The financial world is buzzing about former Fed chairman Ben Bernanke's
recent trip to Japan, where he advised Japan's central bank chief Haruhiko
Kuroda on how to manage his nation out of multi-decades of stagnant growth.
Channeling economist Milton Friedman, Bernanke warned that Japan was
vulnerable to perpetual deflation and stagnate growth and that helicopter
money--where the government issues non-marketable bonds with no maturity date
and the Central Bank buys them with counterfeited credit--was the most useful
tool in overcoming this condition.
Bernanke encouraged Japan to carry on with the Abenomics policies that
have failed to date by supplementing monetary policy with even more fiscal
stimulus-as if Japan's 230% debt to GDP ratio wasn't enough. And he assured
Abe and his staff that the Bank of Japan (BOJ) has instruments to ease
monetary policy yet further.
And in case this village needed another idiot, Nobel laureate Paul
Krugman, also chimed in. Arguing that Japan should raise its inflation target
to 4 percent and embark on a significant but temporary fiscal stimulus to
boost prices in the economy. Speaking at a conference on Thursday in
Singapore, Krugman called for "a big burst of government spending and
maybe also cash donations."
But the truth is that despite pumping trillions of yen into the financial
system, Japanese money printing has had little or no effect in restoring
growth. In fact, Japan has already undertaken the largest quantitative easing
program--much larger in relative terms than the U.S. Federal Reserve and the
European Central Bank.
Despite this, lawmakers in Japan are drinking the Keynesian Kool-Aid and
have bought into the notion that inflation is the progenitor of growth. They
are calling for a government debt package of about 10 trillion yen ($94
billion) financed by the BOJ.
The BOJ is currently purchasing nearly 110-120 trillion yen of bonds a
year to satisfy a pledge to expand the balance of its holdings. And demand
for Japanese Government Bonds (JGB's) is pushing those yields into negative
levels that only a central banker could love. There is no private investors
in JGBs any longer. The only buyers left are the price-agnostic BOJ and
speculators trading bonds like stocks; hoping to grab enough principal
appreciation to make up for the negative coupon, and then flip it to the next
foolish gambler, or directly back to Japan's central bank as part of its
latest bond-buying program.
But the BOJ's spending spree is not limited to JGB's; the Bank of Japan
owns more than half of the nation's exchange-traded funds (ETF's). As you can
imagine, all these asset purchases have exploded the BOJ's balance sheet to a
record 432.8 trillion yen.
But the question for Messer's Abe and Kuroda is: if money printing is the
solution, what is the actual problem?
In 2015 Japan stood as the fourth-largest economy in the world. And
despite some fits and starts, that the Japanese economy has been stagnant
since the early 1990's.
However, per capita GDP shows that Japan's growth has been on an
impressive upward trajectory.
Indeed, Japan is growing on a per capita, or per person
basis. Therefore Abe and Kuroda must believe that printing money is going to
increase the population. Japan's working-age population peaked in the
mid-1990s and has been declining since. And according to government
projections the workforce is expected to shrink to 44 million by 2060, which
is about half of its peak level.
This endless debt and money printing scheme is in reality a solution in
search of a problem. Or, perhaps if central bankers were a more honest bunch,
they would tell you the BOJ is using the growth excuse to tackle the real
issue: Japan's tax base can no longer service its debt.
Therefore, its fiscal and monetary conditions must be completely taken
over by the central bank in the doomed hope that inflation will become the
nation's panacea. The outcome to this absurd plan would be a mystery if
countries haven't tried this many times before. Like lemmings, the Japanese
government and central bank will blindly follow the same path as Weimar
Germany, Zimbabwe and Hungary. Perhaps they should read up on the history of
hyperinflation.
