The Keynesian End Game Crystalizes In Japan’s Monetary Madness

Tyler Durden's picture

Submitted by David Stockman via Contra Corner blog,

If the BOJ’s mad money printers were treated as monetary pariahs by the rest of the world, it would at least imply that a modicum of sanity remains on the planet. But just the opposite is the case. Establishment institutions like the IMF, the US treasury and the other major central banks urge them on, while the Keynesian arson squad led by Professor Krugman actually faults Japan for being too tepid with its “stimulus”.

Now comes several new data points that absolutely confirm Japan is a financial mad house—-even as its policy model is embraced by mainstream officials and analysts peering from a distance. Front and center is the newly reported fact from the Cabinet Office that Japan’s household savings rate plunged to minus 1.3% in the most recent fiscal year, thereby entering negative territory for the first time since records were started in 1955.



Indeed, Japan had been heralded as a nation of savers only a generation ago. During the era before it’s plunge into bubble finance in the late 1980s, households routinely saved 15-25% of income. But after nearly three decades of Keynesian policies, Japan has now stumbled into an insuperable demographic/financial trap; and one that is unusually transparent and rigidly delineated, to boot.

Since Japan famously and doggedly refuses to accept immigrants, its long-term demographics are rigidly baked into the cake. Accordingly, anyone who will make a difference over the next several decades has already been born, counted, factored and attrited into the projections.

Japan’s work force of 80 million will thus drop to 40 million by 2060. At the same time, its current 30 million retires will continue to rise, meaning that its retiree rolls will ultimately exceed the number of workers.

Given those daunting facts, it follows that on the eve of its demographic bust Japan needs high savings and generous interest rates to augment retirement nest eggs; a strong exchange rate to attract foreign capital to help absorb its staggering $12 trillion of public debt, which already stands at a world leading 230% of GDP; and rising real incomes in order to shoulder the heavy taxation that is unavoidably necessary to close its fiscal gap and contain its mushrooming public debt.

With its debilitating Keynesian fiscal and monetary policies now re-upped on steroids under Abenomics, however, it goes without saying that nearly the opposite conditions prevail. Most notably, no household or institution anywhere in Japan can earn anything on liquid savings. The money market rate which determines deposit money yields was driven from a “high” of 100 basis points (as ridiculous as that sounds) at the time of the financial crisis to 10 basis points today, which is to say, nothing.

Historical Data Chart

But what is even more astounding is that the yield on the 10-year JGB dipped to an all-time low of 0.31% in recent trading. Given the militant insistence of the BOJ that it will hit its 2% inflation target come hell or high water, it is accurate to say that the official policy of Abenomics is to cause holders of the government’s long-term debt to loose their shirts.

In fact, however, failing to think more than one step ahead, the BOJ actually wants banks, households and other financial institutions to sell their shirts at a handsome profit. That is to say, the BOJ’s bond purchase program is now so massive that it is buying 100% of the government’s gross debt issuance. In practical terms this means the float of public debt is actually being shrunk, and that the government bond market for all practical purposes has been extinguished by the BOJ.

There is nothing left except one relentless bid by the central bank. Recent data from Japan’s government pension insurance fund (GPIF), for example, show that the GPIF alone has already sold several hundred billions dollars worth of government bonds to the BOJ.

Needless to say, this radical monetization of the entire government bond market is an act of financial suicide. The BOJ now dares not stop the printing presses because absent the central bank’s big fat bid, the market would gap up violently. Yet 40% of Japan’s government revenue is already absorbed by servicing its gargantuan public debt. Even a 180 basis point increase in average yields (meaning that the 10-year JGB would still be under 2%) would absorb the remainder. That’s right, 100% of government revenue would be pre-empted by debt service.

This obviously amounts to a fiscal Looney Tunes scenario, but it is nonetheless embedded in the math. Even after the consumption tax increase from 5% to 8%, Japan’s general government is spending about 100 trillion yen per year while obtaining only 50 trillion yen in tax revenue.


As is evident in the chart above, this yawning gap has been building since the early 1990s when Keynesian missionaries converted the local fiscal apparatchiks to the religion of deficit finance. Now, having wasted 25 years figuratively building highways and bridges to nowhere, the Abe government has obtained a mandate not to raise taxes further until at least 2017. This means that the public debt will continue to soar, and that the BOJ will be under unrelenting pressure to monetize 100% of the new debt issues, least it risk a devastating flare-up in yields.

That makes for a juxtaposition that is out of this world. Since the early 1990’s Japanese bond yields have been falling owing to the BOJ’s financial repression, supplemented by the disinflationary boom stimulated on a worldwide basis by central bank fueled credit expansion. For all practical purposes, Japan’s government debt yields are at the zero bound, and, in fact, maturities up to two years are trading at negative yields.

Historical Data Chart

By the same token, the public debt burden has been climbing relentlessly since the early 1980s owing to the embrace of Keynesian fiscal policies, as so vividly demonstrated in the graph below. And now owing to Abenomics, another 7-10% of GDP will be added annually to the public debt in the years just ahead.

