Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
The Euro Is Bidding Its Time: A Reversal at Hand? - 23rd May 19
Gold Demand Rose 7% in Q1 2019. A Launching Pad Higher for Gold? - 23rd May 19
Global Economic Tensions Translate Into Oil Price Volatility - 22nd May 19
The Coming Pension Crisis Is So Big That It’s a Problem for Everyone - 22nd May 19
Crude Oil, Hot Stocks, and Currencies – Markets III - 22nd May 19
The No.1 Energy Stock for 2019 - 22nd May 19
Brexit Party and Lib-Dems Pull Further Away from Labour and Tories in Latest Opinion Polls - 22nd May 19
The Deep State vs Donald Trump - US vs Them Part 2 - 21st May 19
Deep State & Financial Powers Worry about Alternative Currencies - 21st May 19
Gold’s Exciting Boredom - 21st May 19
Trade War Fears Again, Will Stocks Resume the Downtrend? - 21st May 19
Buffett Mistake Costs Him $4.3 Billion This Year—Here’s What Every Investor Can Learn from It - 21st May 19
Dow Stock Market Trend Forecast 2019 May Update - Video - 20th May 19
A Brief History of Financial Entropy - 20th May 19
Gold, MMT, Fiat Money Inflation In France - 20th May 19
WAR - Us versus Them Narrative - 20th May 19
US - Iran War Safe-haven Reasons to Own Gold - 20th May 19
How long does Google have to reference a website? - 20th May 19
Tory Leadership Contest - Will Michael Gove Stab Boris Johnson in the Back Again? - 19th May 19
Stock Market Counter-trend Rally - 19th May 19
Will Stock Market “Sell in May, Go Away” Lead to a Correction… or a Crash? - 19th May 19
US vs. Global Stocks Sector Rotation – What Next? Part 1 - 19th May 19
BrExit Party EarthQuake Could Win it 150 MP's at Next UK General Election! - 18th May 19
Dow Stock Market Trend Forecast 2019 May Update - 18th May 19
US Economy to Die a Traditional Death… Inflation Is Going to Move Higher - 18th May 19
Trump’s Trade War Is Good for These 3 Dividend Stocks - 18th May 19
GDX Gold Mining Stocks Fundamentals Update - 17th May 19
Stock Markets Rally Hard – Is The Volatility Move Over? - 17th May 19
The Use of Technical Analysis for Forex Traders - 17th May 19
Brexit Party Set to Storm EU Parliament Elections - Seats Forecast - 17th May 19
Is the Trade War a Catalyst for Gold? - 17th May 19
This Is a Recession Indicator No One Is Talking About—and It’s Flashing Red - 17th May 19
War! Good or Bad for Stocks? - 17th May 19
How Many Seats Will Brexit Party Win - EU Parliament Elections Forecast 2019 - 16th May 19
It’s Not Technology but the Fed That Is Taking Away Jobs - 16th May 19
Learn to Protect your Forex Trading Capital - 16th May 19
Gold Ratio Charts Offer The Keys to the Bull Market - 16th May 19
Is Someone Secretly Smashing the Stock Market at Night? - 16th May 19

Market Oracle FREE Newsletter

U.S. House Prices Analysis and Trend Forecast 2019 to 2021

The Lesson of "Half-Hearted" QE Money Printing

Interest-Rates / Quantitative Easing Feb 15, 2012 - 12:31 PM GMT

By: Adrian_Ash

Interest-Rates

Best Financial Markets Analysis ArticleTake 40 trillion Yen, add another 22 trillion, and you still aren't doing enough!

SO HOW MUCH quantitative easing is enough quantitative easing?


Japan tipped into depression almost 20 years before everyone else, but it got no respect for blazing the trail. Its zero-rate policy also got started more than seven years before the US or Britain's. But again it was all "too little, too late" according to Western observers.

Even massive deficit spending and creating money from nowhere failed to beat Japan's "self-induced paralysis" said Ben Bernanke, then a Princeton professor but now chairman of the US Federal Reserve, of course – and accused himself of failing to print enough electronic money to rescue America from the horror of non-inflating consumer prices.

Little wonder the Bank of Japan wants to get ahead of its critics. Especially those foreign academics (now central bankers) who built their career claiming they would make sure "deflation doesn't happen here" in their own domestic economies. Yet Japan's ambitions remain so very modest. Why won't the Bank of Japan man up and  decimate the currency?

Never mind that Japanese gold prices have risen four-fold since QE began in 2001. Never mind that the Bank of Japan today called its policy "powerful monetary easing". Because inflation in Japanese consumer prices is still running around 0% as the Bank noted on Tuesday. So for a Valentine's treat, its nine policy-makers voted to create more than half as much QE as they have undertaken in total so far – a further ¥22 trillion ($281bn) by year-end – taking the total decade-long program to $832bn in money it simply willed into being.

The aim of all this money? The Bank of Japan says that "price stability in the medium to long term" means a rate of consumer inflation between 0% and 2% per year. Today's vast new quantitative easing "more specifically sets a goal at 1% for the time being."

How could creating so much money – somewhere between the annual GDPs of Turkey and the Netherlands – result in such little inflation?

"Lawmakers renewed criticism of the BOJ after the announcement," reports Bloomberg, "with Kozo Yamamoto, of the Liberal Democratic Party, saying the 1 percent target was 'too low' and not a substantial change from existing policy. Takeshi Miyazaki, a ruling Democratic Party of Japan lawmaker, said the central bank’s approach seemed half-hearted...

"A group of DPJ lawmakers is seeking a 2 percent to 3 percent inflation target."

But note where Japan's policy wonks are starting from. Buying government bonds with their quantitative easing, the Bank of Japan currently owns just 6% of national debt outstanding. Okay, that should rise above 9% in the next year, and its very nearly equal to the net debt due to be issued in the next 12 months, too. But 3 times as much existing debt will also have to be rolled over by March 2013, and as a proportion of Japan's broad M3 money supply, QE currently equals less than 4% of the total. It's a bonsai tree in the forest, in short.

Compare and contrast the Bank of England. It got started in only March 2009, but its latest QE plans will take quantitative easing to more than £1 in every £4 of the UK's record-high national debt. As for the broad M3 money supply, the Bank will have created and spent a sum equal to 14% of the all the cash and savings in the UK economy.

Now, that's real quantitative easing! It makes Japan's QE look paralyzed indeed, not least with the UK enjoying annual price inflation of 3.5% per year since the Bank of England first slapped the ink on its electronic printing press. Japan's tepid QE has instead delivered an average 0.15% annual fall in the cost of living since 2001.

So what did QE achieve in Japan? "The program aided weaker Japanese banks and generally encouraged greater risk-tolerance in the Japanese financial system," concluded a Federal Reserve study in 2006...just before the West caught up with Japan and embarked on its own credit-bust and depression.

"Quantitative easing may have [therefore] had the undesired impact of delaying structural reform," said the Fed – a structural reform that zero-rate money printing in the UK and US hasn't yet allowed either. Our zombie banks continue to avoid collapse, thanks to the huge volume of money thrown at their balance-sheets. Keeping them on life support, as the Japanese experience shows, will mean extending and expanding QE indefinitely.

How inflation in the cost of living responds over the next decade remains to be seen.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules