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Japanese and US Stocks - The Bernanke Footprint
It’s been noted by many that the USA is eerily following the path of
Japan. The similarities are there. A mature economy, aging population,
huge debt to GDP, massive unfunded liabilities and a stagnant economy.
Both countries have chosen to address their structural problems with
more and more debt and cheap money monetary policies.
A friend sent me the following chart that looks at the Japanese stock
market and the S&P. Two important adjustments have been made to the
data. (1) There is an eleven-year lag on the Japanese Nikkei. (2) The data is currency adjusted. I think this is a pretty scary stuff:
These lines do not match up perfectly over the measured period. But what is striking is the correlation of the “Turning Points”
in the markets. Look at how it lines up in the most recent period. The
S&P appears to be rolling over the past six weeks. Exactly as the
Nikki did eleven years ago. But look at the results. In the eleven years
that followed, Japanese stocks fell from the index level of 200 to the
current value of 76. That is a 60+% drop!
There are differences between the US and Japan. So this chart may not be
our future. But if it is even remotely close then the US will not make
it another eleven years. Something will blowup in a spectacular way.
I found this chart fascinating, so I looked a bit deeper to see what Japan has done and why. Guess who played a big hand in determining the monetary policy of Japan? I’m sure you guessed this one right. It was none other than Ben Bernanke. He gave a major speech
way back in 2003 on what Japan should do. If you’re a Fed watcher read
the whole thing. My take on it was that Ben was lecturing to the
Japanese Central Bank. If you found the above chart a sign of what is in
our future Ben’s words eight years ago will give you the Willies.
The Intro:
My remarks today will be focused on opportunities for monetary policy innovation in Japan, including specifically the possibility of more-active monetary-fiscal cooperation to end deflation.
BK:
If you took out "Japan" and inserted "America" this would be the same
speech that Bernanke would use today. He has taken the same attitude in
all of his speeches since 2008.
If you took out "Japan" and inserted "America" this would be the same
speech that Bernanke would use today. He has taken the same attitude in
all of his speeches since 2008.
The “Ben” plan
I will
discuss the option of asking the Bank of Japan to announce a
quantitative objective for prices, as well as how such an objective
might best be structured.
I would
like to consider an important institutional issue, which is the
relationship between the condition of the Bank of Japan's balance sheet
and its ability to undertake more aggressive monetary policies.
BK:
Bernanke has pushed for a Fed policy that targets inflation. He has
brought us QE that has added to the Fed balance sheet. Ben’s plan for
Japan is what we have in the USA today.
Bernanke has pushed for a Fed policy that targets inflation. He has
brought us QE that has added to the Fed balance sheet. Ben’s plan for
Japan is what we have in the USA today.
Ben’s philosophy
In principle, balance-sheet considerations should not seriously constrain central bank policies.
BK: They shouldn’t be “seriously” considered?? OMG!
The Bank of Japan should consider increasing still further its purchases of government debt, preferably in explicit conjunction with a program of tax cuts or other fiscal stimulus.
BK:
That is exactly what happened in 2009. We got ZIRP, QE1 and HERA (tax
cuts and stimulus).These things have had no lasting impact.
From
the point of view of conventional private-sector accounting--which, as I
will discuss, is not necessarily the correct standard in this case.
BK: Ben thinks Central Banks are above the “rules”. We certainly have that status today.
On the issue of Monetiziation
A tax cut for households and businesses that is explicitly coupled with incremental BOJ purchases of government debt--so that the tax cut is in effect financed by money creation.
BK:
Note the “financed by money creation” part of this. Ben swears he is
not creating money today. But that is exactly what he proposed for Japan
AND that is exactly what he is doing in the US today.
Note the “financed by money creation” part of this. Ben swears he is
not creating money today. But that is exactly what he proposed for Japan
AND that is exactly what he is doing in the US today.
On the "Goodness" of more debt
Ben asks:
Isn't it irresponsible to recommend a tax cut, given the poor state of Japanese public finances?