Historical Data Chart

The desperate nature of Japan’s debt trap could not be more vividly depicted than in the chart below. In yen terms—-and that’s the metric that drives Japan’s budget receipts—–national income has not experienced any net growth since 2006!  And Abenomics has not altered the picture in the slightest. During the most recent quarter nominal yen GNP was no higher than in January 2013.

Historical Data Chart

In short, Japan’s fiscal equation is caught a brutal vise in which the denominator (GNP) is stranded on the flat line, while the numerator (public debt outstanding) continues to soar. So for the moment at least, Japan has resorted to 100% printing press finance of its public accounts.

But here’s the thing. The BOJ is destroying the yen and absolutely foreclosing the option of international capital inflows in the years ahead—save for short-term speculations by carry-traders in New York, London and the lesser gambling arenas around the globe. Consequently, the sharp fall of the exchange rate since 2012 is at risk for an accelerating plunge the longer the BOJ prints massive amounts of new yen to finance 100% of the government’s deficit.

Historical Data Chart

Currency collapse, in turn, means that the cost-of-living on an economic archipelago that imports 100% of its energy and most of its raw materials is bound to rise, causing real wages to fall. In fact, that marks another fraught in-coming data point. In November, real cash wages plunged by 4.3% on a year/year basis, marking the 17th straight monthly decline and the steepest slide since December 2009.


Thus, the Keynesian disaster is complete. Massive BOJ money printing to fund the deficit is eroding real wages, thereby mitigating against tax increases capable of closing the fiscal gap and reducing the financing burden. The mad men at the BOJ are also, and simultaneously, obliterating the domestic saver with ZIRP and warding off international investors with a plunging exchange rate. Consequently, there is no honest way to finance the public deficit, meaning that the printing presses will continue to run red hot.

That this policy amounts to a financial suicide mission is obvious enough. But what is truly scary is that Japan’s policy model has been greenlighted and adopted in one form or another by governments and their central banking branches all around the world.

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Publicus's picture

You can't take it with you.


Resources exist to be consumed. And consumed they will be, if not by this generation then by some future. By what right does this forgotten future seek to deny us our birthright? None I say! Let us take what is ours, chew and eat our fill.

CEO Nwabudike Morgan 
"The Ethics of Greed"

knukles's picture

Here we are, by we, the Whole World, caught in a Liquidity Trap with Zero (as in nada, zilch, bumpkus, 'nuffing, squalooch) Economic Response by the People, the Folks, the Plebes and Peons.
Because the money ain't going to the people and the people don't believe that it's all good and thus, will neither spend nor borrow, but worry of the 'morrow.

Mayhaps the best thing could be done (and then maybe it's too late as the retirees, et al have now eaten up all their principle so no income to earn thereupon ... that's a fine mess you've gotten us into, Ollie)) would be to raise short rates to say, 5.0% so that retirees, et all's money earns something so that they might feel safer about spending, etc.
But WTF, nobody listens to me anyhow.

Publicus's picture

What you are looking for is basic income. It's what is needed for the post-Jobs society as we automate away everything and abundance is everywhere.

philipat's picture

Presumably the Yen Carry trade is the only reason that JPY has not completely collapsed to date? The only surprise is why sales of Gold have not gone through the roof in Japan? If I were Japanese I would have ALL my savings in physical Gold by now.

Silver Bullet's picture

I guess that's the bitch of deflation.

Looney's picture

Japan is doomed, and not because of their Abenomics.

The average size of a Japanese penis is 2 inches and Japanese women, during sex, sound like a Squeaky Duck.

There could be Cause (2 inches) and Effect (squeaking) at play here. ;-)

Japan’s Demographics are terrible and here’s why – who would want to have sex with a 2-incher or a squeaky toy? ;-)


SheepRevolution's picture

Aaaahhh Japan - starting to bring back all kinds of memories from former Yugoslavia.....

suteibu's picture

It's hard to figure out.  People put all their money in the Post Bank or under the mattress.  I don't think they even consider it much.  Of course, it could be that more and more are living paycheck to paycheck (there is no deflation in Tokyo rents) hence the measly 3% savings rate.

Stuck on Zero's picture

Question for the economists among you ... when computing the savings rate do they add in the witdrawal rate?  If people are drawing down their savings is that a negative savings rate?

Keyser's picture

What better way for TPTB to begin the culling process of 6+ billion people other than collapsing the planet's economic system... 

hendrik1730's picture

Nope, it could also be consumption based on spending your principal in savings. If at month's end, you need to go another week without cash, you consume part of your savings and hence a negative savings rate without debt buildup.

Kobe Beef's picture

I have all my savings in Metals and foreign currencies and I am looking for another place to live. They cannot destroy my savings, but they can destroy the value of my labor. I am not Japanese, and i will not die for Zimabenomics.

The Yen is part of the SDR basket, and thus the International Financial Cartel must keep the yen afloat until they can initiate WW3, or introduce whatever new globoslavecurrency lies waiting.

