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Japan's Inflation Propaganda And Why The BoJ Better Hope It's Not Successful

Tyler Durden's picture


The existing (and ongoing) massive expansion of base money into the banking systems of the US, England, and Japan is without precedent. As Nomura's Richard Koo notes, at 16x statutory reserves, the liquidity 'should' have led to unprecedented inflation rates of 1,600% in the US, 970% in the UK, and 480% in Japan.

However, it has not, yet. In short, Koo continues, businesses and households in these economies have stopped borrowing money even though interest rates have fallen to zero. And with no one borrowing money and many actually paying down debt, the money multiplier has turned negative at the margin - because of the severe damage caused to balance sheets when the bubble collapse drove asset prices lower while leaving debts intact (so-called balance-sheet-recession).

This suggests that there is little physical or mechanical reason for the BOJ’s easing program to work. But the program could also have a psychological impact - and Japanese media is on an 'inflation' full-court press currently. The risk here is that not only borrowers but also lenders will start to believe the lies. No financial institutions anticipating inflation could ever lend money at current interest rates. No actual damage will be done as long as the easing program remains ineffective. But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to 'normal'. If the policy reversal is delayed, the Japanese economy (and inflation) could spiral out of control.



Via Richard Koo, Nomura,

The Money Multiplier... and inflation...

Before Mr. Kuroda was appointed BOJ governor, base money supplied by the Fed under quantitative easing amounted to 16.0x statutory reserves. The corresponding multiples for other central banks were 9.7x for the BOE, 4.8x for the BOJ, and 3.8x for the ECB. If the money multiplier were functioning properly, the money supply would therefore be 16 times larger than it currently is in the US, 9.7 times larger in the UK, 4.8 times larger in Japan, and 3.8 times larger in the eurozone.


If such an expansion in money supply actually took place in a short time, it would normally entail a similar increase in prices, leading to unprecedented inflation rates of 1,600% in the US, 970% in the UK, and 480% in Japan. The reason why this has not happened will be discussed in detail below.


In short, however, businesses and households in these economies have stopped borrowing money even though interest rates have fallen to zero. And with no one borrowing money and many actually paying down debt, the money multiplier has turned negative at the margin.

US and UK have 'not' been a success...

Central bank officials in the US and the UK claim quantitative easing has been a success because it prevented a Japan-like deflation. But, the rate of Japanese wage growth four to five years after the bubble collapsed was roughly equal to the levels now being observed in the US.


Common to all of these countries is the fact that businesses and households are saving in spite of zero interest rates. They are doing so because of the severe damage caused to balance sheets when the bubble collapse drove asset prices lower while leaving debts intact. Private savings are running at 8.8% of GDP in Japan, while the corresponding figures are 7.0% for the US, 3.3% for the UK, 8.1% for Spain, 8.6% for Ireland, 7.0% for Portugal, and 4.4% for Italy.


The fact that businesses and households in these economies are responding to zero interest rates by saving money rather than borrowing and spending aggressively clearly suggests that lending - and hence the money supply - will not expand no matter how much base money the central bank supplies.


Growth in private credit has been severely depressed. Even in the US, where conditions are said to be relatively healthy, private credit has yet to recover to pre-Lehman levels.


Quantitative easing - whether in Japan, the US, or the UK - cannot directly stimulate the economy or raise the rate of inflation so long as businesses and households refuse to borrow money and spend it.

But still the central bankers try...

Mr. Kuroda and other reflationists would probably argue that the newly announced easing program differs fundamentally from the incremental approach taken thus far because it marks a “new dimension” in aggressiveness. This is correct in one respect and wrong in another. Although Mr. Kuroda argues that the announcement of the current program has had a much greater impact than past announcements, this hypothesis has already been tested overseas, and the medium and long-term results do not support his conclusion.

Ignoring the reality that...

Clearly, the issue is not how aggressively or quickly the central bank eases, but rather the extent of the damage to private sector balance sheets caused by the bubble collapse. These experiences also underline the fact that a great deal of time is needed for businesses and households to repair their balance sheets.

and the empirical proof that...

The limited impact of the bold monetary actions undertaken by the Fed and the BOE suggests we should not expect much from the BOJ’s plan in the medium term in spite of its aggressiveness.

Unintended consequences...

Perhaps more important was why Japan’s interest rates were so low.


Essentially, the private sector had stopped borrowing money because of balance sheet problems, the subsequent debt trauma, and a shortage of domestic investment opportunities.


With no private-sector borrowers, Japanese banks selling JGBs yielding 0.6% to the BOJ may find themselves forced to reinvest the proceeds in JGBs given the lack of alternatives. If the replacement bond is likely to yield only 0.4%, the correct option is to continue holding the bond yielding 0.6%.


In that sense, quantitative easing in Japan has already reached its limits.

And QE may have run its course...

But the fact that businesses and households in both countries are now refusing to borrow in spite of zero interest rates suggests the impact of lower long-term rates may have spent itself


The underlying cause of a balance sheet recession is a decline in - and ultimate disappearance of - private demand for funds due to a critical shortage of borrowers.

Yet the quantitative easing policies adopted by central banks in the major economies are all designed to increase the number of lenders...

When the problem stems from the lack of willing borrowers, the central bank’s emergence as a new lender is hardly going to improve the situation.


If anything, new lending by the central bank will further weaken private sector financial institutions already hurt by excessive competition.


An objective analysis of the BOJ’s easing program in light of other countries’ experiences with quantitative easing suggests investors would be wise to rein in their expectations. There is no reason why the money multiplier should turn positive when private demand for funds is nonexistent despite zero interest rates.

The discussion above suggests that there is little physical or mechanical reason for the BOJ’s easing program to work. But the program could also have a psychological impact...

One notorious minister of propaganda is reported to have said that “people will believe a lie if it is repeated often enough.”


In today’s Japan the media—and especially the omnipresent variety shows on TV—cannot stop talking about inflation. These commentators are completely unaware that the money multiplier in Japan is negative at the margin even though rates have fallen to zero. They are simply repeating the simplistic view that aggressive easing by the BOJ will eventually generate inflation.

Hearing this from morning to night will cause some people to start worrying about inflation even though there is no way the BOJ’s policies can directly create inflation. If they start to anticipate higher prices and modify their behavior accordingly, inflation could become a reality.

