Japan’s Escape Ahead

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Published : January 26th, 2013
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Category : Crisis Watch

 

 

 

 

Japan just crossed another hurdle in its escape ahead by monetization of its debt in what can be called a show of strength by the new Prime Minister, Shinto Abe, against Japan’s central bank.


The Bank of Japan (BoJ), for that matter, is the central bank having used the printing press the longest, precisely since the bursting of the stock market and the real estate bubbles of the early 1990’s. The Fed, the ECB and the BoE only started using it with the 2008 crisis.


Since the bursting of this bubble, all the different japanese governments have instigated recovery plans, added to the budgetary deficits, and accumulated a public debt that is now the most important of the developed world (220% of GDP). And the BoJ is contributing by buying some of the State bonds to finance the debt.


What are the results of this onerous policy ? None, because there is no growth to speak of. Well, this is one more reason to continue and amplify this movement, says Shinto Abe, the new Prime Minister! The BoJ, after about ten « quantitative easing » plans, is not too willing to go ahead, hence the show of strength by Abe. The BoJ independence, guaranteed by its statutes, couldn’t resist. It’s a show of strength, consecrated by a « common declaration » about the objectives of the BoJ.


The new adversary has been designated : deflation. Prices only dropped by 0.2% in 2012, but that’ll be enough. The target of 2% inflation is proudly written in the common declaration. Inflation is becoming a goal in itself ! And, for that goal, the BoJ will keep its base rate at 0% and will buy more and more State bonds, without any « temporal limits ».


So now the enemy is not the debt, the budgetary deficit, or a drastic reduction of the balance of payments... no, it’s deflation, largely imaginary, that is used as a pretext for more monetization. Tragic.


Shinto Abe continues with a policy that doesn’t work, with a recovery plan of 20,200 Billion yen (175B euros). Which will cause more budgetary deficits. Despite the different governments, Japan keeps going ahead and is going full steam toward a default or hyperinflation.

 

 



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Philippe Herlin is a researcher in finance and a junior lecturer at the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers of the Austrian School of Economics, he brings his own views on the actual crisis, the Eurozone, the public debts and the banking system. He is also contributor at www.Goldbroker.com
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