Japan: QE As Morphine For A Terminal Patient

Tyler Durden's picture

Submitted by Raúl Ilargi Meijer of The Automatic Earth

Japan: QE As Morphine For A Terminal Patient

You can jot down Halloween 2014 in your calendar, and it’s unfortunately too tragic to make proper use of the irony involved, as the day Japan committed suicide. The sun is no longer rising. Not that the vital signs weren’t bad before, indeed it might not have survived regardless, but this lethal blow announced today is still quite the statement.

That financial markets interpret it as a reason to cheer and party and make lots of dough is yet one more proof of how shallow and single-minded the people operating in these markets are, lacking all insight in historical context, longer term consequences, wars and politics, and the human mind.

Because the ‘QE as morphine’ concept introduced today by the megalomaniac Shinzo Abe and his central bank raving mad puppets will change the world in ways that make financial gain less than even an afterthought, except perhaps for those of us who cannot see beyond today, or beyond the one single lonely dimension money is of any use in.

If and when a country resorts to having it central bank buy up – the equivalent of – all sovereign bonds it issues, the snake truly eats its tail, and not in a metaphorical sense. Japan eats it children, most of them as yet unborn, to keep its rapidly ageing population contented and in relative wealth, because the alternative would cost Tokyo’s financial-political power cabal their jobs and heads.

Japan’s problem is, and has been for many years, twofold: first, the Japanese people lost the spending power to keep the domestic real economy growing some 20 years ago and never got it back, and second, a whole slew of successive governments refused to restructure the debts in the financial sector, and instead put those debts on the public tally.

The negative growth announced today in US consumer spending should be a warning sign, as should similar numbers that have come from across Europe for a while now, a sign that we need to think about how to run our societies and economies without everlasting growth, and without the ever more failing and ever more costly policies aimed at constructing and maintaining that growth.

However, the worse the policies are for the real economy and the people who depend on it for survival, the more money the financial markets, and the banks, make. It truly is QE as morphine, and Japan has shown us today that morphine can alleviate pain, but it is also in the end the ultimate killer.

It may already be too late, but we can still make the effort to not fall into the same trap Japan has fallen in. Which in essence is simply trying to recreate a past world that is long gone, by applying measures that ‘wise men’ say are sure to bring back the past, and then more.

We must look at ourselves and wonder why we want more. And realize that if we don’t take that look, and we continue on our present path, we will all end up like Japan, guaranteeing that our quest for more will leave us with less, much less. We cannot build our world with credit, we need to work in order to build it. And we cannot borrow our way into growth, nor do we need to grow.

Halloween 2014. A day we could have learned something.

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Cognitive Dissonance's picture

Why are we so surprised? We all knew this day was coming in addition to further escalation down the line.

It was just a matter of when, not if.

observer007's picture


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Publicus's picture

Printing money to fund economic activity/jobs is a sound strategy. This is how America funded itself in the first place.

Manthong's picture

How about a semi-trailer of Canadian Mist to treat Stage‎ 4 cirrhosis of the liver?

nope-1004's picture

Surprised?  No.  Amazed at the stupidity?  Yes.  Also proof that all the western central banks are complicit in the hyperinflation crime.  I think Tyler called it "race to the bottom" a few years back, but now can see that it's an international concerted agreement to the bottom, thereby hoping to hide relative hyperinflation in the FOREX market by all banks working together.

Don't be fooled.  This will blow up too.  Debauching a currency and punishing savers is not economic growth, no matter what number the corrupt market ticker displays.

Then monetary game being played is nothing more than an elaborate, covert ponzi.

Richard Chesler's picture

we can still make the effort to not fall into the same trap Japan has fallen in

Hope and change. Bwahahahaha...

El Oregonian's picture



So Solley, hombre...

(thinking fish tacos*) hmmmm???

ebworthen's picture

Yeah, pretty sure it is too late for the U.S. too.