Moreover, the Japanese media has a tendency to move all at once and in the same direction, causing the lie to be repeated even more frequently. It would therefore not come as a surprise if many people changed their behavior in expectation of future inflation.

The problem is - what if the people start to believe...

The risk here is that not only borrowers but also lenders will start to believe the lies. No financial institutions anticipating inflation could ever lend money at current interest rates. A financial institution that suddenly saw inflation on the horizon could not continue holding 10-year government bonds that yield 0.6%. The resulting rush to sell could trigger a crash in the JGB market, inflicting heavy damage on domestic financial institutions.


The question is how the Kuroda BOJ would respond to such a crash. If it began buying more JGBs, the monetary base would expand, stoking inflation concerns at a time when private demand for funds was already recovering and the money multiplier had turned positive at the margin.


But if the BOJ sold its JGB holdings in an attempt to quell inflation concerns, bonds would drop further, blowing a large hole in the balance sheets of financial institutions and the government.


By that time the monetary base could easily have grown to, say, 15 times statutory reserves. In that case the money supply would continue growing, causing inflation to spiral out of control, unless the central bank reduced the monetary base to about 1/15th of its current level.


I suspect that the BOJ would employ all the tools at its disposal to achieve this, including a sizable increase in the statutory reserve ratio, but all of those measures would serve to push rates higher, resulting in large losses for the BOJ and other JGBs investors.

Which could rapidly lead to...

If the government bond market crashed, losses on the BOJ’s JGB portfolio would be subtracted from the money it transferred to the national treasury, adding to the fiscal deficit. And if the portfolio was large enough at the time of the crash, it could even raise doubts about the viability of the Bank’s balance sheet.


The inflation fears and the talk of large losses at the central bank could then undermine confidence in the Japanese currency. Japan’s national debt now stands at 240% of GDP, domestic industry is being hollowed out, the population is aging and shrinking amid falling birthrates, and even the trade balance has fallen into deficit.


The chief reason why people continue to use the yen in spite of these bleak fundamentals is that the BOJ has earned their trust with its anti-inflationary actions.


If the BOJ recklessly stokes inflation, triggering a crash in the JGB market and heavy losses on the Bank’s bond portfolio, public confidence in both the currency and the central bank could evaporate overnight.

And don't rely on 80 year old 'proof' since it is different this time...

Mr. Kuroda’s methods have frequently been compared to those of the 1930s-era finance minister Korekiyo Takahashi, who championed a successful policy of BOJ underwriting of government debt issues. But Japanese people in those days could not move money freely overseas. The authorities today need to be especially careful inasmuch as almost anyone can move funds abroad with a telephone call or a few clicks on a computer screen.

Be careful what you wish for...

No actual damage will be done as long as the easing program remains ineffective. But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to a level more in line with the value of statutory reserves.

If the policy reversal is delayed, the Japanese economy could spiral out of control at a time when base money equal to many times statutory reserves is sloshing around in the market.

Moreover, the act of scaling back the monetary base must be carefully calibrated so as to minimize damage to the JGB market. The BOJ, Ministry of Finance, and Financial Services Agency should also have contingency plans in place in the event that easing triggers a crash in the yen or the bond market.

Full article below...

Richard Koo Quantitative and Qualitative Easing 2013 04 16


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Sat, 04/20/2013 - 18:13 | 3478337 lolmao500
lolmao500's picture

Well there's inflation... by depreciation which is really a crime against the people... Abe and Kuroda should hang high.

 If the money multiplier were functioning properly, the money supply would therefore be 16 times larger than it currently is in the US, 9.7 times larger in the UK, 4.8 times larger in Japan, and 3.8 times larger in the eurozone.

 Even more than that since the money multiplier is usually above 1...

Sat, 04/20/2013 - 18:27 | 3478370 DormRoom
DormRoom's picture

The Fed will likely exit QE by the end of this year.  The G7 still needs a large Central bank to increase its monetary base and flood the world with cheap credit (yen carry trade) to support global growth, after the Fed exits.  Europe can't do it because of political complications.  Thus Japan.

The biggest investment assumption by goldbugs is that the Fed will continue QE for a few more years, but with the sudden collapse of gold prices, it may signal that the Fed is exiting by the end of this year.  A 7 standard deviation move in gold prices implies something is up, and the end of US QE maybe nigh.


Sat, 04/20/2013 - 18:35 | 3478396 Clint Liquor
Clint Liquor's picture

Stocksuckers will suffer much more than Gold bugs if the FED quits QE. And of course, Bond holder will be crushed as rates rise without FED support.

Sat, 04/20/2013 - 18:44 | 3478412 blindman
blindman's picture

but if they leak the rumors and front run them the
machines can be used to steal everything. let's see
how they do since no one will do anything to stop it.

Sat, 04/20/2013 - 21:22 | 3478863 Perseid.Rocks
Perseid.Rocks's picture

Well that's kind of like a perpetual motion machine for the money creators. The Fed creates the money and applies it, thus leading the sheep a certain direction, then it sells first and everyone but them sustain a catastrophic loss. Repeat 2 or 3 times and all money everywhere ends up with the Fed (and whoever they tell in advance). I think I'll sit that one out.


Sat, 04/20/2013 - 21:24 | 3478869 SafelyGraze
SafelyGraze's picture

"within a month or two the zeros start coming back"


Sat, 04/20/2013 - 21:55 | 3478960 Lore
Lore's picture


You talk in approved textbook terms, like a student, so your nickname may be appropriate.

The elites made the decision to pull the plug 40 years ago.  It's just taken this long for causal relationships to run their course. You want to see the future?  Look to the BRICS Development Bank. QE is just a mechanism for allowing western bankster elites to reach lifeboats.  When you hear real, meaningful talk about ending QE, you had better not have any money left in Western banks.

Sun, 04/21/2013 - 06:44 | 3479708 JamesBond
JamesBond's picture

you are so on the mark with this analysis.




Sat, 04/20/2013 - 18:58 | 3478436 DormRoom
DormRoom's picture

Bond holders will not necessarily get crushed, if the BOJ continues to buy up massive quantities of US Treasuries.  Yes, it is a big IF.

Sat, 04/20/2013 - 20:04 | 3478595 Ballin D
Ballin D's picture

If the fed is buying 90% of US bonds, that means the BOJ can be buying no more than 10%, even if they were the sole other source of interest and were buying 100% of the leftovers. The BOJ continuing to buy at these quantities would be largely irrelevent if the supply is increased tenfold overnight.

