By now the emperor is naked and should have been arrested for indecent exposure: the world’s central banks’ have utterly failed to spark anything resembling a normal business-cycle upswing. From Bill Bonner at bonnerandpartners.com:
OUZILLY, France – Imagine the poor economist without a sense of humor.
How he must suffer!
This week was to be dominated by central banks. Two big ones – the Bank of Japan (BoJ) and the Fed – were to make important policy announcements.
The speculators placed their bets, front-running the news, and sat on the edge of their chairs.
More Mumbo-Jumbo
This morning, the BoJ came out with more mumbo-jumbo.
“Yield curve control,” it promised.
The central bank says it will target a 0% yield on 10-year Japanese government bonds.
It added that it would continue buying the nation’s stocks (by way of exchange-traded funds) and charging a negative interest rate of 0.1% on the accounts banks keep with it.
Japan’s stock market crashed in 1989. Since then, the no-luck Japanese have had sluggish growth, recession, and on-again/off-again deflation.
For more than a quarter-century, the gears of Japan, Inc. have turned slowly. And not for lack of trying.
The government spent hundreds of trillions of yen on “infrastructure” projects in an attempt to “jump start” the economy with fiscal stimulus.
At one point, they were pouring more concrete – on roads, bridges, dams, and other public works – than the entire U.S.
Critics charged that so much cement was used – channeling rivers in the countryside and building ugly bridges to nowhere – that it amounted to the largest vandalization program in history.
The Japanese feds tried monetary policy, too.
ZIRP (zero-interest-rate policy) began in Tokyo. They invented QE (quantitative easing) too; it was supposed to get more “liquidity” into the system and boost stock and bond returns.
And yet, nothing seemed to work.
From Tokyo to Harare
But rather than admit its manipulations have done no good – rather than raise a white flag… back off… and let the market sort itself out – Japanese authorities march on with more claptrap announcements, more pigheaded interventions, and more of the nation’s real wealth squandered on dumbbell projects.
Like soldiers of the Imperial Japanese Army abandoned on a remote atoll in 1945, they continue to fight a lost war.
The Japanese government already has the highest debt load in the world, at 230% of GDP.
Now that the older Japanese, in retirement, are selling their Japanese government bonds rather than buying them, the central bank funds the entire government deficit.
And the BoJ buys so many stocks and bonds, hustlers are said to be creating new investments just so the naïve geniuses can buy them.
Today’s announcement tells us that the central bank will buy more government debt, adding to its pile – already about one-third of all outstanding Japanese government debt.
This is what Zimbabwe and Argentina did. It is a classic way to ruin an economy, by “monetizing” debt.
It amounts to paying government expenses with newly invented money.
Eventually, the extra money leads to consumer price inflation.
To continue reading: Don’t Bet on Deflation Lasting Forever…