OpenThePodBayDoorHAL's picture

We're using an old monetary model to describe what we're seeing, a model where central banks are just supposed to maintain a stable currency and monetary system and the capital markets are supposed to represent free market risk pricing and capital formation. That model is long gone and very few realize it. The new model is a kind of Hyper-Communism, where the central bank combines money creation with capital formation and risk pricing, all rolled into one. Stocks no longer need to have any connection whatsoever with underlying economic reality in order for their prices to rise. Governments can fund endless deficits since their bonds no longer need to trade on public markets, comparing them to other risks. With an unlimited ability to print, central banks can make this new beast behave however they want. It's only a matter of time before Ben Yellen decides to buy more stocks, or just decides to expand his/her balance sheet to $6 or $9 or infinity trillion. So long as all currency blocs go along the relative effects will seem muted, they made sure to completely fianacialize gold first so there's no independent reality-based price to spoil their game. We live in a second Industrial Revolution that means huge deflationary pressures can continue to mask inflationary money for a long time to come. It's either a brand new era for the prosperity of mankind...or else a monstrous beast that will collapse in a heap (I think the latter, but it could take a long time, decades even).

McCormick No. 9's picture

What goes out has to come back. The yen was hammered down, and snapped up, to buy Treasuries, and bid the Treasury price up. Everything is hunky-dory. No need for QE when Japan does it for you. Unintended consequenses, or more accurately, anticipated consequenses-we'll cross that bridge when we get to it. This is extreme short-term thinking.

Because Japan can't prop up bond prices by itself forever. What if you get to the bridge, but it's not there?

The bridge in this case is more Fed QE. "We can turn the printing press back on any time we need to." But what if you can't?

Right now the Fed owns $4 trillion of Treasuries with a high price and a low yield. If the price is driven higher, the Fed's balance sheet improves, fine'n'dandy. The Fed's nightmare is a reversal of that equation- low price/high yield. That means that the Fed bought high, and has to sell low. It also means an imminent gov't default, leaving the Fed holding the bag.

What are some events that can spook the bond market into a selloff?

1. China goes broke because the yen meltdown fouled the Asian waters, bringing down the yuan with it. China no longer gets to play with the idea of selling Treasuries as a geopolitical strategy- it HAS to sell in order to avoid total bankruptancy. Treasuries flood the market and the price plummets.

2. Of course this will drive a short-selling orgy, which will increase the downward spiral.

3. The Fed steps in to buy more bonds in order to contain the carnage. But the Fed discovers it does not have the depth with which to buy trillions at a go. It wheezes after a few hundred billion.  Why? i'm guessing a number of factors- political opposition to more debt; a sudden realization at the Rothschild level that even they have a limit to risk appetite. Something like that. The Fed's QE then will be too little, too late.

4. After a brief rally, the carnage accelerates, now stocks are pulled in. The combined efforts of every braking tool known to man is applied, and the only effect is to draw out the inevitable collapse.

5. At this point, the war machine, the final last-ditch effort to both stimulate and distract, is activated. What was a monetary bloodbath becomes a real one.

If there anyone is left, they will eventually mark October 31, 2014 as the day the world system collapsed.

seek's picture

Exactly, this pattern has played out dozens, if not hundreds, of times before. Yet when we hit a milestone people seem surprised.

Seriously, people, this is a financial time bomb, the construction of which is very well known and documented. The timer is ticking and was started long, long ago, and it cannot be stopped or defused. There are no surprises, only confirmations. Let the knowledge of this certainty guide your actions.

Bloppy's picture

I remember college professors back in the 80s-90s ranting and raving about how America needed to be more like Japan - in industry, government, saving habits, etc. It was all a freaking lie!


Media gunning for Scott Brown in New Hampshire with dirty tricks


tvdog's picture

No, your professors were correct in that Americans need to save more. The problems of Japan are the fault of its government. Unfortunately, the U.S. is currently following the same policies.

suteibu's picture

Japan had $15 trillion in personal savings at the beginning of the recession. 