And this doesnt account for the fed unwinding its current holdings, which will have to happen if they ever want to (or have to) reduce the money supply.

Sat, 04/20/2013 - 21:31 | 3478895 Scarlett
Scarlett's picture

and where exactly will the japanese get the money for that?  By printing?  This money printing is slowly creeping into inflation, as the gov't employees bring their counterfeit money into the economy.  The entire deficits of JP, US, UK are slowly creeping into the economy; the question is how long until money velocity moves.

Sat, 04/20/2013 - 19:26 | 3478497 Ignorance is bliss
Ignorance is bliss's picture

More importantly the government will label the Fed a domestic Failure and start printing it's own money without interest. Ergo...the fed will print or dissolve into history.

Sat, 04/20/2013 - 21:42 | 3478934 NoLongerABagHolder
NoLongerABagHolder's picture

"Bond holder will be crushed as rates rise without FED support"

This is sure mis-informed. The last two times QE ended..... rates TANKED. Don't you recall ole Bill Gross saying the same thing you just said..... and being wrong?

Second link shows a chart that has rates after the end of QE 1 and QE 2......

Not sure why it will be different this time.


Sun, 04/21/2013 - 09:57 | 3479911 Clint Liquor
Clint Liquor's picture

You don't seriously believe the FED quit buying US Debt during those periods, do you?

Sun, 04/21/2013 - 10:37 | 3479960 overmedicatedun...
overmedicatedundersexed's picture

were's the beef? in MD our local food stores have raised the price of beef 50% over last year..sea food up- baked beans for all...people look at beef shake their heads and look lost, as in what can I feed my family with.

hidden inflation within a depression, and a news media that see nothing.

Sun, 04/21/2013 - 21:32 | 3482118 NoLongerABagHolder
NoLongerABagHolder's picture

Beef is up..... great!  Cotton is down! The CRB is down a ton since the chaos of the crisis.

Although your meet might be more expensive, peoples LARGEST expense (housing) is down a ton.

REAL disposable income is higher today than ever:

Folks are just choosing to use it to pay down debts it seems.

Sun, 04/21/2013 - 21:29 | 3482110 NoLongerABagHolder
NoLongerABagHolder's picture

So QE 1 aqnd 2 end and rates TANK. So the fed was buying, and QE stopped, but they must have bought 2-3 times as much for the rates to tank?

Right. That sure makes a lot of sense.

The data is what the data is. Rates plummeted BOTH times QE ended. Gross was wrong. You will be too.

Sat, 04/20/2013 - 18:47 | 3478426 Room 101
Room 101's picture

Your theory implicitly assumes thet the Fed can lower it's purchases of debt.  As the Fed is far and away the largest purchaser of treasuries, their exit from the market would likely cause the interest rate on treasuries to jump, thus increasing debt costs for the US treasury. To me, it looks like the Fed is in a pickle.  Continue QE and destroy the currency or stop QE and risk sovereign default. 

While I personally hope they pick stopping QE, I don't see that happening. More likely is that they'll announce an end to QE but will be lying. "Mystery purchasers" will suddenly be buying treasuries by the wheelbarrow full.     

Sat, 04/20/2013 - 19:04 | 3478460 tango
tango's picture

I agree and have said for some time that the FED has boxed itself into a corner.  It can't afford to keep it going indefinitely and it surely can't afford to stop buying (market crash, higher rates, bigger deficit).   The ONLY way is to force banks to buy sovereign debt (like the EU) or invest our bankrupt pension funds in sovereign debt, I mean treasuries.  LOL

Sat, 04/20/2013 - 19:42 | 3478526 smlbizman
smlbizman's picture

yep the bus can never go below 55....

Sat, 04/20/2013 - 21:25 | 3478871 DocinPA
DocinPA's picture

Bingo.  Obama will NOT stop spending and the 'Pubs won't raise taxes.  Therefore, deficits will continue and the only way to finance those is, as you properly note, Teh ChairSatan.



Sat, 04/20/2013 - 22:08 | 3478991 Herodotus
Herodotus's picture

When QE stops, Social Security checks stop, or soldiers' paychecks stop, or both.

Where else would the US Treasury get $1,000,000,000,000 that they lack to pay its bills?


Sat, 04/20/2013 - 18:52 | 3478431 kito
kito's picture

Dormroom, I'm speechless.......

Sat, 04/20/2013 - 18:54 | 3478439 Room 101
Room 101's picture

....@kito: speechless?  I find that hard to believe. 

You have the floor, sir. 

Sat, 04/20/2013 - 20:40 | 3478735 This just in
This just in's picture



Paper (GLD, et al) is draining away at never before seen rates.  Big players are taking back their physical gold, thank you very much.


A storm approaches.  Hug your children.

Sat, 04/20/2013 - 18:58 | 3478449 Mine Is Bigger
Mine Is Bigger's picture

If you want to lose fat, you could do so by completely stop eating.  But can you stop eating and survive?

Sat, 04/20/2013 - 21:33 | 3478896 Jena
Jena's picture

For a little while.  It's that long term thing.

Sat, 04/20/2013 - 19:00 | 3478454 ISEEIT
ISEEIT's picture

"The Fed will likely exit QE by the end of this year."

You just haven't been paying attention huh?

Turn OFF the fucking TV idiot.

Sat, 04/20/2013 - 20:06 | 3478612 noless
noless's picture

you are actually saying and believing this shit after boston?

Sat, 04/20/2013 - 21:15 | 3478839 noless
noless's picture

if the BOJ actually overshoots the fed then game over.

Sun, 04/21/2013 - 01:46 | 3479528 Element
Element's picture



Nah, it's already over, this is window-dressing. From the above:

" ... Growth in private credit has been severely depressed. Even in the US, where conditions are said to be relatively healthy, private credit has yet to recover to pre-Lehman levels. ..."

Given GDP is a function of private credit growth (or else in bizarro-world, Govt spending), all else being equal, and US nominal inflation is unofficially ~9% (according to SGS), does not "severely depressed", growth in private credit implicitly equate to at least a sustained mild but undeclared economic depression hidden by food stamps, unsustainable Govt spending and massive insolvent pseudo-market and pseudo-banking fraud growth instead?

