Is Bernanke Betting The Ranch On A US Demographic Renaissance

Tyler Durden's picture

The BOJ pioneered QE in March 2001, with two objectives. The first was to eliminate deflation, which took hold in the mid-1990s; and the second was to shore up Japan’s fragile financial system. Did it work? Yes, for the second objective - the BOJ arguably bought time for banks tied up in NPL disposal; but, unfortunately, QE was not successful in combating deflation. The BOJ’s intended policy transmission mechanism was so-called portfolio rebalancing. Ideally, the buildup in banks’ deposits at the BOJ that earned no return (but carried zero risk) should have prompted banks to seek higher returns (with higher risk) and thus increase their lending. But portfolio rebalancing did not kick in for several reasons; most of which are the same as are occurring in the US currently. More fundamentally, however, Japan's demographics hindered any hopes of a capex-driven recovery - and policy can do little to affect that. While the US faces a less dismal demographic picture, the Japanese experience highlights that other policies (as Bernanke himself admits) are required for any sustained benefit in the real economy.


Via Goldman Sachs: Lessons From A QE Pioneer - Japan

The BOJ pioneered QE in March 2001, when it switched its policy target from interest rates - which were already effectively zero - to the balance of deposits held by financial institutions at the BOJ. The balance target was set at ¥5 tn and raised in stages to ¥30-¥35 tn. The BOJ made a commitment to keep QE in place until core inflation, which excludes only fresh food in Japan, had stabilized at levels above zero. The program concluded in March 2006.

The objectives

QE had two objectives. The first was to eliminate deflation, which took hold in the mid-1990s. Deflationary pressures were rife because demand had slumped in Japan when the asset bubble - characterized by soaring asset prices and land prices in particular - that began in the mid-1980s burst in the early 1990s.

The remedies were largely entrusted to monetary policy by a government that was preoccupied with reducing fiscal deficits, which worked against the deflation fight. The second objective was to shore up Japan’s fragile financial system. Issues arising from the late 1990s financial crisis were still smoldering as banks belatedly chased up non-performing loans (NPL). The BOJ and the government were afraid of a bank collapsing before it could mend its balance sheet due to an inability to obtain sufficient funding in the money market because it was perceived as a risky counterparty. Systemic risk was a real concern.

One success, one failure

Did the BOJ’s QE work? Yes, for the second objective. The BOJ arguably bought time for banks tied up in NPL disposal, reflected in fading rate dispersion in the unsecured interbank market. When the financial crisis broke, rates began to differ widely from bank to bank due to a heavy emphasis on counterparty risk. Premiums were set according to the state of a bank’s balance sheet. But the large-scale funding the BOJ supplied under QE effectively eliminated risk premiums across the board so that even banks with serious NPL issues could get funds at low market rates.

QE calming effect

Unfortunately, QE was not successful in combating deflation. The BOJ’s intended policy transmission mechanism was so-called portfolio rebalancing. Ideally, the buildup in financial institutions’ deposits at the BOJ that earned no return (but carried zero risk) should have prompted banks to seek higher returns (with higher risk) and thus increase their lending. This should have stimulated capex and other activity that would have lifted the economy out of deflation. But portfolio rebalancing did not kick in for several reasons. Banks with heavy NPL burdens had low risk tolerance and consequently no motivation to expand their lending. Corporates cutting their debt overhang from the bubble were more interested in repaying loans than taking out new ones.

More fundamentally, however, Japan’s demographics have reduced the potential growth rate and thereby put a dampener on forward-looking economic activity such as capex. As a result, bank lending is still slack now—long after the bubble’s legacy has been dealt with—apart from special situations such as post-quake reconstruction funding demand. The potential growth rate and inflation are constrained by slowing growth in the productive population dating back to the early 1990s. Policy can do little to change a long-term, structural factor like demographics. In the meantime, low growth expectations have tended to become a mindset. In this situation, the BOJ can have little impact on deflation, no matter how extensive its fund supplies.

You can’t get around demographics

Lessons learned

The lessons from Japan’s pioneering QE efforts are mixed. QE was only able to achieve a limited impact on real economic activity in a country that is aging rapidly, like Japan. In this sense, there should be more room for policy effects in the US and elsewhere. Japan was also not able to rely on the so-called wealth effect (where central bank action boosts equity prices, consumer sentiment, and ultimately consumption growth) because Japanese households strongly prefer to hold safe assets such as bank deposits rather than equities, unlike their counterparts in other developed economies. However, the Japanese experience highlights that other polices may be required in addition to standard QE in order to ensure that QE is having the intended effect, as policy makers across developed economies are quickly learning.


