Bank of Japan

"There’s a lack of faith in monetary policy -- you’ve thrown the kitchen sink at it, you’ve cut rates to zero, you’re printing money -- and still inflation is lower. I think this is a dangerous situation if people perceive that it has the responsibility and it doesn’t have the tools."

Following Friday's disastrous payrolls report, which confirmed all the pre-recessionary economic data and signaled that instead of approaching "lift-off" and decoupling from the rest of the world, the US economy is following the emerging markets into a slowdown in what may be the first global, synchronized recession since 2008, the market saw its biggest intraday surge since 2011 and the sharpest short covering squeeze in history, we are happy to announce that the "market" is now solidly back in "bad news is good news" mode.

Japan has a nigh endless supply of insane Keynesians doing the same thing over and over and over again. But support is now growing around the world for the next round ofspending to be funded by “People’s QE.” The idea behind “People’s QE” is that central banks would directly fund government spending... and even inject money directly into household bank accounts, if need be. And the idea is catching on. That’s the monster coming to towns and villages near you! Call it “overt monetary financing.” Call it “money from helicopters.” Call in “insane.” But it won’t be unpopular. Who will protest when the feds begin handing our money to “mid- and low-income households”?

The reaction function of officials takes on added importance in the week ahead.

Whereas some central banks have become more forthcoming on where they claim their official gold reserves are stored, many of the world’s central banks remain secretive in this regard, with some central bank staff saying that they are not allowed to provide this information, and some central banks just ignoring the question when asked.

"It's obvious the U.S. is headed for deep deflation, hurt by the strong dollar... The Fed raising rates in this environment is not only ridiculous but harmful. U.S. stocks are plunging, not because of the prospect of a Fed rate hike, but to prevent it."

BOJ IS SAID TO SEE LITTLE IMMEDIATE NEED FOR ADDING STIMULUS
BOJ OFFICIALS ARE SAID TO WANT CHANCE TO SEE MORE DATA

When a lot of Keynesian cowbell doesn't work, the only cure for the deflationary fever must be more Keynesian cowbell which explains why Japan is about to double down on Abenomics, and why the ECB will almost invariably expand PSPP now that the deflationary boogeyman is back in Europe. Indeed, S&P is now out calling for ECB Q€ to last for nearly two years longer than originally planned and for the size of the program to be expanded to a Dr. Evil-ish €2,400,000,000,000.

The divergence theme is likely to strengthen in the week ahead.  

Having completed his militarist plans, Japanese Prime Minister Shinzo Abe appears to have gone full fantasy-tard with his latest "plans" for the demographically-dead and debt-destroyed nation. "Creating a strong economy will continue to be my top priority," Abe said, a goal he has stunningly under-achieved as Japan heads for its 5th recession in 4 years, but, as Bloomberg reports, it is his new "arrows" of economic hope that has left analysts scratching their heads - 20% economic growth (when its gone nowhere for years), a higher birth rate (as the aging of the nation accelerates and interest in sex plunges), and allegedly a goose that lays golden eggs (well why not?). The collapse of Abe's approval says it all about his 'plan'.

Contrary to popular opinion, there are problems that are too big for the Central Banks to control.

Japan is a useful analog in so many ways, not just about what the US and global economy can (has already?) become if allowed to follow into this same circle of Hell. It pretty much proves the incapacity of orthodoxists toward anything outside of their so very limited understanding and appreciation.

Quantitative easing, as this policy is known, has bailed out bonus-happy banks and made the rich richer.  Banks have been the biggest beneficiaries, with their 20- or 30-times leveraged balance sheets. Asset managers and hedge funds have benefited, too. Owners of property have made out like bandits. In fact, anyone with assets has grown much richer. All of us who work in financial markets owe a debt to QE.

Historical comparisons, suggest to the FOMC to be extra careful, and don’t underestimate the trust the markets have for the FOMC to act rationally. We all expect the FOMC to act counter-cyclically; a rate rise now would be pro-cyclical, or making the problem worse. Anything FOMC members say after a ‘philosophical’ rate rise would greatly diminish its value. This comparison with Japan suggests that raising rates prematurely is detrimental and avoidable.

Who would have thought that decades of ZIRP, an aborted attempt to hike rates over a decade ago, and the annual monetization of well over 10% of sovereign debt would lead to a toxic debt spiral, regardless of how many "Abenomics" arrows one throws at it? Apparently Standard and Poors just had its a-ha subprime flashbulb moment and moments ago, a little over 4 years after it downgraded the US from its legendary AAA-rating which led to angry phone calls from Tim Geithner and a painful US government lawsuit, downgraded Japan from AA- to A+.  The reason: rising doubt Abenomics is working.