So in REAL terms there's been no net economic growth since Lehman's, just the reverse. All that's happening is the massive financial engineeering dam-wall propping-job that occurred after Lehman's, remains in place, for now. i.e. it's already over, the dam is breached, it just hasn't taken down the whole wall yet. Too big to fail is just a form of backhanded escapism to distract from the fact they already did.

So let's turn on the glitter-ball and half-price drinks all around, on you and me, as the Japs do know how to throw a great depression.

Sat, 04/20/2013 - 20:16 | 3478648 nodhannum
nodhannum's picture

The Fed can't stop at this point.  Can you imagine interest rates going up while we borrow close to ten percent of GDP just to paper over this depression.  Yeah, raise rates in a depression.  Get real.

Sun, 04/21/2013 - 09:32 | 3479871 andrewp111
andrewp111's picture

Who says stopping QE will make rates go up in a Depression? There is no evidence for this whatsoever.

Sun, 04/21/2013 - 14:15 | 3480771 Glitterbug
Glitterbug's picture

"The underlying cause of a balance sheet recession is a decline in - and ultimate disappearance of - private demand for funds due to a critical shortage of borrowers."

I don't agree with this statement; the banks are unable to lend (at least, they can't increase their loan portfolio balance).  As I understand it, they can only lend against collateral - if you put 100k in the bank they will lend you 100k. Sounds stupid, but it is so.

We have an ongoing project and we have had to borrow €500,000.  The existing business and premises has been valued at €1.5M.  Surely it would be easy to get a 30% mortgage you say! No chance.

We have to put up cash in advance as collateral, as well as the property!  If you know anyone out there who will lend at the moment, please point them in my direct.  We have €2Million of EU money already, but we are under pressure because of the bank's demands.  So please don't tell me that there is a shortage of borrowers, it's nonsense.

See which illustrate the hotel we are constructing, and if you have some excess cash, put it here where it will be safe (in a EU project).  Or take your chance and leave it in the banks - and let them steal it from you.

rebasse @ aol . com

Sat, 04/20/2013 - 18:12 | 3478342 blindman
blindman's picture

coordinated central bank strategy to destroy the physical metal market
and wipe out every dealer in the usa, etc...
in the form of a question.

Sat, 04/20/2013 - 18:19 | 3478364 kaiserhoff
kaiserhoff's picture

Funny you should mention that.

No one wants to talk about it, but I know a couple of small scale guys who have their balls in a vice.

Everyone is pullling back because of Obummercare.  This will not end well.

Sat, 04/20/2013 - 18:24 | 3478371 blindman
blindman's picture

the central bankers don't want anyone to know what
anything is valued in in their respective currencies.
there is a fundamental reason for that (they want
stuff for nothing).
they are psychotic and I fear there is no cure.
at some point the volatility will ignite into
something at least regionally exothermic. ?

Sat, 04/20/2013 - 19:10 | 3478476 tango
tango's picture

I don't think they're psychotic - simply serial reactionists who keep trying the same old thing in the hope that one time it might work.  But you are SO right about value and this is the hallmark of any central planning system, particularly socialism.  It's been suggested that the reason the USSR collapsed was the inability to determine the price of anything. Determining value is the ultimate goal of any economic system and when you purposely attempt to force value or make it unknowable, it's a form of suicide.  

Without value, every business up and down the ladder is thrown off kilter.  I'd go as far as to say that "economics" for many of these "experts" consists of finding more profitable ways to slodge debt from one computer to another.

Sat, 04/20/2013 - 18:21 | 3478366 Colonel
Colonel's picture

Hear that Kitco?

Sat, 04/20/2013 - 20:36 | 3478718 holdbuysell
holdbuysell's picture

And when it's a 'coordinated devaluation', it's thus not a 'competitive devaluation' as the G-20 has already stated they won't do.

The words are always chosen very carefully.


Sat, 04/20/2013 - 21:42 | 3478932 blindman
blindman's picture

I think the strategy is to , not devalue the physical but,
redistribute it without having to pay the price that
the little people have to pay to own it. they would like
the value to be high but in the same hands that control the
debt levers and credit creation process as the real goal
is to make people debt serfs, constantly paying interest
on borrowed money. they have realized that there is a class
of people who will honor their debts and a class that won't.
they want that first group loaded down heavy with debt and
they don't want them protecting themselves from the inflation
used to perpetuate their debt status by owning gold or silver
or any investment that might keep them from loans and those
payments to the banks.
the central bankers need people to borrow moar, moar moar
or the system dies.
so they will destroy the prospect of individual pm ownership
and have it all in the central and bullion banks with the exception
of the elites/owners who can do whatever they want. the local coin shops and
dealers are in the bankers cross-hairs as are their customers. imo
am I paranoid?

Sun, 04/21/2013 - 00:11 | 3479384 StychoKiller
StychoKiller's picture

Nope, yer NOT paranoid ENOUGH!

Sat, 04/20/2013 - 18:13 | 3478343 Joey Big Balls
Joey Big Balls's picture

In related news, Zerohedge actually did a piece about marijuana on 420, for spliff's sake! 

Sat, 04/20/2013 - 18:14 | 3478344 Skin666
Skin666's picture

A bug looking for a windshield...

Sat, 04/20/2013 - 18:31 | 3478386 Mentaliusanything
Mentaliusanything's picture

The people just wont drink the Koolaid! Maybe they underststand that it is poisoned.

Sat, 04/20/2013 - 18:15 | 3478347 TheSilverJournal
TheSilverJournal's picture

Japan still has one move left...stop buying US Treasuries.

Sat, 04/20/2013 - 18:51 | 3478427 bank guy in Brussels
bank guy in Brussels's picture

Actually, in his essay above, Koo makes clear that Japan has LOTS of positive things to do yet

Kudos to Tyler and ZeroHedge for bringing this piece by Richard Koo of Nomura

He is superb, one of the great economists of the world ... tho I realise he does not fit in to the dominant ZH themes.

But Koo and his ideas ... including making sure that common working people are the ones benefited, with jobs and incomes ... are a good part of why Japan has never had a 'depression' since its giant market crash 23 years ago, and why Japan has remained an okay place economically.

What is missing from Tyler's above summary, is Koo's optimistic presentation of the other parts of the new Japanese government's programme, which Koo thinks could well succeed, and help to avoid the problems mentioned in Tyler's article, if they are implemented promptly.