...and judging from the lagged but similar moves in US demographics... perhaps Bernanke is hoping a little too hard...


Source: Goldman Sachs and Credit Suisse

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tsx500's picture


jekyll island's picture

Trying to combat deflation with QE is ludicrous.  It is bad debt, it needs to be written off and the loss taken on the books.  No one will want to take on bad debt, banksters have come up with a grand scheme to give it to the government and stick it to the taxpayers.  Still won't work.  It's like eating a shit sandwich, you can dress it up anyway you like, but once someone takes a bite...well that's reality.  Who is gonna be the scapegoat when the sheeple finally realize they are being asked to eat shit?  

Comay Mierda's picture

look at gold priced in yen and tell me there is deflation in japan. stupid revisionist history

withnmeans's picture

So the BulLShit number came out today, no biggie. 

Wait till the election is over, hmm, wait, will they take care of the nagging U.S.P.S.. Oh, after the election, then chop them off, they seem to be pushed aside for now.

7.8 or any number for that matter, it doesn't matter to WALL St., they are pumped up on the GOV DRUG. 

After the election, things will heat up....

Good day my friends

socalbeach's picture

One of the above charts shows "Core Core CPI". How about showing Japan's CPI including food and energy?

akak's picture

"Core Core Core Core Core CPI" is the ultimate wet dream of government econometrists --- it excludes food, fuel, clothing, services, taxes, housing, rents, and all finanical assets, representing only the price basket of all (Chinese-made) e-gadgets which fail within 60 days.  Hedonically-adjusted, of course.

jekyll island's picture


 Japan's economy has been deflating for 20 years.  Maybe you should go do a little research, it's going to be our future.  If we are lucky.  

akak's picture

I think you are being very loose and sloppy in your use of the word "deflation".


Hint: Deflation is NOT the collapse of an asset bubble, nor even a series of them.

Comay Mierda's picture

jekyll. there are many different ways to measure inflation/deflation. the least massaged/manipulated metrics are most useful.  in my opinion, total credit outstanding and a moving average of gold prices are the most honest metrics. they most accurately reflect the actual cost of living increase in a country.

if you buy into any govt published cpi figure, you are the fool

jekyll island's picture



Gov't economic statistics aren't even useful as toilet paper.  I read your post and realize we are coming from different directions.  This is from Wiki :   "Deflation started in the early 1990s. The Bank of Japan and the government tried to eliminate it by reducing interest rates and 'quantitative easing', but did not create a sustained increase in broad money and deflation persisted. In July 2006, the zero-rate policy was ended."

The central planning interventions by BOJ created currency debasement and weakening of the yen against gold, as it should.  There was still deflation in asset prices, specifically stocks and real estate, and in private industry as government dollars cornered more of the market economy.  Let's compare this to the US: currency debasement?  Check.  Falling real estate?  Check.  Stock market?  Uh-oh.  Hmmmm.

 I understand your point and agree with your preference of gold as the "true north" on the compass.  I would submit that a single economy can experience both inflation and deflation in separate sectors (food v real estate) at the same time and we could debate the differences, but what I think is happening is we are seeing the distortive effects of central bank interventions.   Yen should be priced higher against gold in a deflationary environment, yet it is not because of QE.  Because modern economies are now driven by credit expansion banks and their proxies, the gubmint, fear deflation more than anything else.  They will paper over deflation with as much currency as they can create, but in my humble opinion we, like Japan, will never turn the corner until the deflationary effect of reconciling all that bad credit and foolish policy decisions is purged from the system.  


Darth Mul's picture

It' not merely bad - it is fraudulent, odious debt, and so should be regarded as null and void ab initio.

How can you lend money that isn't yours?  More especially, how can you claim an ownership interest in money that doesn't exist until lent into existence?

I'm actually not sure it's anything but fraud all the way down - irrespective of caselaw propping the whole thing up.


One thing I'm sure of - the Federal Reserve Act was unconstitutional on its face.  The Supreme Court does not have the power to amend the Constitition, so any decision 'upholding' the transfer of the issuing power from Congress to a consortium of private banks was itself unconstitutional.


Not sure why RP et al. didn't spend more time coming up with new and exciting ways to try to get that law over-turned.  A Herculean task, to be sure, but voiding the Federla Reserve Act is about as close to throwing the One Ring into Mordor as any of us will get.


Subsequent to that - show trials for the banksters! 


Buck Johnson's picture

And that is the million dollar question isn't it.  Who is going to be the scapegoat.

