osborne threatens austerity policies to last until 2018 and the Office for Budget Responsibility always forecasts recovery two years away. Britain is facing its own lost decade….

Desperate times call for desperate measures. Japan has suffered 24 years of low growth and outright falls in prices. … Japan’s central bank has announced a policy of what is describes as a massive increase in creating money.

Robert Lenzner of Forbes says “’QE will go on forever and it’s going to mean a very long and powerful bull market for stocks,’ the former chairman of a major trust bank in New York told me today over lunch.” He went on to breathlessly describe the efforts of Central Bankers all over the world to save us from hard times.

the Bank of Japan disclosed it would copycat the Fed– and double its monetary base and holdings of Japanese government bonds over the next 2 years. Talk about playing catch up ball. It took the Fed 4 years to triple its balance sheet– and it’s clearly not through yet….

China, as well, desperately trying to fend off a slowdown that could lead to social unrest, has already increased the money supply by 60 trillion remimbis, the equivalent of $10 trillion dollars. This $10 trillion in Chinese currency means that over the past 4 years monetary credit in China has ballooned to 116% of Chinese GDP.

This follows on the heels of a European Central Bank announcement that it will “step up its campaign to stabilise the euro, forestall a new credit crunch and shore up troubled banks by flooding the markets with hundreds of billions’ worth of easy money for the second time in two months.”

Japan. The Fed. The ECB. China.

Saved. We’re saved. We’re about to be hit by a tsunami of money such as never been seen in all human history. Forget the million. Forget the billion. We’re talking trillions and trillions of dollars, euros, yen and remimbi. “Shoot, a fella could have a pretty good weekend in Vegas with all that.”

The only question is, why didn’t we do it sooner? Here comes the Bank of Japan.

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There’s only one niggling problem. If this doesn’t work, what do they do for an encore?


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All Comments   (37)
All Comments   (37)
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OH, they are gonna get their lousy 2% and a whole lot more. The race to the bottom is one of ever decreasing gains and eventually the patient goes flat line...

If you turn on the tap and rip the damn handwheel off, well you get what you got coming.
1 year ago
1 year ago Link To Comment
The Japanese are doing extreme quantitative easing because they are desperate. They are staring into the abyss and have concluded that their options are hyper-inflation versus starvation. They'll probably get both.

Hyper-inflation is a like a drug habit, i.e. very easy to acquire but almost impossible to get rid of.

The metaphor for quantitative easy is "to summon a demon". The first rule when summoning a demon is to first know the "spell of dismissal". The wizard who summons a demon without knowing the spell of dismissal usually gets carried off to hell by the same demon.

The alternative to quantitative easing is "tough love". Recognize that the economy got in this situation due to abuse of the banking and financial system through motivation by socialist policy. Regulatory capture by bad actors was an important part of that process. The various insolvent banks and financial institutions need to go through a formal bankruptcy process under the supervision of an honest and impartial judge. CEOs and politicians responsible for creating the crisis need to be identified, indicted, judged, stripped of their assets and sent to prison. There are trillions of dollars of bad debt out there that is being hidden thanks to the central banks. That bad debt needs to be brought out into the sun light, and price discovery allowed to take place through an orderly auction process. If necessary, pay it off at 10 cents on the dollar but at least get that bad debt freed up and back into the functioning economy.

"Tough love" will cause huge amounts of collateral damage. Many an innocent widow will be left penniless and left begging for quarters. That's why it's "tough love". However healing will come after the damage is done. As long as the thieves and socialists are left in control, no healing begins and eventually more penniless widows are left begging for quarters..
1 year ago
1 year ago Link To Comment
HB,
Protecting dim 17 year olds (of any age) from the threat of Zombie Warming.

What should Ryan and Issa do?
1. Grill Administrators to find where in any budget such expenditures are authorized.
2. Search for associated procurement of toys like fancy uniforms and binoculars etc.
3. Push to audit the bejezus out of every contractor and gov't contracting officer for any hint of kick backs.
4. Introduce legislation that agencies are authorized to retain stocks of 200 rounds for each weapon assigned to a LEO plus enough for each assigned LEO to expend 200 rounds/month in training. No more than a 3 month training supply to be retained. All surplus to be transferred at cost to civilian marksmanship and JROTC programs.
1 year ago
1 year ago Link To Comment
It it again.
1 year ago
1 year ago Link To Comment
HB,
Protecting dim 17 year olds (of any age) from the threat of Zombie Warming.