Koo writes in his Nomura research piece given above:

« One concern is the fact that while the first pillar of Abenomics—monetary accommodation—is already being implemented, the second and third have been slow in coming. I think the base money supplied by the BOJ would come to life if the government announced an accelerated depreciation scheme for capital investment or a bold plan for deregulation of the energy sector.

The Abe administration therefore needs to present concrete proposals for the second and third pillars of its economic strategyas soon as possible.

Other options for the “second pillar” that are being discussed include policies to encourage business investment, such asinvestment tax breaks or accelerated depreciation schemes. If such measures succeeded in ending the private sector’saversion to debt, I think everything would start moving in the right direction at a time when interest rates were low and banks willing to lend.

The third pillar of Abenomics—structural reforms and deregulation—needs to provide the kinds of attractive investmentopportunities that tend to be in short supply in a mature economy like Japan’s.Oft-mentioned candidates for reform and deregulation include energy, environmental businesses, and agriculture. I think policies aimed at achieving more effective use of urban land, enabling residents to live in larger homes for less money, would create significant new domestic investment opportunities.There are few city dwellers in Japan who do not want to live in larger homes. »

Sat, 04/20/2013 - 19:48 | 3478550 smlbizman
smlbizman's picture

this has not changed yet and until it does all the magic in the world aint gonna fix it.......u cannot create a sustainable false demand...i am the dumbest motherfucker in the shed and i know the password is......demand

Sun, 04/21/2013 - 11:12 | 3480091 Offthebeach
Offthebeach's picture

Well, Hitler and banker Shecht proved otherwise. That is until their John Law like schemes couldn't make interest only margin calls in non German paper. Of course the lesson was to thus get everyone on paper.
Musing about the central planning ability to continue at the costs to the bottom 2/3rds of intellect pool, 100 years of Marxism, Hitler, Pol-Pot , Greek trannie Michael Dukakis, Low Fat Chocolate milk, low carb supposedly beer and other horrors, we have decades of new new programs, plans, laws, agreements to go. At. A. Minimum.
The sheeple will take it, swallow it, exist it, just like the serfs, peasants, dumb fuk fatties that the are.

Sat, 04/20/2013 - 20:10 | 3478625 suteibu
suteibu's picture

We are actually discussing government forcing people to move their money here and there like a board game.  In fact, that's the fucking problem. 

As smibizman said, it's all about demand, something the government can not create no matter what it does.  In that regard, and as we have already seen, the more the government tries to create demand, the more people save.

Sat, 04/20/2013 - 20:13 | 3478638 noless
noless's picture

taxbreaks don't mean shit if you need the cap now and don't know if your buisness is even viable given market outlook.

it will not benefit new buisness creation, only the current monolithic institutions, and even then only barely, completely innefective.

Sat, 04/20/2013 - 20:52 | 3478773 caShOnlY
caShOnlY's picture

But Koo and his ideas ... including making sure that common working people are the ones benefited, with jobs and incomes ... are a good part of why Japan has never had a 'depression' since its giant market crash 23 years ago, and why Japan has remained an okay place economically.

Wait a minute.  23 years ago "greenmember", or the Maestro, himself started America on its current debt/consumption binge.  The only reason Japan didn't implode into a depression was due to its exports and mainly to the U.S.  Remember who was America's largest creditor at that time?   Guess what is happening to Japan's exports now?  Think there is a correalation between that and Japan's massive QE?

I see only one economic strategy in the Western world and those countries attached to it: BUY TIME with more debt and prepare for the implosion.  97 month car loans were just what the GM doctor ordered!  The plan is only to buy more time since we can increase debt, not reduce it.  The only pillar I see is cracking quickly and we ain't coming back, bubba. 


Sun, 04/21/2013 - 06:48 | 3479711 JamesBond
JamesBond's picture

Looks like Abe has found the solution -  beg Japanese Women to solve it for him -


Abe vows to help women in workforce - The Japan Times  

1 day ago ... Prime Minister Shinzo Abe set forth on Friday new goals to spur economic growth by tapping the potential of women in the workforce, including ... plans to set up another fund to help them recover their workskills, Abe said.



Sun, 04/21/2013 - 09:28 | 3479865 andrewp111
andrewp111's picture

He should be paying them to have babies instead.

Sun, 04/21/2013 - 01:15 | 3479504 Element
Element's picture

Koo is also the #1 apologist for the ludicrous if not outright criminal and shameless notion that the average slave should fit the bill for all corporate debt excess transferred to public balance sheets rather than bankrupting the guilty parties and liquidating THEIR corporate and personal assets instead, and then bankrupting any banks that did not get paid. Thus we get the pseudo-infinite expansion of debt money as a surreptitious economy crushing indirect tax.


Sat, 04/20/2013 - 18:16 | 3478348 kaiserhoff
kaiserhoff's picture

Just so.

Interest rates are not the only input cost.   Low rates have left property prices in the stratosphere, commercial property vacant, and demand a bad joke.  WE NEED FREE MARKETS.

The Soviet Central Planners will fail at everything else, and ignore the obvious.

Sat, 04/20/2013 - 19:40 | 3478525 blindman
blindman's picture

free markets cannot exist if there is a cartel with
a monopoly on money and that is what the nations of the
world have given to the central bankers. they have a
monopoly, why would they tolerate any free market?

Sat, 04/20/2013 - 18:15 | 3478349 buzzsaw99
buzzsaw99's picture

free jon corzine

Sat, 04/20/2013 - 18:26 | 3478379 New_Meat
New_Meat's picture

oh, wait, ...

Sat, 04/20/2013 - 18:17 | 3478357 lolmao500
lolmao500's picture

If they want to crank up the borrowing from the peasants, they need to get rid of the ``credit worthiness system`` and give 0-1% 30 years loans to people... which they can't do... The ``lowest interest rates ever`` are only for the big banks, not for the peasants... the big banks are borrowing like there's no tomorrow....

Sat, 04/20/2013 - 18:21 | 3478365 buzzsaw99
buzzsaw99's picture

The big banks are paid to borrow. And no, the peasants will never get that deal.

Sat, 04/20/2013 - 18:52 | 3478432 tip e. canoe
tip e. canoe's picture


Yoshifumi Tachibana, 32, might be one. He recently bought an apartment worth 60 million yen (£478,782; $766,430) in central Tokyo.

“I was told I’d get the best mortgage rate if paid about 20% up front, so I did,” he says.

“Low interest rates were definitely one of the reasons for me to decide to buy my first home. I borrowed 47 million yen and I am on a 35-year repayment plan with an interest rate of 0.075%.

