Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold Price Drops Amid Stimulus and Poor Data - 21st Jan 21
Protecting the Vulnerable 2021 - 21st Jan 21
How To Play The Next Stage Of The Marijuana Boom - 21st Jan 21
UK Schools Lockdown 2021 Covid Education Crisis - Home Learning Routine - 21st Jan 21
General Artificial Intelligence Was BORN in 2020! GPT-3, Deep Mind - 20th Jan 21
Bitcoin Price Crash: FCA Warning Was a Slap in the Face. But Not the Cause - 20th Jan 21
US Coronavirus Pandemic 2021 - We’re Going to Need More Than a Vaccine - 20th Jan 21
The Biggest Biotech Story Of 2021? - 20th Jan 21
Biden Bailout, Democrat Takeover to Drive Americans into Gold - 20th Jan 21
Pandemic 2020 Is Gone! Will 2021 Be Better for Gold? - 20th Jan 21
Trump and Coronavirus Pandemic Final US Catastrophe 2021 - 19th Jan 21
How To Find Market Momentum Trades for Explosive Gains - 19th Jan 21
Cryptos: 5 Simple Strategies to Catch the Next Opportunity - 19th Jan 21
Who Will NEXT Be Removed from the Internet? - 19th Jan 21
This Small Company Could Revolutionize The Trillion-Dollar Drug Sector - 19th Jan 21
Gold/SPX Ratio and the Gold Stock Case - 18th Jan 21
More Stock Market Speculative Signs, Energy Rebound, Commodities Breakout - 18th Jan 21
Higher Yields Hit Gold Price, But for How Long? - 18th Jan 21
Some Basic Facts About Forex Trading - 18th Jan 21
Custom Build PC 2021 - Ryzen 5950x, RTX 3080, 64gb DDR4 Specs - Scan Computers 3SX Order Day 11 - 17th Jan 21
UK Car MOT Covid-19 Lockdown Extension 2021 - 17th Jan 21
Why Nvidia Is My “Slam Dunk” Stock Investment for the Decade - 16th Jan 21
Three Financial Markets Price Drivers in a Globalized World - 16th Jan 21
Sheffield Turns Coronavirus Tide, Covid-19 Infections Half Rest of England, implies Fast Pandemic Recovery - 16th Jan 21
Covid and Democrat Blue Wave Beats Gold - 15th Jan 21
On Regime Change, Reputations, the Markets, and Gold and Silver - 15th Jan 21
US Coronavirus Pandemic Final Catastrophe 2021 - 15th Jan 21
The World’s Next Great Onshore Oil Discovery Could Be Here - 15th Jan 21
UK Coronavirus Final Pandemic Catastrophe 2021 - 14th Jan 21
Here's Why Blind Contrarianism Investing Failed in 2020 - 14th Jan 21
US Yield Curve Relentlessly Steepens, Whilst Gold Price Builds a Handle - 14th Jan 21
NEW UK MOT Extensions or has my Car Plate Been Cloned? - 14th Jan 21
How to Save Money While Decorating Your First House - 14th Jan 21
Car Number Plate Cloned Detective Work - PY16 JXV - 14th Jan 21
Big Oil Missed This, Now It Could Be Worth Billions - 14th Jan 21
Are you a Forex trader who needs a bank account? We have the solution! - 14th Jan 21
Finetero Review – Accurate and Efficient Stock Trading Services? - 14th Jan 21
Gold Price Big Picture Trend Forecast 2021 - 13th Jan 21
Are Covid Lockdowns Bullish or Bearish for Stocks? FTSE 100 in Focus - 13th Jan 21
CONgress "Insurrection" Is Just the Latest False Flag Event from the Globalists - 13th Jan 21
Reflation Trade Heating Up - 13th Jan 21
The Most Important Oil Find Of The Next Decade Could Be Here - 13th Jan 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Here’s One Currency That Could Go to Zero

Currencies / Fiat Currency Jul 25, 2016 - 03:15 PM GMT

By: John_Mauldin

Currencies

BY JARED DILLIAN: Shinzo Abe just scored a decisive victory in the upper house elections. Let me explain why that is not boring.

