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Last week a Central Banker made the most incredible admission in the
history of banking.
It came from the Bank of Japan.
The Bank of Japan has been the leader in global Keynesian insanity. The US
Federal Reserve launched its first QE program in 2008. The European Central
Bank launched its first QE program in 2015.
The Bank of Japan first launched QE back in 2001.
Since that time the Bank of Japan has implemented QE programs
equal to over 50% of Japan’s GDP. This includes its “Shock
and Awe” program launched in April 2014: the single largest QE program in
history, equal to over 25% of Japan’s GDP.
Suffice to say, Japan and its Central Bankers know more about QE than
anyone else in the world. Which is why what happened last week was absolutely
incredible.
On Friday, the head of the Bank of Japan, Haruhiko Kuroda stated
that Japan has a “potential growth rate of 0.5% or lower.”
Here is the Head of the Bank of Japan, admitting, in public
that QE has little if any ability to generate growth. This is a man who has
personally overseen the single largest QE program in history
admitting that QE cannot boost GDP growth.
It’s absolutely incredible, particularly coming from a Central Banker.
Throughout the last seven years, whenever the financial markets or global
economy began to weaken, the world has looked to Central Bankers to solve the
problem. Faith in Central Banking omnipotence was so great, that ECB
President “saved” Europe simply by vowing to “do whatever it takes.”
The underlying view here is that there were no problems so great that
Central Bankers could not solve them. Even the Central Bankers themselves
believed this: Mario Draghi’s next sentence after promising to do “whatever
it takes” was “and believe me, it will be enough.”
The Head of the Bank of Japan has just admitted this is untrue.
Haruhiko Kuroda has admitted that there is a limit to potential GDP growth
regardless of how much QE and Central Bank employs. He
has admitted that Central Bankers might not have the tools required to
generate growth.
Investors have yet to realize this because it runs completely contrary to
their faith in Central Banks. The illusion of Central Banking omnipotence is
so great, that it is going to take months for the world to begin to digest
what Haruhiko Kuroda admitted last week.
But when they do, the financial system will adjust. And it will
make 2008 look like a picnic.
Remember, in 2008, everyone had 100% confidence in
Central Bankers. Moreover, at that time, most Central Banks had only just
begun to employ ZIRP and QE to combat the financial crisis.
Today, Central Bankers have engaged in ZIRP and NIRP for years. And
they’ve also spent over $14 trillion in QE. And one of them has just admitted
he’s virtually out of options… right as the financial system begins to crack
under the weight of a debt bubble that is now $20 trillion larger than it was
in 2008.
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