But despite such attractive rates, real estate agent Hidetaka Miyazaki says he has not seen an increase in the number of buyers and investors in the last 20 years, especially not in sub-urban areas.”


Sat, 04/20/2013 - 18:54 | 3478441 lolmao500
lolmao500's picture

Damn that's good... I would certainly go buy myself a house right here and now if they gave such low interest rates here...

Sun, 04/21/2013 - 12:13 | 3480326 Overfed
Overfed's picture

I'd buy a whole damn subdivision if I could a rate like that!

Sat, 04/20/2013 - 19:35 | 3478509 Ignorance is bliss
Ignorance is bliss's picture

I would imagine nuclear fallout and earthquakes might have something to do with real estate . I would get the hell out of Japan and would not consider real estate for at least a couple thousand years.

Sat, 04/20/2013 - 19:10 | 3478456 ebworthen
ebworthen's picture

Amazon tried to sell me their credit card via the crooks at Chase bank.

14.4% interest rate, 29.9% on late amounts!

And this is legal when they get their money for 0.10% from the FED?

Legalized loan sharking by the bank that helped Jon Corzine vaporize investor money and that rigs rates and gambles with depositor funds.

Sat, 04/20/2013 - 19:47 | 3478545 Big Slick
Big Slick's picture

YOU POINT OUT an important reality that disagrees with the article's flawed analysis

"households in these economies have stopped borrowing money even though interest rates have fallen to zero"

households cannot borrow money at zero interest! ... more likely loans are available at the 20%+ that ebworthen and all of us see in our junk mail every day

Sun, 04/21/2013 - 07:41 | 3479756 WhiteNight123129
WhiteNight123129's picture

Finally someone is talking about why the Gold was taken down. JAPAN BITCHEZ.

We had a limit down on the 5th of April and again until 12th of April. What happened on the 12th of April???

Now what Richard Koo is missing.

He is still in the moderm monetary theory.

In other words is that he does not understand that inflation does not need money to be ~lent~ so that the multiplier goes up.

Illustration. In the XIX bank of england, the currency was BoE notes, if the BoE notes are in a drawer doing nothing, the same amoutn of unit of transactions would have to be done with less BoE notes, that would be true deflation XIX century style.

True deflation entails to let bad credit bankrupt, Japan had debt overhang not swift debt destruction deflation like Koo is claiming.

So if hte bank of england notes circulate faster, prices go higher. Same thing with Federal Reserve Notes.

Today massive amount of deposits are created against base money. Deposits can be created against credit (new lending) or base money (QE). So the deposits just being spent would yield inflation WITHOUT NEW CREDIT.

Perversely the situation of deposits issued against based money going into the circulation and stoking inflation is exactly what Richard Koo deems as ~catastrophic~. But it is exactly what should be expected from base money moving in the circulation.

the modern monetary theory conceives that credit is teh only thing that creates inflation, that is new lending resulting in higher deposits. They forget base money expansion creating new deposits. And actually that is an utter failure, because this base money will move and then the inflation will be bad.

So in fact the modern monetary theory confuses currency deposits (bank accounts) with money, and do not differentiate between currency (bank accounts) issued against new money (reserves and central bank notees and coins) and currency issued against credit. Those guys keep trying to push on the credit side expansion, while they expand money which has no direct impact on credit. What they will get is the currency deposit created against QE which will be spent with NO NEW LOANS.

Those guys are fucking idiots, and the reason is that they confuse the currency issued against credit (M3-M0)  and money (in their parlance M0) the only way they see inflation is from expansion of M3 which is wrong. Because they assume an expansion of currency in relation to an expansion of credit. M0 is not currency because it is not redeemable in something else (a deposit at the bank is redeemable in BoJ notes), it is the ultimate form of payment. M0 is money in our system while it was teh coin in the old system.

What they will get is people getting their currency deposits issued against QE to be spent in the circulation. This is equivalent to huge idle Gold cargo from a meterorite, which sits idle and all of hte sudden gets minted into coins and next the coins are spent. No new credit creation related to this operation. Those guys include Koo, fail to understand that, it will lead to a catastrophe.



Sun, 04/21/2013 - 09:26 | 3479859 andrewp111
andrewp111's picture

For the money to be spent faster requires that the money be in the hands of people who will spend it. Most Treasury Bonds are purchased by Primary Dealers and sold to the Central Bank. In other words, banks are the sellers. Banks are in the business of lending, and the only portion of that cash that is spent is the "profit" portion that is distributed to shareholders and insiders. So, if the bank profit is 1-2 % on front running the CB, a trillion in QE produces only 10-20 Billion in spendable cash. This is not a very efficient way of pumping money into the economy. Fiscal policy is  alot more effective, and can be designed to pump 100% into hands that will spend it. Central Banks can do something similar - by buying gold.

Sat, 04/20/2013 - 18:26 | 3478378 New_Meat
New_Meat's picture

lim V(money) = 0

Sat, 04/20/2013 - 18:36 | 3478395 Trampy
Trampy's picture

inversely, 1/0 = infinity

Sat, 04/20/2013 - 18:47 | 3478422 kaiserhoff
kaiserhoff's picture

Two related questions...

  Ya'll sniffin' glue again?

  Why am I always sucking the hind tit???

Never mind.  I don't really want to know.

Sat, 04/20/2013 - 19:45 | 3478537 BigJim
BigJim's picture

That's not a tit

Sun, 04/21/2013 - 04:30 | 3479640 SunRise
SunRise's picture

Uhhh??  1/0 = Undefined.

Sat, 04/20/2013 - 18:29 | 3478383 The Invisible Foot
The Invisible Foot's picture

There are no more high paying entry level jobs, thus less spending, the driver of all "economics".

Sat, 04/20/2013 - 18:30 | 3478385 Atomizer
Atomizer's picture

Goldman’s O’Neill Says Bank of Japan Can Beat Deflation

After a decade of BOJ carry trade exchanges, we have debased the currency to the end.



Sat, 04/20/2013 - 18:32 | 3478389 PUD
PUD's picture

Any system of money whose survival depends upon perpetual credit expansion for consumption as a model is doomed. There is always a saturation point, a point where no matter how low the rate is no one can assume a pennies worth more. Fundamentally all credit is, is the pulling forward of future demand with the kicker of interest. Imagine if you will 100 year car loans, 500 year home loans...regardless of how far into the future you push things you still need a minimum cash flow in order to service the debt. While debt can be expanded infinitely in theory, cash flow cannot. Add to that the insidious nature of interest which compounds over time and has to be created by the same mechanism all money is created (loaned into existence) and it should be obvious to everyone (which its not) that the system we live under is doomed.

