The Great Central Bank Dream Comes to a Crashing Halt in Japan
The markets moved up sharply today, with the S&P 500 briefly touching 1,700. This is classic start of the month buying abetted by the ECB and Fed not doing anything, which in this environment of ongoing monetization is equated with helping the markets (in contrast even indicating that tapering of QE might occur is considered “tightening”… this is the insane world we invest in today).
The bigger story is the changes to GDP calculations that the Feds implemented. The single dumbest change pertained to counting “future pension benefits promised by governments and private companies are counted as income.” In plain English, this means that the Government now counts pension promises as cash in the bank.
In this fantasy world, if I promise to pay you $1 million a year after retirement, that promise is not equated as income and economic growth. It doesn’t matter if I don’t actually meet my promise, the promise is worth the same as cash in the bank.
Ironically, the ones touting this as a success are politicians who break every promise they ever make. This is what happens when a country is run by those with no business experience or industrial background.
The bigger story is Japan, where the Central Bank dream of doing “enough” is crashing into the wall. Japan has announced a $1.4 trillion QE effort, an amount equal to 21% of its GDP. To put this into perspective, this is the single largest QE in history, the kind of QE Bernanke and his pals could only dream of announcing.
Instead of resulting in economic growth or high employment all this has done is raise the costs of living. Industrial production and household spending both recently plunged, while inflation has risen to a 14 month high.
And thus does 100 years of bad economic theory as well as the hope of Central Banks fixing the global economy go crashing into the wall.
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