And answers:
To the contrary, from a fiscal perspective, the policy would almost certainly be stabilizing.
BK: NO! The consequence is destabilizing.
The real consequence is that people (markets) lose confidence when
money is cheap and governments are running printing presses.
The real consequence is that people (markets) lose confidence when
money is cheap and governments are running printing presses.
Ben admits to a downside
Of
course, one can never get something for nothing; from a public finance
perspective, increased monetization of government debt simply amounts to replacing other forms of taxes with an inflation tax.
BK: This drives me nuts.
Bernanke has been pounding the table that his monetary policy does not
cause inflation in the US and the rest of the world. But Eight years ago
he saw the connection perfectly. Today he is in denial. Either Ben’s
lying to us, or he has his head in the sand.
Bernanke has been pounding the table that his monetary policy does not
cause inflation in the US and the rest of the world. But Eight years ago
he saw the connection perfectly. Today he is in denial. Either Ben’s
lying to us, or he has his head in the sand.
H/T:JH
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Greenpan was a level of fail of arguably unprecedented levels in American Economics and Monetary Policy. Bernanke = Greenspan level of fail on steroids.
What Is Wrong With The U.S. Economy? Here Are 10 Economic Charts tha will Blow Your Mind
Is the product simply default followed by "that's your--fault, actually--not dee-fault per se" then? "Who's paying this bill again?" Shall we simply call it "the hundreds of thousands that we will abandon over there?" If that's "political" sounds dangerous if not suicidal does it not? Clearly no rational man would "latch himself to that mast" no? Of course what the hell do i know.
http://www.youtube.com/watch?feature=player_detailpage&v=ukbTFgQ4jxs
He belives foreigners will hold onto the dollars because we have the world reserve currency....different this time? definitly not...
http://www.federalreserve.gov/pubs/ifdp/2002/729/ifdp729.pdf
while BB is not author to this paper he is heavily quoted.
It goes on and on, Bernanke's view is that there was insufficent loosening of policy to correct the Japanese deflation. The sublime issue is the creation of a permanent Zombie banking system, which will remain always loyal to the Federal Reserve..
That's excellent. At least the Bernank was not pulling these ideas out of his keister. He had practice with Japan first! Did Jeff iMelt-down have much prior Japanese experience?
"Exodus Theme" enters its next act.
Ben must be the favorite bogey man for the US media and blogs since... Stalin in radio/TV days.
Poor guy...poor fall guy...poor phd guy lost in translation...what works in theory should AWAYS work in practice...not the other way round...drop the theory is what we plebes learn, NEVER the facts... becomes heresy once inside the temple...AS, you have a PHD...then you can postulate the contrary to that said by mere mortals..Your uber position gives you license to do contrary precisely for that reason. Thats not logic that's metaphysics...
It's worth considering the views of Nomura's Richard Koo - though much sneered at on Zero Hedge - as to why Japan has done 'okay' over its 20-year economic trough since the crash, and why Japan's heavy increase of public debt was the *right* thing to do, for Japan at least.
Koo makes some interesting arguments that Japan would have been a disaster without the huge public spending, and that this is proven by the way the Japanese economy immediately tanked at points whenever the public spending 'stimulus' spigot was cut off.
Koo's argument is that most of the Western world does not understand the concept of a 'balance sheet recession', which means that HUGE public debt is, according to Koo, *NOT A PROBLEM* when it is recycling private sector savings ... (hence would not apply to Greece, for example, which should indeed default or 'restructure', under Koo's theory).
Koo does say that when the corporate, private and household sectors are deleveraging, the public sector in fact MUST lever up to maintain economic momentum ... Koo says this is what the US did during World War II, bumbling into the correct economic policy because of war pressures, and essentially leading the US through the 20-year trough into the more prosperous 1950s.