How do you get that money back into the economy?  Destroy the economy, destroy the Yen and force people to spend their savings.  Whether that was the plan or not, it is certainly the result.

seek's picture

Japan had their shit together in the 80s, thanks to Deming's influence. Then financiers and politications fucked things up for them just like in the US>

Greenskeeper_Carl's picture

Very true. Their very high savings rate from the past is the only reason it has lasted this long. It's a shame, and it's very nearly stupidity at its finest. I only say 'very nearly' because it's even moar stupid for the US to go down the exact same path after witnessing that this doesn't work for the past 20 years

Cathartes Aura's picture

no, anyone truly paying attention to "history" shouldn't be at all surprised.

post "WW2" both Japan and Germany were "relieved" of their "military" - which allowed them to focus on manufacturing economies unhindered by the great money-sink of armaments to defend imaginary "personal" nation-borders.

fast forward to times of "economic booms" based on selling shit to consumers.

but Japan appears to have drawn the short-straw, and looks like a sacrificial lamb - Fukushima is a tell, has a specific date as a "marker" for those keeping score, and now another interesting date - "halloween" is being noted here.

prolly all just coincidence, hmm.

YHC-FTSE's picture


Exactly. There's really nothing much you can say about Japan, or the USA for that matter. Some say it was decades in the making in retrospect, but for me it was pretty clear when Kyle Bass's explanation for stocking up on Japanese jump risk was elucidated for all to see a couple of years ago (or more).

When an alcoholic's liver gives out and his internal organs are failing one by one, all he wants is one more drink. One more to assuage his guilt, blot out reality, hide the stupidity of his self destruction in the warm illusory embrace of soporific bliss. The reality of Japan is one more bankrupt drunk sitting in his own piss laughing about how good his life is because he has one more bottle in his hand. Never underestimate the ape's propensity for stupidity.

lasvegaspersona's picture

Gideon Gono approves this message....but he sees that his crown is about to be stolen.

hairball48's picture

We here at ZH have known the "great unwind" has been coming for years.

The Central Banker clowns and their gov't lackeys remain clueless.

hotrod's picture

this was not just Japan's decision. The Basket of currency countries of the USD work in unison now.  However it cannot stop.  ECB, Bank of England, United States will all have their turn at bat again.

The IMF idea that an SDR representing these four currencys is a farse.   Everything will implode should a deflationary spriral begin.  Gotta keep feeding the fire. 

Bell's 2 hearted's picture

"The Basket of currency countries of the USD work in unison now."


i differ


 BOJ action (imo) ... a clear "every country for itself" move



Kobe Beef's picture

I'm no credentialed expert, just a former stock broker, but I see it like this:

The Japanese government is the most heavily indebted entity on planet Earth, perhaps in all of recorded history.

The Japanese government cannot possibly pay the debt, but it will attempt to roll it over. Rolling it over in a progressively weakening currency reduces the load. Thus, Abenomic's ongoing debasement of the yen.

However, in its heavily indebted state, the Japanese government is very vulnerable to interest rate shocks. It has been speculated elsewhere that servicing a 10-year yield of 2% would effectively cost every single yen collected in taxes by the central government.

So, the nominally independent BOJ, already owning more than half the JGB market, has been drafted by domestic and global stakeholders into purchasing massive JGB issuance going forward, to cap interest rates, and thus mediate risk of a market-directed interest rate shock.

If it sounds like Zimbabwe, that's because it is. The difference between a Japanese currency/debt crisis and a Zimbabwean one being that yen is a part of the IMF-SDR basket, Japanese commercial banks are thoroughly integrated in global counterparty payments, and thus Japanese collapse represents systemic risk to the overarching global financial racket. To think that this QE hand-off from the FED to the BOJ to stave off a Bankster Apocalypse was not negotiated by their respective Chairmen at the Bank of International Settlements would be disingenious. Again: Japanese Sovereign collapse takes the international credit syndicate down. Global Systemic Planning would by necessity be involved in its attempted mitigation. 

Notice that I am restricting the discussion to credit/monetary matters only. Because that is what the policy is designed to do: maintain the government/bank credit system. Any insinuation about Abenomic's impact on trade flows, import/export balances, employment, jobs, growth, etc. is merely Public Relations Voodoo, designed to distract an ignorant domestic populace, and camouflage the fact that the World's 2nd Largest Bond Market and 3rd Largest Economy is, without such desperate and drastic measures taken, about to go tits up, and very possibly take down the entire global financial system through cascading default/counterparty risk. Debt outstanding represents at least an order of magnitude beyond Lehman and AIG in 2007.

It is that bad. It is going to get worse. 