Abenomics was conceived in 2012 as a way to combat Japan’s never-ending deflation and pseudo-depression. It included a truly massive program of quantitative easing. This involved the printing of yen to buy all sorts of assets—including stocks!

Abenomics has continued for four years… with mixed results.


Stocks are up about 150%, interest rates are negative, and the yen is appreciably weaker. But there is still no economic growth.

So, has Abenomics helped?

It might have, if Japanese retail investors owned stocks. But they really don’t—foreign ownership of Japan’s equity market is quite high.

Low interest rates might have sparked off a residential construction boom, but they didn’t. Why? Because there is nobody to build houses for. Japan suffers from chronic depopulation, as the birth rate is well below the replacement rate.

The Economics of Depopulation

I say this a lot, but I will say it quite explicitly here: the Earth has experienced explosive population growth for decades, but the rate of growth is slowing. Before long, we will have reached peak population, and the number of people on this planet will actually be declining.

I imagine it will happen faster than people think.

The Malthusians were discredited years ago, but they are really discredited now. What are they going to say when the planet is depopulating?

That may be great for the environment, but the economics of the situation are not so clear. You see, the whole profession of economics was conceived and practiced during periods of rising population. It’s easy to get economic growth when your population is increasing. More people working produce more output.

Let’s review, again, how you get economic growth:

  1. More people working
  2. Same number of people working more hours
  3. Productivity increases

If you have fewer people working, the remaining people have to either work longer, harder, or more efficiently to get the same level of output. Ain't happening in Japan.

Economics as an academic discipline gets weird when the population drops. Here’s why. These declines in output (otherwise known as GDP) become the norm rather than the recessionary exception.

Japan is basically in recession all the time, except for brief intervals. On a per capita basis, they aren’t necessarily getting poorer—and perhaps that is what people should focus on—but strictly speaking, yes, as long as Japan’s population keeps going down, there is really no way to reverse the deflation.

Enter Abenomics, which has caused the BOJ to print massive amounts of yen and to take all sorts of assets onto its balance sheet. With the trillions of extra yen floating around the banking system, you might think you’d get inflation. But not yet—money velocity continues to plummet. So Japan is caught in this vicious cycle of deflation and QE.

Meanwhile, the government debt continues to be effectively monetized (taking the primary dealers out of the equation would accomplish just that).

Someone said on Twitter recently (and I am paraphrasing), “Japan is the biggest hyperinflation risk in the world, and USDJPY is only at 100?”

Makes no sense.

The One Currency That Could Go to Zero

Remember The Dillian Loop as it applies to Japan:

Japan does quantitative easing.

  • If it works, it is declared a success and they do more.
  • If it doesn’t work, it means they need to do more.

Right now, it’s not really working, so they’re going to do more.

It is possible that the BOJ will print an infinite amount of yen. The helicopter drop is being seriously discussed.

I don’t care what you think of the dollar or the euro or the pound or the Swiss franc. If you print an infinite amount of a currency, it’s going to decline in value.

I was about to say that it was an easy trade, but it hasn’t been an easy trade over the last 12 months. The yen has rallied massively as the market had serious concerns over the political will in Japan to truly reflate.

But after the election, there should be no doubt about the political will. They are going to reflate.

Full disclosure: I am short the yen and I own DXJ, and I have been in those positions since 2012.

If you are a yen bull, you should be very, very nervous about these election results. 

Subscribe to Jared’s Insights Into Behavioral Economics

Click here to subscribe to Jared’s free weekly newsletter, The 10th Man, so you won’t fall prey to the herd mentality that so often causes mainstream investors to make the wrong decision.

John Mauldin Archive

© 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