Gene Parmesan's picture

It's easy to bet the ranch when it's not yours to begin with.

Offthebeach's picture

Young have been outsourced. It's cheaper to import muppets then home grow. No schools, section 8, most new jobs are servant serf jobs. Plus they can be deported when old.

Just the elite and their Yahweh offspring.

lolmao500's picture

Well he's wrong. History has proven that the higher density of cities, the lower the birth rate... not to mention, the more advanced/modern society, the lower the birth rate... and let's mention WW3 on the horizon.

In other news : NATO is having an EMERGENCY SESSION on 3rd day of Turkey-Syria artillery shooting.... this could be it people. Article 5.

knukles's picture

Surely you mean Section 8?

slaughterer's picture

MSM is totally suppressing what is happening with Syria-Turkey.  I would take some risk off the table before weekend or position outright short.  

RiverRoad's picture


Maybe more like a week before the election.  The silence is unusual.  MSM's gotta be working with the government on this one.  Are we going to have another bombing like we did simultaneous to Clinton's impeachment?


Dr. Engali's picture

MSM suppressing something? No fucking way?

fonzannoon's picture

CNBC trying so hard to look partisan with one hand while trying to hold Obama's shlong with the other....

The Shootist's picture

You mean non-partisan? Because they are looking very much like Obama fluffers.

'I'm incensed by these unsubstantiated claims, the department of labor is full of great professionals...'

Dr. Engali's picture

Damn fonz you're still watching CNBS? There must be a set of titties on there you like.

knukles's picture

Why this very morning I had a revelation of sorts.
No, not the kind of identifying something, nor of a firm grasp (the empathetic understanding) nor even masterful comfort... but one of the sheer amazement and literally bowling over at the magnitude and majesty of it all (and this is from an outlier sort of chap, a nonconformist from a political and economic perspective, oft considered a conspiracy theorist or nut to again and again be looked upon as having had a great insight)...

Just how immense and complex, intricate the rabbit hole has been constructed to surround us with pure mind controlling propaganda, to manage our very feelings and emotions... the grand scape of it all.
I am in awe....
And especially in awe of the magnificence of it's failings.... the coming to of the sheeple, ever so gradually, minutely... but it is happening.
How the artifice is crumbling... the lies being discovered, the inconsistencies being found.. the discomfort of the newly initiated.
The small hints here and there....

It is amazing, the Dialectic imposed, the belief systems arranged, the freedoms spent...
How amazing it all is....

We live in illusions, surrounded by half truths, lies and deceptions.
The challenge has become that of knowing one's self.

Orwell was prescient; Goebbels and Bernays deserve Nobel Prizes

Dr. Engali's picture

I had a revelation the other morning too. The night of the debates  somewhere between the shot's of Crown I must have eaten corn....

Skateboarder's picture

Truly, friend. It blew my mind when I first came to the realization that humans react and base their lives on the information they are presented with, and not on the truth (which sometimes is what you are presented with and sometimes not). How you grow up, what you learn, what you are told to believe... they are all parts of a carefully (well, not so carefully) engineered global construct at this point.

The only consolation anyone has anymore is in self-realization, that is to say you understand the biological imperative of being stewards of the ecosystem in the physical, and you understand that your brain (as a sentient probability engine) has given you the gift of permutation and reason in the metaphysical. Through endless permutation, you will arrive at the truth, because it is engrained in the very evolution of this universe. You will know it's the truth because it will resonate differently than untruth. Applies to everything... that's all.

^ @Dr. E - corn and soy make you feel like shit. Avoid at all costs!

The Shootist's picture

I junked you because that's a lot of hippie shit bro.

Skateboarder's picture

Hippie doesn't really mean anything anymore. Plus, I'm not really trying to "align my chakras" or "be one with the collective conscious" or anything silly like that. There's only three classes of people now:

- rational
- irrational
- semi-rational

The semi-rational ones are the worst because they'll gladly compromise the rational for the irrational when they see fit.

francis_sawyer's picture


Cool... (now you can junk me TWICE for that)...

drivenZ's picture

really? because it's not a huge story. There's already a war in Syria that's gotten major MSM coverage the last few months. A few shells land over the border and all the sudden it's a conspiracy? typical uninformed ZH.


Who's on Syria's side anyways? Iran? you mean the country in the midst of currency collapse? Hah! and why would Syria want Turkey(who has one of the largest militaries in the world) turning against them(assad or the rebels)? 

