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The Epic Failure of Keynesianism in Japan

Phoenix Capital Research's picture




 

Let’s start with Japan.

 

The Keynesian economists managing or advising the world’s Central Banks have always averred that they could pull us out of the weakest recovery in the post-WWII era if they were allowed to have their way.

 

Their “way” involves rampant debt monetization, also called Quantitative Easing or QE. Indeed, the primary argument from the Keynesians as to why QE has thus far failed to generate a rip-roaring recovery is that none of the QE programs in place were large enough.

 

Japan is where the Keynesian economic model rubber hit the road. In April 2013, the Bank of Japan announced a staggering $1.4 trillion QE program.

 

In today’s world of Central Banking madness, $1.4 trillion no longer sounds like an insane amount. So let me put this number into perspective…

 

$1.4 trillion is…

 

1)   The equivalent of 24% of Japan’s total annual economic output.

2)   Enough to fly every human being in Japan to California for a 2-week vacation.

3)   The equivalent of writing a check for $11,200 to every man, woman, and child in Japan.

 

Moreover, with $1.4 trillion, you could…

 

1)   Buy Australia’s entire economy for a year.

2)   Fund NASA for the next 82 years.

3)   Treat every person on the planet to a $200 five star dinner at one of New York’s top restaurants.

 

For the US to engage in an equivalent amount of QE, it would have to announce a $3.7 trillion QE program. If Europe engaged in a QE program of this magnitude, it could buy back ALL of Spain and Greece’s debt outstanding.

 

Suffice to say, Japan’s QE was large enough that no one, not even the most stark raving mad Keynesian on the planet, could argue that it wasn’t big enough. Which is why the results are extremely disconcerting for Central Bankers at large.

 

To whit, since announcing this program Japan has seen:

 

1)   GDP growth accelerate for only two quarters before turning down again (the latest boost was due to accelerated spending before sales taxes increased).

2)   Prices rise for nine straight months… pushing Japan’s cost of living to a five year high.

3)   Household spending crater 4.4% year over year in real terms.

4)   The Yen lose an astounding 25% of its purchasing power.

5)   Multiple new record trade deficits, with January being the worst ever January on record… ditto for October, November and December last year.

6)   Over 77% of Japanese citizens not feeling as though Japan’s economy is improving.

 

In simple terms, Abenomics has failed to revitalize Japan. Just as importantly, this failure is being noticed by the press (articles regarding the failure of Abenomics have emerged in Forbes, the Financial Times, and CNBC) and is costing Abe his popularity (his ratings have fallen from 75% at re-election to roughly 50% now).

 

The Keynesians have failed. Japan has proved it. It’s only a matter of time before the rest of the world… and the markets catch on.

 

This concludes this article. If you’re looking for the means of protecting yourself from what’s coming, you can pick up a FREE investment report titled Protect Your Portfolio at http://phoenixcapitalmarketing.com/special-reports.html.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

 

 

 

 

 

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Fri, 05/30/2014 - 15:10 | 4810494 Puncher75
Puncher75's picture

That $200 dinner would have been a much better deal.

Fri, 05/30/2014 - 13:25 | 4810042 Joebloinvestor
Joebloinvestor's picture

As long as they ignore it, the elephant isn't in the room.

Fri, 05/30/2014 - 12:32 | 4809854 Quinvarius
Quinvarius's picture

I see this list of things they could have done.  But, they can still do them!  It isn't too late!  They should start by buying Australia's economy.  That should be first.  They need one.

Fri, 05/30/2014 - 12:24 | 4809815 Yancey Ward
Yancey Ward's picture

Japan's QE wasn't big enough, clearly.  Otherwise it would have worked.

Fri, 05/30/2014 - 12:12 | 4809762 rwe2late
rwe2late's picture

 If point was to boost exports by weakening Yen

in race to bottom making the Japanese work more cheaply

and trade their goods for ever more fiat US dollars ,

and use the dollars to finance the empire and also buy US military hardware,

... that could be said indicative of a vassal state status.

Abe is an enabler, to appearances duped by a dream that Japan's glory

will come with a revived militarism.

Or maybe he realizes it is all a scam, a racket, and is happy

just enriching himself and his cronies.

 

Fri, 05/30/2014 - 12:01 | 4809707 no more banksters
no more banksters's picture

This has nothing to do with Keynesianism. Banksters direct QE where they want:

"Banksters : First: if more money were going to the market, then they would lose much of their value and we would lose profits because we are the ones who print money! That's why we invented inflation, to keep governments in fear and directing money back to us through the so-called Quantitative Easing Policies.

BMCs : But inflation happens anyway!

Banksters : Yes, but it is controlled. We control it. When money start to spread in the society "above acceptable limits", we create financial crises to take them back. We dictate governments to take measures and apply austerity policies directing money back to us. We keep money valuable to everyone and secure our profits."

http://failedevolution.blogspot.gr/2013/12/an-imaginary-dialogue-between...

Fri, 05/30/2014 - 14:26 | 4810344 NotApplicable
NotApplicable's picture

Other than the "intentional financial crises," that's still Keynesian doctrine.

Thing is, they are intentional only so far as they are inevitable in a Keynesian world. So, what they do is see what's going to break, apply a little bit of that ole "activation energy," and watch it all break to their benefit.

 

Fri, 05/30/2014 - 11:54 | 4809677 MrFailSauce
MrFailSauce's picture

The falling yen was kinda the point of the policy.  Cheaper currency means cheaper exports.

And the idea that a sales tax will hurt economic performance is a Keynesian idea. (The sales tax was passed into law by Abe's predecessor.)

Fri, 05/30/2014 - 13:34 | 4810084 Beam Me Up Scotty
Beam Me Up Scotty's picture

If you spent 1 MILLION dollars a day, since the birth of Christ over 2000 years ago, you wouldn't have spent 1 TRILLION dollars.

Fri, 05/30/2014 - 15:13 | 4810504 Puncher75
Puncher75's picture

In fact, you would have to do it for almost another 1000 years to get there

Fri, 05/30/2014 - 14:54 | 4810443 disabledvet
disabledvet's picture

Yeah, pretty much.

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