Sat, 04/20/2013 - 19:21 | 3478489 Tom Servo
Tom Servo's picture

I wish i could post this on Failbook and get any one of my friends or family to see this, read this and comprehend it....


Sat, 04/20/2013 - 21:25 | 3478870 ronaldawg
ronaldawg's picture

Stick a picture of a kitten on it and they're probably read it.....

Sat, 04/20/2013 - 21:59 | 3478973 spine001
spine001's picture

I just tried to discuss this with my finance professor today and he didnt agree with me. H8s only argument was that I should trust that the peo0le at the FED knew what they are doing and that they for sure know what to do to remove QE in time and without creating destabilizing ripples... I told him that I wish I shared his trust but I havent seen any credible work or paper explaining how they'd do it without major effects.That ended his arguments... He proceeded to continue with life... 

Sun, 04/21/2013 - 09:30 | 3479864 WhiteNight123129
WhiteNight123129's picture

There is no money loaned into existence. The process which happens is called currency issuances against Credit. The central banks are now trumping this mechanism by rolling over indefinitely the Gov bonds against they issue not currency but money.

The commercial banking system does not issue money but currency. The bank deposits are redeemable in base money (Federal Bank notes). The Federal Bank notes are the money.


Sat, 04/20/2013 - 18:44 | 3478407 kill switch
kill switch's picture

 The destruction of America...

Sat, 04/20/2013 - 18:48 | 3478410 IamtheREALmario
IamtheREALmario's picture

Correct me if I am wrong, but Japan had massive inflation when their manufacturing exports were booming due to many years of low manufacturing wages (which when wage inflation took old, they compensated with automation). That inflation stopped when their manufacturing costs became higher than their competition... and then they were screwed, with high costs and no way to pay for them.

I see no reason to believe that Japan can fix their problem without doing more of something productive (and in this case it might mean beating China at manufacturing instead of farming their manufacturing to China for cheap labor and labor arbitrage, giving companies profits but killing the country ... like Apple did) or getting rid of their overhead DRAG. INSTEAD OF F'N BORROWING MORE MONEY, LIKE AN OBAMA, AND JUST ROLLING THEIR CREDIT CARD, PILING UP MORE OVERHEAD THEY NEED TO DO SOMETHING PRODUCTIVE AND GET SOMEONE TO BUY IT.

Bankers are drains on and economy and they kill it when debt gets too high to service. Japan might as well go back to feudalism.

Sat, 04/20/2013 - 20:53 | 3478778 Matt
Matt's picture

Isn't most of Japan's debt held by pensioners? So it is old people, not the banks, that are the "drain"?

As for doing something productive with borrowed money, any ideas? It seems that America makes more advanced robots, Taiwan, China and RoK make as good / better electronics, they are on a volcanic island with few natural resources, and their demographics are not pretty.

Sat, 04/20/2013 - 18:57 | 3478446 Room 101
Room 101's picture

You know a lot of this boils down demographics.  What is there to invest in in Japan? An aging population that is engaging in the demographic equivalent of mass seppuku?

Sat, 04/20/2013 - 19:48 | 3478552 Terminus C
Terminus C's picture

Green shoots in the nuclear fallout sector.

Sat, 04/20/2013 - 19:05 | 3478464 Misean
Misean's picture

"If the policy reversal is delayed, the Japanese economy (and inflation) could spiral out of control."

I find the use of the word "could" in that sentence....interesting....

Sat, 04/20/2013 - 19:14 | 3478474 Supernova Born
Supernova Born's picture

Stories say you have to invite a vampire in.

Sat, 04/20/2013 - 19:32 | 3478503 tawse57
tawse57's picture

The British Government is busy trying to create an even bigger house price bubble even though the one from 200 to 2007 never actually burst in many parts of the UK. House asking prices are now frighteningly high in the UK... and what is the British Govt doing - it is going to use public money to lend mortrgages to people who currently cannot afford to buy a house because of the high house prices.

It is the economics of the madhouse.

Sat, 04/20/2013 - 19:46 | 3478542 BigJim
BigJim's picture

House prices are sacred in the UK. Any government that allows them to fall will be turfed out at the next election.

Sun, 04/21/2013 - 05:42 | 3479667 Zero-risk bias
Zero-risk bias's picture

I would say the same for PRC, (albeit the political ramifications may be different).

Sat, 04/20/2013 - 19:32 | 3478507 Goldilocks
Goldilocks's picture

Riverdance the final performance (6:54)

Sun, 04/21/2013 - 01:00 | 3479491 Element
Element's picture

Note to self: never ever live in an appartment block under a sexy Irish couple's apartment.

(true story)

Sat, 04/20/2013 - 19:35 | 3478510 kchrisc
kchrisc's picture

Japan is a tragic but shining example of the failure of Keynesian/Fisherism. 20+ years of propping up the crony banks and their crony pols and crats has yielded nothing but bankruptcy for the Japanese people. Sidenote: until recently most of the "borrowed" money that the JapGov pissed away came from the Japanese people via the Postal system.

Now the the JapGov is basically turning Japan into a Chinese protectorate. The Chinese gov must love that they can not only basically "buy" Japan" but that they can also buy out their foreign asset holdings cheap. i.e. the Chinese can "recycle" their toilet paper dollars via Japan's US asset holdings and at a song too.

I wonder how close Japanese is to Chinese?!             hujel


Sat, 04/20/2013 - 22:56 | 3479156 Non Passaran
Non Passaran's picture

And who's going to buy China's US-T's?
Japan? The UK?

Sun, 04/21/2013 - 00:04 | 3479368 kchrisc
kchrisc's picture

Oops, my bad! I forgot that some still hold that US-T's are "assets." Technically yes, but then like a US gold certificate, no.

I meant to say, "real assets", not paper assets. i.e. things like their stakes in land, buildings, businesses, etc.           hujel

Sat, 04/20/2013 - 19:37 | 3478516 Ignorance is bliss
Ignorance is bliss's picture

Banks make money on real estate, fraud, and war. We have had the first comes war. How about those Soduko islands, or N. Korea, or Iran, or maybe a nice little African nation. We should start a pool on The next Banker war.