El Viejo's picture

In the book: Nor Any Drop to Drink" by William Ashworth  (I think)  There is a story about Turkey and Syria. It seems Syria was supporting the Kurds and the Kurds were giving Turkey hell. So Turkey went over to the water spigot supplying Syria with most of its water and squeak, squeak, squeak, drip, drip and Syria complained bitterly to the Turks. After a little meeting the Syrians pulled any and all support for the Kurds.  

Barring any suicidal death wish Syria wouldn't dare attack Turkey. It had to have been a rogue action by low level troops.

CommunityStandard's picture

As if they'll do anything before the election.

Cursive's picture



Yep.  If the USSA is going to rely on demographics to dig our way out this financial hole, we're going to need a lot more Mexican (and other developing country) shovels.  In other news, pay no attention to Turkey-Syria.  It's not like either of them have an NFL franchise and probably no one in either country plays fantasy football.

Racer's picture

When I see GS name to anything I immediately turn off....

I don't believe a word they say even though it may be true

edit: just caught a glimpse of this:

"prefer to hold safe assets such as bank deposits"

SAFE ha ha ha ha ha ROFLMAO, now I know it is GS who is having a laugh

PUD's picture

There ya go...It's all about creating ever more exponential debt and pulling forward the future at a compound rate. This is the mission statement of banking...get as many in debt as possible for as long as possible at as high a cost as possible. Buy now pay later as the curve goes parabolic 

SmittyinLA's picture

Where is the unproductive population growth graph? 


You know the tax-parasites? 



Dr. Engali's picture

Is it safe to say that when looking for somebody to be right on something, the Bernank is one of the last people you would turn to?

Racer's picture

You need a question mark?!

LiesAreTheOnlyTruth's picture

NO country, EVER, borrowed and taxed its way to prosperity.

We are different, surely.

The Shootist's picture

Allen West just took Tyler Matheison to the shed over job numbers. Was a good whooping, Ty showed his colors and just how long he's been working for nbc and abc.


And now they wheel out that old toolbag John Mcshame, lol. He'll do the repubs in...

francis_sawyer's picture

Is that that same 'Bernanke' that BET THE RANCH that 'sub-prime was contained' & that he would not 'monetize the debt'?...

That Bernanke???

Yes We Can. But Lets Not.'s picture

The demographic renaissance I forsee for this country is the doors being thrown open for around 100-150 million immigrants in the next 2 decades or so.  The Border Patrol will become the Welcoming Committee.  The price for citizenship will be the cost of supporting boomers like me to an average age 100 or so. 

A drive across this land is a sojourn through a HUGE quantity of 'undeveloped' space.  Fire up the bulldozers.

LMAOLORI's picture




It's not just about supporting boomer's like you it's also about changing our demographics it's a Marxist's dream come true 

Obama Increased Foreign Aid 80%; Spent 76% More on Foreign Aid Than Border Security

Everybodys All American's picture

Bernanke is betting on your stupidity. So far he's been right. Otherwise everyone would call him out and get rid of him.

lolmao500's picture

Hilarious Taiwan News cartoon about the debate :

Lost Wages's picture

Are you saying Bernanke wants us to have babies now?

RiverRoad's picture

Yes We Can But:

Better go long prisons.

Darth Mul's picture

The first was to eliminate deflation



Which was the first fucking mistake.  


What is it about economists that they think a system that presupposes infinite growth {perpetually rising prises, asset values} can exist in a finite world?  If that's too abstract for them, what about 'bubbles' which seems to me to be mostly what the Fed does.


I'm genuinely asking - prices should tend to go down as things get more efficient.  Building in inefficiencies to support perpetual rising prices and money creations is an artificial paradigm that can never result in anything but a devalued currency and a transfer of wealth from productive labor to finance and banks.


WTF are these guys so abjectly idiotic?   They aren't dealing in ineluctable, natural facts - just an arbitrary economic system that doesn't even seem to have any predictive power, and once the credit chickens come home to roost, always fucks the real and productive economy.


I knew Rome was falling when the financial sector's growth and share of GDP started approaching exponential.


I can't explain why people keep buying US debt....  the whole thing seems very precarious.... which makes it dangerous... because it will make certain folks extra desperate to get into Iran, set up a central bank and get them selling oil in dollars again... which will take more troops, and more blood and treasure, I promise you {even if I'm all wrong somehow about all of the above} than Iraq and Afghanistan combined.

And it will help no one but arms dealers, war profiteers, oil companies, and Israel.


Totentänzerlied's picture

Allow me to explain.

"If it is very easy to substitute other factors for natural resources, then there is, in principle, no problem. The world can, in effect, get along without natural resources."

-Robert Solow, Nobel Laureate in Economics