BUT: Koo has some key provisos. One of them, is that the society engaged in stimulus, MUST support worker incomes, via jobs (like in Japan) or a combination of jobs and transfer payments (like in Europe) ... Koo does not emphasise this point enough in his writings, because he is too 'polite' to his 'free-market' Anglo audience ... but in fact, Richard Koo takes a radical, almost Marxian view, like Henry C K Liu on Asia Times Online ... you support jobs and incomes (even if the jobs are somewhat bullsh*t) to maintain demand while the private sector is deleveraging ... even if this takes 20+ years ...
Koo is still adamant that Japan's 200% of GDP public debt, is really NOT the problem people think it is ... there are still Japanese private savings that can be absorbed, despite the Japanese demographic bulge etc.
Japan clearly is *different* from the US, as commentators have often noted ... an export powerhouse, a strong private savings culture, and a social culture that does generally support common people in jobs (though perhaps not quite so much as some of more 'socialist' Europe).
But it is interesting to consider, whether the key question is how and where the borrowed-printed money is used ... just to help the banksters like in the US, or actually maintaining incomes of common people, as has been done in Japan and some parts of our relative paradise here in Europe.
IF Americans still had jobs and somewhat middling incomes ... not just their 'food stamp' credit card balance recharges ... it would be a different story. But it seems the US oligarch class is just going to rape the USA and leave it to burn.
So Bernank is not only directing US stock markets but also Japans Brucie Baby?!!
The Fed sure is layered in myths and mystic powers to direct the economy.. presumably The Fed directed economic expansion and contractions, not only the US but Japans too.. we're all just Pavlovs Dogs being orchestrated by the Greenspans and Bernanks of central (monopolies on money) banking right?
This is a bit like the God argument where the believers think all that is good is Gods work and all that is bad is the Devils... presumably the Fed organised the 2000 and 2007 peaks and orchestrated the crashes too
tell me Bruce, what other job or policy does the Fed have other than print or not to print?
...i can't find anything The Fed does except print and hand it over in exchange for crap debt (US Govt bedt, bankers toxic mortgages etc)
Excellent article....Could not the evidence contained in this article be put before Bendover Bernanke in the next congressional hearings ?
That would be like displaying these charts of worldwide food inflation and shortages.
http://www.fao.org/worldfoodsituation/wfs-home/foodpricesindex/en/
He would reply that he sees no inflation, never goes hungry, and that perhaps the charts are being displayed upside down?
One of the biggest difference between the US and Japan is that Japan's debt is mostly held by it's citizen's who are content with low interest rates. A lot of US debt is held by foreigners who at some point are going to demand higher interest rates. Once that happens, it's game over for the US.
Like I said, We won't make it eleven more years....
There's a good chance we won't make it eleven more months.
(Seriously.)
I would be suprised if we made it through the summer with the delusional Mugabe 2.
your theory might have held water prior to March 11, 2011.
Radioactive material in sludge at 16 prefectures
NHK has learned that 16 prefectures in Japan have detected radioactive material in sludge since the crisis began at the Fukushima Daiichi nuclear plant in March.
NHK has found through interviews that at least 22 of Japan's 47 prefectures have been testing sludge for radioactive material. 16 of them, ranging from Hokkaido to Osaka, have actually detected radioactive substances.
The level of radioactive cesium was highest in Fukushima city, at 447,000 becquerels per kilogram. This was followed by Tokyo at 55,000 becquerels and Maebashi, north of Tokyo, at 42,800 becquerels.
Rain-soaked soil containing radioactive substances has turned into contaminated sludge and is being stored at waste treatment plants.
Maebashi has designated area around its waste treatment plant a radiation danger zone, after radiation levels at 2 storage sites for incinerated sludge exceeded the government set-safety level.
Japan has had no safety guidelines for contaminated sludge, which is a new problem.
Last month, the government decided on an emergency measure to incinerate and store sludge that's been found to contain 100,000 becquerels or more of radioactive materials.
But the measure applies only within Fukushima Prefecture, prompting other prefectures and municipalities to demand that the government quickly set guidelines on how to handle contaminated sludge.
Tuesday, June 14, 2011 19:13 +0900 (JST)
http://www3.nhk.or.jp/daily/english/14_33.html
This is just maths.