Perhaps I am wrong. Perhaps the historical record showing 100% collapse of all debt-backed fiat currencies within 100 years of their inception will be proven wrong this time.

In the meantime, Japan will debase to ease rollover, and monetize to contain interest rates. And of course, spin the fuck out of this onrushing disaster to make the terminal nation appear ambulatory, because "When it gets serious, you have to lie."

emersonreturn's picture

kobe beef,


+1 great insight

nope-1004's picture

Great thoughts.  Thx.  +1

LostandFound's picture

Thanks for breaking this down very simply for idiots like me.

Racer's picture

I would be truly worried if I had any money in the funds that are doing this 'investing' as they will be buying stuff at any price regardless of fundamentals and reality.

And who will pay for this madness when it all falls apart at the seams? Not the madmen who instigated it, but the unborn children

hairball48's picture

Anyone heard a comment from Kyle Bass since Karoda's announcement?

algol_dog's picture

Was wondering that myself - 

seek's picture

He released this exclusive statement on youtube.

Seriously, he's probably too busy counting his money to make any statement.

matrix2012's picture

yet i found out this one is much more interesting :-)


kchrisc's picture

Stick a fork into Japan.

An American, not US subject.

Bell's 2 hearted's picture

Japan not only one to be "forked"


China at onset of big housing bust ... no way they don't respond (as will others)


the dominos are lining up


all leading to deflation for US

Kaiser Sousa's picture

i still trippin off of Silver with a $16 per oz handle...
i waited for a week cause i just had a feeling they would do their normal bullshit either right before or after the MoneyChanger bullshit fest with the FOMC...

thanks for another 100oz's at the same price i bought it at 5 years ago assholes...

to all who understand the big picture - STAY UP...AND STAY THE COURSE....

max2205's picture

Tell us how you feel when it prints $8 next year

Bemused Observer's picture

Yes, we all know what's coming. Which is why I say now, so help me God, if ANY asswipe tries to feign shock and surprise after it happens I WILL start throwing shit at them...
Seriously, I feel like I'm gonna lose it sometimes...I need to be grounded in reality, this through-the-looking-glass economy is just too much for reasonable folks to take.
It's maddening...like arguing with someone who just makes it up as he goes along. YOU know he's doing it, and he's so brazen that HE knows you know, and you know that too.
But he looks you right in the eye and keeps DOING IT ANYWAY!
Makes you want to slap the face right off his head.

lotsoffun's picture

you know my boss?  he keeps saying 'you're reading too much into it, it's not what you think'.  meaning -   'it's just my dick up your arse, i'll take it out when i'm done'.

that is all it is.  until we fight back, it stays in.


Bell's 2 hearted's picture

the dude with the funny name who wrote this did not go far enough


BOJ actions will have a very negative impact on US


Got US Recession?

JustObserving's picture

If a ponzi scheme is failing then the natural tendency is to go all in.  Hope spings eternal in the human heart.  That is what Japan is doing. Collapse is guaranteed.


Its Only Rock N Roll's picture

Pozi's collapse when players want their money OUT...which is just starting

techstrategy's picture

Raul, pithy and to the point.   Only investment in real and productive assets can change it path.   Extending consumer and finance ponzi only hurts everyone. 

John Law Lives's picture

The attached article is astonishing.  For the record, this is the first article I have ever read by Vox.com, so I don't know what credentials the author may have (if any):

Japan is boosting its economy with a simple idea you won't believe we're not trying
Matthew Yglesias on October 31, 2014, 10:00 a.m. ET


Astonishing excerpts:

"Printing money at a faster pace seems like a really obvious thing to do when inflation is running below your target. So Kuroda is doing it. And the best thing is that he's not promising to stop any time soon."

"Building complicated macroeconomic models is hard. But telling whether inflation is above your target level or below your target level isn't brain surgery. If it's too low, then why not print more money? At the very worst, it won't do anything. At best, it'll provide the kind of powerful economist boost that Japan's stock market is anticipating today."


Talk about drinking the Central Bank Kool-Aid!


Bell's 2 hearted's picture

"Printing money at a faster pace seems like a really obvious thing to do when inflation is running below your target."


20 years of printing in japan sez otherwise