Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Kamikaze Monetary Policy as BOJ Prepares to Launch More Zeros

Interest-Rates / Japanese Interest Rates Jan 09, 2013 - 11:44 AM GMT

By: Michael_Pento

Interest-Rates

It is an unfortunate truth that Keynesian counterfeiters with their Kamikaze monetary and fiscal policies have taken over the developed world. Politicians and central banks in the United States and Europe have decided to cement firmly in place their addictions to debt, inflation and artificially produced low interest rates. But Japan has now leapfrogged into the lead of those nations that believe prosperity can be brought about by loading up on government debt and increasing the number of zeros being printed by their central bank.


Shinzo Abe and the Liberal Democratic Party swept into power in mid-December by promising to boost inflation and destroy the value of the Yen. The new Prime Minister is trying to usurp the independence of the Band of Japan (BOJ) by dictating that the central bank provide an inflation target of at least 2% and also force them to expand their government bond-buying program. The reason for this is clear; Japan’s debt has ballooned to over $12 trillion and is now 237% of their GDP.

So, what’s a government and central bank to do? The answer of course is enacting yet another new fiscal stimulus package that will be monetized by the BOJ. Japan’s central bank has already been buying corporate and government bonds in the scores of trillions of Yen. Then its board met on December 20th and decided to expand its program for the third time in four months. This additional 10 trillion Yen brings the current total of BOJ debt monetization to 101 trillion Yen! Of course, to “help” push things along on the spending side, the government is considering another 10 trillion Yen stimulus program.

The government believes their economic troubles emanate from stable prices and a currency that is too strong. Therefore, an all-out effort is underway to crumble the currency and boost inflation. This would be great news for the Japanese economy if it all hadn’t been tried before and proven to fail miserably. In fact, the Yen has already lost 11% of its value in the past twelve months and is at its lowest level against the dollar since August of 2010. But that hasn’t helped boost exports or manufacturing at all. Industrial production dropped 1.7% in November, which was the worst reading since the earthquake in March of 2011. That’s because domestic prices rise in commensurate fashion with the decline of the currency. Hence, there was no benefit to manufacturing and exports due to a drop in the value of the Yen.

Japan has adopted the Keynesian mantra of, “The economy suffers from a lack of demand and government can and must supplant the private sector.” However, the problem is that demand must be based on the prior production of goods and services, which allows an individual, corporation or government the ability to use their production for consumption. It cannot be generated artificially by printing money beforehand. If genuine growth and prosperity could come from government-induced demand, Cuba would be a global economic giant.

When a government perpetually tries to create demand by disseminating money that is printed by a central bank; all you get is a falling currency, faltering GDP, soaring debt levels and inflation—and eventually rising interest rates as well. Japan illustrates this point perfectly. Indeed, Japanese Government Bond yields have increased sharply in the last month in response to Mr. Abe’s love affair with inflation. That could lead to disaster in short order as the country’s debt service payments soar.

As stated before, one consequence of destroying your currency is to make those things priced in Yen rise in price. That also applies to equities. The Nikkei Dow closed up 23% on the year and has continued its increase so far in 2013. That’s great for those fortunate to own hard assets, but pernicious for those in the middle class that must spend a greater portion of their income on food and energy. The result is a faltering middle class and an economy that is plagued by intractable debt and an unstable currency.

The failure of Japan to allow bankrupt institutions to fail, to let asset prices fall, to balance their budget and to embrace a strengthening Yen has helped turn their lost decade into the lost quarter century. And it is now etched in stone that the entire nation now faces a currency and bond market crisis that is not too far in the future.

Respectfully,

Michael Pento
President
Pento Portfolio Strategies
www.pentoport.com
mpento@pentoport.com

Twitter@ michaelpento1
(O) 732-203-1333
(M) 732- 213-1295

Michael Pento is the President and Founder of Pento Portfolio Strategies (PPS). PPS is a Registered Investment Advisory Firm that provides money management services and research for individual and institutional clients.

Michael is a well-established specialist in markets and economics and a regular guest on CNBC, CNN, Bloomberg, FOX Business News and other international media outlets. His market analysis can also be read in most major financial publications, including the Wall Street Journal. He also acts as a Financial Columnist for Forbes, Contributor to thestreet.com and is a blogger at the Huffington Post.
               
Prior to starting PPS, Michael served as a senior economist and vice president of the managed products division of Euro Pacific Capital. There, he also led an external sales division that marketed their managed products to outside broker-dealers and registered investment advisors. 
       
Additionally, Michael has worked at an investment advisory firm where he helped create ETFs and UITs that were sold throughout Wall Street.  Earlier in his career he spent two years on the floor of the New York Stock Exchange.  He has carried series 7, 63, 65, 55 and Life and Health Insurance Licenses. Michael Pento graduated from Rowan University in 1991.
       

© 2013 Copyright Michael Pento - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Pento Archive

© 2005-2022 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