What should Ryan and Issa do?
1. Grill Administrators to find where in any budget such expenditures are authorized.
2. Search for associated procurement of toys like fancy uniforms and binoculars etc.
3. Push to audit the bejezus out of every contractor and gov't contracting officer for any hint of kick backs.
4. Introduce legislation that agencies are authorized to retain stocks of 200 rounds for each weapon assigned to a LEO plus enough for each assigned LEO to expend 200 rounds/month in training. No more than a 3 month training supply to be retained. All surplus to be transferred at cost to civilian marksmanship and JROTC programs.
1 year ago
1 year ago Link To Comment
I just saw this: ''The National Weather Service has put out a solicitation for 46,000 rounds of jacketed hollow points to be delivered to four locations around the country.''

Followed by a similar item re Social Security Admin. What the hell is going on? Weather Bureau SWAT teams?
1 year ago
1 year ago Link To Comment
So what is to be done? Get the USA to stop priniting money would be a good start.

But with BHO as President, the Conventional Wisdom is that Big Government will grow further. So change the paradigm.

How about this news flash?

http://www.nola.com/politics/index.ssf/2013/04/industry_on_board_with_new_fed.html#incart_river

The Federal regulator of offshore oil production (a huge potential source of new wealth for Americans), the BSEE, has agreed to let private sector auditors enforce offshore drilling safety while the government "leads from behind"!

I bet all y'all did NOT see that one coming!

CHU LIED, DOLPHINS DIED!

The Great and Powerful Wizard of Obama is about to get exposed as The Emperor Without Any Clothes!

While all of you have been thinking, old little MP has been busy acting!

What else can I do for fun, but go out on another Forlorn Hope Mission?

Pray for me! I'll need all the Divine Intervention I can get. But saving the USA is worth trying. And it is not boring. It's actually kind of FUN!
1 year ago
1 year ago Link To Comment
Once again Belmonters here tackle the problem by mining their extensive, impressive knowledge of history by seeking lessons from past disasters such as what happened in Weimar Germany, etc. Strangely such ability is very rarely seen these days. One might conclude that today's Masters of the Universe show not a little hubris, perhaps overconfident that their level of mastery over modern finance ensures, "it'll be different this time."

Or it could be they suffer ignorance, or an unshakable commitment to their ideas which shades all their perceptions. This week in the NYT, one of their lights, Paul Krugman, dutifully laid down groundwork for even more QE by launching yet another attack on poor Andrew Mellon. Recall Andrew Mellon, our Secretary of the Treasury from 1921 until 1932. When the Great Depression hit, he urged Hoover to let failing concerns fail, to cut the federal budget, to distrust the lure of fiscal stimulus. In short, he argued to let the depression run its course, do its natural job, and reset the economy on a more sound basis.

Krugman advanced the tired, old, standard liberal line, one still taught in schoolrooms, that these measures only prolonged the Depression and thanks to FDR with his Keynesian "pump priming" the day was saved. One very big problem: Mellon was not listened to. Hoover opened up the fiscal spigots and did quite the opposite of what Mellon recommended. The New Deal was an extension, a doubling down, of Hooverism. Sustained policies of fiscal stimulus by Hoover and FDR nursed a Depression that lingered for eleven long years, triggered the rise of demagogues like Adolph Hitler, and summoned the eruption of WWII.

Yet there's Krugman today, hectoring the Mellonites he sees all around him. He boxes self-righteously, and poorly informed, with strawmen, for where are today's Mellonites? Would that we had a single Mellonite in power today to at least advance an argument against QE. There's one guy from the Dallas fed who occasionally comes out with alarms, there's some occasional criticism from guys like Rand Paul or Paul Ryan, but even Ryan's budgetary proposals accept the premise of ever-expanding federal spending.

Reality, history, such things can be no bother to the modern progressive, to whom his internal morality play contains far more meaning. The struggle against Mr. Potter rules all.
1 year ago
1 year ago Link To Comment
There are other effects of QE beyond the obvious hyperinflation threat.