You can't beat deflation by increasing debt. You will get a pulse of money and then the debt will consume the credit, just leading to more deflation. Isn't this obvious?
You can only beat deflation by printing actual paper money. There is no debt attached and each unit of paper can consume multiple units of debt.
So... Print paper. Again, isn't it obvious that paper and credit behave differently?
Oh, and gold vs fiat is completely irrelevant.
So your point is we need a devalued dollar, higher rates, and inflation?
Well that's the problem with a fractional reserve based monetary system. You either get inflation or deflation. Neither are desirable but there is no nice steady state noflation.
Whether it is gold or fiat based is irrelevant.
Pick your poison; boom or bust.
BK, you are far too kind in your words. Some expletives would certainly be appropriate.
How can there be any doubt that we are being lied to? Again and again. Yet now "they" want the equivalent of a ministry of truth? Your post would probably be summarily deleted, and you would receive a warning for your blasphemy.
http://www.lewrockwell.com/shaffer/shaffer238.html
Ben doesn't know what inflation is because he doesn't have to buy the groceries.
When every meal is catered and you are treated like a Duke you have no idea what the merchant or peasant class is having to pay or do to survive.
Duke Bernank believes in his policies because otherwise he would have to face the horrifying spectre of being WRONG.
Hussein is the problem too. He is Mugabe 2.
Japan has been locked into a deflationary recession for close on twenty years, I'd agree that it could be far worse in the USA given their addiction to the consumption of energy..
This is what happens when you don't allow defaults on bad debts. Defaults are inflationary.
Looks like Ben is trying to find that $6 Billion which went missing in Iraq. He sure can use it for more bailout of banks that stole from taxpayers and those on fixed income. Economics has deteriorrated to just a game of elitist bankers and those hooked on financial fraud called shadow banking.
History doesn't just rhyme- History is a plagiarist.
Good one...
.
Excellent contribution. TY Bruce!
good grief...
Won't work for who (whom)?
It's working splendidly for those 2% who were and are the targets.
Why you guys keep acting like theBernank doesn't know precisely what he's being told to do, is getting very tiresome.
Criticize him by all means but for krissakes, at least give him 'credit' where it's due: Taking care of business as he was hired to do.
Bruce, buddy ,its gonna be much much worse in USA( actually already is)
Japan
#most of 90x Japan didnt have budget deficit.. economy (outside fin/realestate) was pretty decent
#never had trade deficit .. even now oil is 120$
#Japan goverment dont fight numerous wars around the world
#Japan gov never had oficial policy to 'SHIP ALL GOOD PAYING JOB INTO CHINA/VIETNAM /etc in order for big shots to make obsene amount of money'
#Japan dont have open borders, so not much immigration workers, of course there are some but mostly in v.v. low pay jobs in underworld
#Japan society has common values , history etc..
and on on on
so I'd say there's easy fix for japanese : more immigration and more ##cuking to have babies..
America.. not chance.. its fooocked.. great experiment of melting pot is ending... 2,3 years most.. look at what happening in inner cities across USA: gangs, roberies, gun shooting..
alx
How bad is social unrest in the USA, it needs to kick off but will it..ever? Perhaps insurgants who, with backing off Libya, will ring fence Texas oil, be recongnised as the new govt., and then ask NATO to carpet bomb NY..
Could they save a few JDAMs for Chicago?
That's what I thought too, and I purchased SH at 55.61. So I'm quite underwater, in an example of how being early just sucks. But I am going to continue to hold this position longterm even if it means further losses.
Ben is lying from his head which is up his ass.
So if Ben shit in the woods... he could really hear it...
Why do they continue to use the term "tax cuts"? There have been no tax cuts, merely tax deferrals onto the next three generations of tax payers. Bush never "cut taxes", he merely laid them on your kids and grandkids and great grand kids.
Not so, because the bill will come due for this generation - the buck cannot be passed any longer.
His head is not in sand....
His head is in ASS!
His own ass.
His head is in our asses. And he's having a great ol' time.