Today SLL offers a trifecta of choices as to the next domino that falls in the global financial crisis: Italy, China, or Japan. John Rubino at dollarcollaps.com handicaps Japan:
Pretend, for a minute, that your country responds to the bursting of a credit bubble by borrowing unprecedented amounts of money and using it to prop up banks and construction companies. This doesn’t work, so you create record amounts of new money and push interest rates into negative territory in an attempt to devalue your currency. But this — amazingly — doesn’t work either. Your currency soars and the inflation you’d hoped to generate never materializes.
Now what? Is there even anything left to try, or is it simply time to stand back and let the current system melt down? Those are the questions facing Japan, and the answers are not obvious. Here, for instance, is its inflation rate two years into the largest major-country money creation binge since Wiemar Germany:
Deflation is to be expected and even desired in a well-run country where debt is minimal, money is sound and rising productivity makes things continuously cheaper. But in an over-indebted financial system, deflation is death because it magnifies the debt burden and raises the odds of an existentially threatening financial crisis. To continue to borrow money under such circumstances is to court disaster. And yet Japan is still at it:
What we’re witnessing, in short, is a catastrophic loss in the currency war. Contrary to every mainstream economic theory, debt monetization and full-throttle currency creation have resulted in a rising yen and falling prices. Here’s an excerpt from a recent — and really gloomy — Financial Times analysis of Japan’s situation:
It’s time for investors to admit it: Abenomics has failed
The past few weeks have not been happy ones for many central bankers — and none more so than Haruhiko Kuroda, the hapless governor of the Bank of Japan.
That is because the threat of moving rates deeper into negative territory and buying up even more assets has done nothing to weaken the yen down as he desires. Brexit, which briefly sent the yen beyond the ¥100 mark against the dollar on Friday, is a fresh headwind.The Bank of Japan is likely to move rates from negative 0.1 per cent to minus 0.3 per cent come the end of July, increase its holdings of ETFs from ¥3.3tn to ¥6.3tn as well as its purchases of Japanese Reits from ¥90bn to ¥200bn, economists at JPMorgan in Tokyo predict.
With the yen ever stronger, Abenomics and the desired impact of central bank policies are going into reverse. The irony is that these policies, which were meant not to change traditional Japan but to revive it, are likely to end up wounding it — perhaps irreparably.
Abenomics was never about real reform. Instead, it was merely meant to weaken the currency, undercutting competitors like Korea and China and allowing Japan Inc to more easily export its cars and other manufactured goods to the rest of the world.
Since corporate profits for the last three years were only ever about currency translation gains, these are now going in reverse and dragging down industrial shares with them.
To continue reading: Something Huge Is Coming From Japan
