In the wake of the Bank of Japan (BoJ) decision to stand pat, Japan looks to be in ever more desperate straits, given the growing danger of sliding into its second recession since Abenomics was introduced. Such a recession would be the nail in the coffin of Abenomics, launched with high hopes and much fanfare three years ago. It made sense, therefore, for Prime Minister Shinzo Abe to seek the advice of Paul Krugman, who has been one of the chief cheerleaders for Abenomics, in a private meeting last month meant to lay the groundwork for the G7 Summit at Ise-Shima next month.
Japan has proven that decay can be stretched into decades, but it has yet to prove that gravity can be revoked by central bank monetary games.
According to the latest Institute of International Finance forecast, and in validation of Kyle Bass' strong conviction that China is about to suffer a major 15%+ devaluation, China's capital outflow headaches may be only just starting. According to the IIF's latest report released today, global investors are expected to pull $538 billion out of China's slowing economy in 2016, which means another $420 billion after the $118 billion that has already been withdrawn in Q1.
The latest shocking example of just how intertwined central banks have become in all capital markets, comes courtesy of the Bank of Japan which days ahead of a move which may see it double its ETF purchases from the current run rate of JPY3.3 trillion to JPY7 trillion or more (if Goldman is correct), is revealed to be a top 10 holder in about 90% of all Japanese stocks. Crazier still, if as Goldman predicts the BOJ doubles its purchases of ETFs, the central bank could become the No. 1 shareholder in about 40 of the Nikkei 225’s companies by the end of 2017,
Today, everything (and we do mean everything!) one thought they understood about free market capitalism has been thrown into the wastebasket of history and replaced with edicts and dictates set forth by an un-elected gaggle of economic theorists who've decided the world of business is theirs to control. How do they control it? Hint: The courage to print! Whether you're a solo-practitioner or CEO of a global concern one thing should be making you very, very, very concerned: The recent proclamations, as well as, delivery from the ECB’s Mario Draghi. To say central banks have intervened far too long within the financial markets would be an understatement.
"We expect $/JPY to move higher again in the near term and continue to forecast $/JPY at 130 a year from now.... by making the fiscal expansion permanent and funded through money creation (a politically correct phrase for a form of 'helicopter money'), expectations of future inflation should increase and real rates fall"
"In the context of today’s paralyzed political-fiscal landscape how silly is it to suggest the Fed purchase a significantly large quantity of gold bullion at a substantially greater price than today’s free-market level, perhaps $5,000 an ounce? Admittedly, this suggestion is almost too outrageous to post under the PIMCO logo, but NIRP surely would have elicited a similar reaction a decade ago. But upon reflection, it could be an elegant solution since it flips the boxes on a foreign currency “prisoner’s dilemma”. Most critically, a massive gold purchase has the potential to significantly boost inflationary expectations, both domestic and foreign."
Krugman is wrong. An economic boom, based on nothing but hot air (phony credit, with no real resources behind it), is fraudulent. It will never take us to real growth. Just the contrary. The best thing to do is to pop the bubble…and then pick up the pieces. Besides, it will pop whether we want it to or not. Heck, we believe in magic as much as the next guy. But the magic act is wearing a little thin. The smoke is dispersing. The rabbits have disappeared. All the glam and sparkle, the shock and awe, the claptrap and hokum – they’re all giving way to economic reality. We are beginning to see more clearly: the Fed’s theory is nothing but hot air.
Thousands of gallons of radioactive waste leaked from the Hanford Nuclear Reservation Site in Washington State, as workers pumped sludge from the tank during the weekend. "This is catastrophic. This is probably the biggest event to ever happen in tank farm history. The double shell tanks were supposed to be the saviors of all saviors (to hold waste safely from people and the environment),” said former Hanford worker Mike Geffre.
Yesterday the Federal Reserve released a 19-page letter that it and the FDIC had issued to Jamie Dimon, the Chairman and CEO of JPMorgan Chase, on April 12 as a result of its failure to present a credible plan for winding itself down if the bank failed. The letter carried frightening passages and large blocks of redacted material in critical areas, instilling in any careful reader a sense of panic about the U.S. financial system. The Federal regulators didn’t say JPMorgan could pose a threat to its shareholders or Wall Street or the markets. It said the potential threat was to “the financial stability of the United States.”
How is it that so many smart people came to believe things that aren’t true? Krugman, Stiglitz, Friedman, Summers, Bernanke, Yellen – all seem to have a simpleton’s view of how the world works. They believe they can manipulate the future and make it better. Not just for themselves… but also for everyone else. Where did such a silly idea come from?
So far this year, Janet Yellen has not taken a single step in the direction of a “normal” monetary policy; our guess is that she never will. Why not? Is it because she is a witless tool of Deep State cronies? Is it because her economic theory is silly, superficial, and simpleminded? Or is it because she and her predecessor, Ben Bernanke, have done so much damage to the normal world that there is nothing to go back to?
In his youth, Morneau completed graduate studies at the London School of Economics and INSEAD in France, where, as Talleyrand would have said: “He learned nothing and forgot nothing.” The result, as might be expected, was a Canadian budget that was pure Keynes/ Krugman, with a bit of Larry Summers thrown in.
"A similar [deflationary mindset] had occurred in the US in the 1930s. What solved the question? War! Because World War II had occurred during the 1940s and that became the solution for the United States. [We] have to switch [the Japanese] mindset... we are looking for the trigger."
- Japan Fin Min Taro Aso
“About two years ago, I had a pleasure meeting with you, Professor Krugman. We were talking during that time that a rocket has to go out of the atmospheric region, which means that an escape velocity has to be earned in order to lift the Japanese economy out of deflation and we were looking for a good speed to do that. We worry about the accumulated debt. That is a source of another concern. What to do about it?”