Sat, 04/20/2013 - 19:49 | 3478551 yogibear
yogibear's picture

"the liquidity 'should' have led to unprecedented inflation rates of 1,600% in the US"

That's a Surprise?  Bubble Bernanke and the Federal Reserve want much higher inflation.

While inflation would be going up by several hundred percent it would still report a 2% inflation rate.

It's why Bubble Bernanke told his son to rack up hundreds of thousands of school debt. Bernanke and the Fed will crash the US dollar.



"Ben Bernanke Says That His Son Will Graduate With $400,000 Of Student Loan Debt"

Bernanke told Congress that his son will graduate from medical school with about $400,000 of student loan debt.


Sat, 04/20/2013 - 19:51 | 3478562 Terminus C
Terminus C's picture

Hah, Bernanke doesn't care about 400k student loan debt because he can snap his fingers and make it disappear.


Sat, 04/20/2013 - 19:58 | 3478578 Atomizer
Atomizer's picture

The central planners money fraud jig has hit a brick wall..


1972 Honda 600 Commercial


Kia and Hyundai will soon follow the skittles & rainbow taxpayer stimulus bailout. Subsiding cheap automobiles to offset export tax has many nervous international investors eyeballing the high US unemployment levels.

But.. this business model worked before.. LOL..


Sat, 04/20/2013 - 20:18 | 3478653 DaveA
DaveA's picture

If central banks want inflation, why lend?  Why not just give money away?  It's not hard to  do -- just expand EBT, Section 8, and Medicaid to the middle class, and give everyone free gasoline and a new car every five years.  Demand would rise and supply would drop as people discover they no longer need a job to survive.  Higher demand + lower supply = you figure it out.

Sat, 04/20/2013 - 20:57 | 3478785 holdbuysell
holdbuysell's picture

"Why not just give money away?"

This is already happening: disability, food stamps, etc. These programs are paid for, on the margin, by printing money.

And it's only getting worse as more go on the dole.

Bring in a food or supply chain shock resulting in prices spiking and those on food stamps will require a 'national disaster' type of response of printing yet even more money to help them, which of course is simply throwing gasoline on a fire.

With the droughts of last year and grain holdings at lows, it won't take much to slip into such a state.

While the latter above is speculation, this is a very real possibility that trends point toward and not away.

Sat, 04/20/2013 - 22:55 | 3479149 Non Passaran
Non Passaran's picture

Because going it away wouldn't enrich the politicians and banks

Sun, 04/21/2013 - 06:06 | 3479681 css1971
css1971's picture

They want to pretend they are in control... able to undo it.

i.e. sell the JGBs they have, reel in and destroy the money they created and "look ma, everything's in it's place nothing going on here".

All nice and linear.

Sat, 04/20/2013 - 21:03 | 3478801 itstippy
itstippy's picture

Excellent suggestion!

Also, we need to "ringfence" (isolate and crush) the problem economies of the World so they don't spread instability and contagion to the global economy.  A concerted effort to ringfence the disasterous economies of the Euro Zone, UK, US, China, Japan, and Russia is needed.  Also probably Uzbekistan; Legarde is looking into them currently.

Sat, 04/20/2013 - 21:07 | 3478820 smacker
smacker's picture

On Japan's monetary easing:

"No actual damage will be done as long as the easing program remains ineffective."


I love it. The same could be said of 99% of ALL government policies. ;-)

Sun, 04/21/2013 - 01:04 | 3479467 Element
Element's picture

If Japan was a horse it would be in a very rare and expensive Findus sausage roll by now ... and waaay past its use-by date.


bon appetit

Sun, 04/21/2013 - 02:25 | 3479570 polo007
Sun, 04/21/2013 - 05:47 | 3479671 css1971
css1971's picture

What you are doing is called "spamming".

Sun, 04/21/2013 - 02:35 | 3479575 polo007
polo007's picture

According to Citi Research:

Since we are more directly concerned about the behavior of the US Treasury market than the US dollar, we will dig further into what initially appears to be of no value. In Figure 12 we see that the value of looking at gold versus 10yr Treasury yields is near zero. However, Figure 12 does suggest that gold provides value if we break-up 10yr Treasury yields into Real Yields and Inflation Break-evens. These correlations suggest:

- Higher gold price / higher inflation – This relationship confirms common wisdom about gold using daily changes, even if Figure 11 shows that it is of little value longer term.

- Higher gold price / lower real yields – If TIPS and gold are both considered to be hedges of inflation, it would be expected that their prices would rise and fall with positive correlation. Therefore, higher gold prices and lower TIPS real yields make sense.

Given these correlations, it would be expected that a sharp move in gold would be accompanied by a sharp move in TIPS. The weak 5yr TIPS auction this week put an exclamation point on this move. Over the past week, 10yr TIPS real yields are about 15bp higher and breakevens are about 20bp lower.


We are generally very hesitant to pay much attention to moves in the gold market. However, when large moves in this market are relatively coincident with large moves in TIPS breakeven levels – it bears watching. We think that this may be a symptom of a Fed that is appearing more likely to begin tapering QE earlier into the recovery than was previously expected – even if the initial Fed Funds hike date remains well in the future. We are positioned in Treasury curve steepeners to take advantage of this view.

Sun, 04/21/2013 - 06:47 | 3479710 Offthebeach
Offthebeach's picture

Jim Jones was so ahead of his time.

Sun, 04/21/2013 - 08:33 | 3479810 booboo
booboo's picture

"One notorious minister of propaganda is reported to have said that “people will believe a lie if it is repeated often enough.”

So said Joseph Goebbels about the Prime Minister of England at the time, Winson Churchill and his war propaganda campaign.

We got us an onion of lies goin on here and the first couple  layers are the toughest.

Sun, 04/21/2013 - 10:35 | 3479954 chistletoe
chistletoe's picture



I'm sure you've seen this already .....


the comments are pretty interesting, no?

Sun, 04/21/2013 - 12:19 | 3480337 moneybots
moneybots's picture

"As Nomura's Richard Koo notes, at 16x statutory reserves, the liquidity 'should' have led to unprecedented inflation rates of 1,600% in the US"




The FED can print up 56 trillion in reserves and it will cause no inflation if they sit in a vault.

Do NOT follow this link or you will be banned from the site!