As Blert has pointed out many times, QE/ZIRP destroys capital formation.

But beyond that, at least as practiced by the Bernank, QE/ZIRP benefits the Elites, TBTF and large corporate interests who have access to the Discount Window and Corporate Bond Market. But the those business interests that lack those connections get slowly destroyed. They must borrow for their capital and under the QE/ZIRP regime of the Bernank, revolving credit has taken a big dump and stayed flat since 2009.
http://market-ticker.org/akcs-www?get_gallerynr=4113

For Buraq Il Duce Hussein I, this is a feature not a bug. Power, control, market share and profits get funneled to the Big Corporatist interests, which are controlled by the Aritocracy and have an incestous relationship with Big Government interests. Pay to play on a national scale becomes a reality. Cronyism gone mad.

On the flip side, those rebellious uncontrollable Tea Party'in small business interests get wiped out, because they can't get capital to maintain their businesses, while their Big Corporate competitors gain market share because of the capital advantage.

It's all good at least for the Buraq Il Duce Hussein's of the World.
1 year ago
1 year ago Link To Comment

“…policymakers have more reason than most to learn from Japan’s bold monetary moves”

One does not learn from another’s proposed remedies, one learns from another’s success. Quantitative Easing must bear pressure for others to follow suite. I speculate that when governments around the world compete with Zimbabwe to debauch the value of money we will see money having little value in world trade and even less for the proles.

Who knew that in in the 21st century the world over would be in the thrall of irresponsible fiscal policy made popular by Robert Mugabe. And it will go on forever… until it doesn’t. When the monetary system collapses the last pillars of capitalism will go with it and erected in its place will be an all-powerful state that cannot feed you but can keep you from being fed.

Long gone is the chance to merely reset the register and start over except this time without artificial market controls.

The only thing more confounding than this global fluster cluck is imagining how the progressives will rewrite the history to make it the fault of free markets.
But the free markets do what they do and in the near future the corporations will be handing out mansions, yachts, and improved overseas healthcare for those unfortunate enough to have to avoid a 75% tax.

“Thank you. Since we decided a few weeks ago to adopt the leaf as legal tender, we have, of course, all become immensely rich. [...]

"But we have also," continued the management consultant, "run into a small inflation problem on account of the high level of leaf availability, which means that, I gather, the current going rate has something like three deciduous forests buying on ship's peanut." [...]

"So in order to obviate this problem," he continued, "and effectively revalue the leaf, we are about to embark on a massive defoliation campaign, and...er, burn down all the forests. I think you'll all agree that's a sensible move under the circumstances.” Hitch Hiker’s Guide
1 year ago
1 year ago Link To Comment
Japan needs imports of raw materials and energy to function. They will have no problem creating inflation; the prices of everything will rise. I fail to see how that will create wealth. Export to whom?

This is a last ditch effort to stave off a major crisis. Their balance of trade has switched to negative, their vaunted savers are now old and withdrawing their money. The institutions through whom the savings occurred are pension funds who now need to redeem bonds to meet payment obligations. All the while the debt load at a few basis points of cost takes up half the central government revenues.

A bond selloff, which I think has already started, can be contained with BOJ buying them up as long as the money printing doesn't have any secondary (and targetted) effects. If inflation occurs, the bond holders that now get a few basis points and count on deflation to get any yield at all will sell. They will because otherwise they lose money. What the BOJ and Japanese government will do in response will be interesting. I would compare it to the tsunami wave where 10 meter walls were overcome by 30 meter waves.

We are no longer in the realm of economics but rather whether a nation can absorb the equivalent of a military defeat but self inflicted. This is where we find out how robust the institutions and infrastructure of Japan are. Can a nation that imports almost everything survive, as in keep eating, while the foundations of their prosperity collapse around them.
1 year ago
1 year ago Link To Comment
Or consider the retiree an 'importer' of goods and services supplied by the 'exporter's' still working. Those savings accounts are being converted into current consumption. Maybe video games and motorcycle producers suffer a little, but lots of work for makers of senior goods, pharma, etc.
1 year ago
1 year ago Link To Comment
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