By Philippe Herlin - Researcher in finance / Contributor
to Goldbroker.com
Japan just crossed another hurdle in its escape ahead by monetization of
its debt in what can be called a show of strength by the new Prime Minister,
Shinto Abe, against Japan’s central bank.
The Bank of Japan (BoJ), for that matter, is the central bank having used
the printing press the longest, precisely since the bursting of the stock
market and the real estate bubbles of the early 1990’s. The Fed, the ECB and
the BoE only started using it with the 2008 crisis.
Since the bursting of this bubble, all the different japanese governments
have instigated recovery plans, added to the budgetary deficits, and
accumulated a public debt that is now the most important of the developed
world (220% of GDP). And the BoJ is contributing by buying some of the State
bonds to finance the debt.
What are the results of this onerous policy ? None, because there is no
growth to speak of. Well, this is one more reason to continue and amplify
this movement, says Shinto Abe, the new Prime Minister! The BoJ, after about
ten « quantitative easing » plans, is not too willing to go ahead,
hence the show of strength by Abe. The BoJ independence, guaranteed by its
statutes, couldn’t resist. It’s a show of strength, consecrated by a
« common declaration » about the objectives of the BoJ.
The new adversary has been designated : deflation. Prices only
dropped by 0.2% in 2012, but that’ll be enough. The target of 2% inflation is
proudly written in the common declaration. Inflation is becoming a goal in
itself ! And, for that goal, the BoJ will keep its base rate at 0% and will
buy more and more State bonds, without any « temporal limits ».
So now the enemy is not the debt, the budgetary deficit, or a drastic
reduction of the balance of payments... no, it’s deflation, largely
imaginary, that is used as a pretext for more monetization. Tragic.
Shinto Abe continues with a policy that doesn’t work, with a recovery plan
of 20,200 Billion yen (175B euros). Which will cause more budgetary deficits.
Despite the different governments, Japan keeps going ahead and is going full
steam toward a default or hyperinflation.