This article is the best summary yet of the dilemna facing the Japanese. The key to understanding how it came about is to understand that the BOJ (like the Fed, ECB, and BOE) is not necessarily owned by Japanese, and in fact has faced considerable resistance from Nativist Japanese operating the MOF and MITI. Unlike the native political class, however, the destruction of the nation, the economy, and the currency is not a problem for the International Owners so long as their ability to create credit is not impaired.

Who owns the Bank of Japan? Not Shinzo Abe. 

logicalman's picture

If working people had been given a way to save their hard earned, without inflation destroying what they'd saved or having it skimmed off by government, the only retirees that would be worried would be those who didn't prepare for old age.

I don't have a lot, but I have no debt.

Pension funds are to be the next big theft by the banksters - they even got to change the law to expedite the theft.

Real money and no fractional reserve bullshit - and take the money (bribery) out of politics.


TeethVillage88s's picture

Only Royalty, Lords, and Bankers & Lawyers... could even think up some sick s*it like taking Pensions from working families.

It is either Evil or it will do till the Evil shows up.

I wonder how safe my local small city police & fire Pensions are protected, Teachers & Civil Servants too.

hendrik1730's picture

Don't worry, they go UNPROTECTED.

Squid-puppets a-go-go's picture

i gots my superannuation (thats 401ks to you americentric types) in physical gold and silver now.

bail in proof. if any of you have yet to do this, as Jimi sings, THE HOUR IZ GETTIN LATE, LATE!

FredFlintstone's picture

I thought Superannuation was more like Social Security?

Rigger's picture

Incorrect. Superannuation is a slightly more restricted form of 401k (harder to get your money out before tetirement age) One of few options is to self manage it, sink a big chunk into metals, and as things continue to unwind, you might think of substituting some tungsten for your phys... Incase you have to deal with aggressive 'bail ins' i.e theft

FredFlintstone's picture

Does the government contribute to it? Do employers?

Rigger's picture

Employers pay 9% of gross earnings into your nominated fund. Various types out there, bank owned, privately run, or you can do your own... You are able to pay extra and have it deducted from gross earnings I.e pre-tax

Squid-puppets a-go-go's picture

gov contributes some too, and theres some tax breaks for voluntarily garnishing your wage by more than the minimum 

all in all it was a pretty good initiative when first set up by Keating in the early 1990s. But by the time im allowed access to it (in 25 years or so) im sure it will have been robbed or destroyed by the aristocracy. Thats another reason why its so important to put it in a form of preserved wealth with no counterparty

Rigger's picture

.gov only contributes if sub30k p.a salary sacrifice (even then capped at 1k co-contribution)

neidermeyer's picture

When will I be able to afford a first class vacation to Kyoto? I'm hoping the Yen declines so much they have to send the Japayuki home and start staffing the better houses with real Japanese girls.

Oldwood's picture

The conservative theme of life was to SAVE for life's uncertainties and retirement if one should turn out so lucky. The conservative is dead as the inability, actually the unwillingness to save places us firmly in the hands of the progressives. Our dependency is paramount to their success, and a people with no savings, no cushion, are completely dependent on the State to fend off life's perils. Even those who have saved now find their savings increasingly more worthless and dependent upon the policies of the State for survival.

Publicus's picture

Why save when you can print?

Harbanger's picture

Uhh? cause you´re not a central bank and you´ll get arrested for counterfeiting.

TeethVillage88s's picture

Financial Creativity by federal government & financial advisers is proven by the many agencies & projects that store federal funds in trusts invested in treasuries.

Impossible to imagine the pensioners, future retirees, and fixed income people are forgotten out of ignorance. LIRP & ZIRP for so many years even back to 1999 crisis shows a persistent pattern of manipulation & historical systemic abuse.

5% seems like it would put integrity back and allow the .gov to take back some of it in taxes.

noben's picture
noben (not verified) Publicus Dec 27, 2014 10:21 PM

"You can't take it with you."

That's not gonna a problem, given the trend line, and Zimbabwean currency creation in Japan.

The US is ahead of Japan in this trend, given that many/most are on the Negative side of the Savings curve, i.e. dipping into savings rather than building them up.  I'm 99% certain that you personally know of at least 1 person in your sphere of contacts who fits that bill.

Robert.Paulson's picture

The tenth rule of aquisition: "Greed is eternal."

fxpmtrader's picture

Equals to: human race is a 100% (99.99% + 0.01%) failed species.

With zero hope left.

Yes - thanks to eternal greed - and laziness and ignorance.

Because of the - always and relentlessly blamed - 0.01%.

BUT also because of the 99.99%.

Latest example: how, after all the disasters created in Japan, is it possible that Abe gets reelected?

Oh yes thanks to the eternal laziness and ignorance of the 99.99%.

Which clearly went/goes global.

We are a 100% failed species.

Though the 100% continue their destructation un-abated.

Outcome is crystal clear.

French type revolution again. Much much worse than Stonage.


You get what you elect. So you deserve what you elect.

Another ice age will be the greatest gift for this wonderful but otherwise lost planet.

fxpmtrader's picture

Get used to times when electricy/power will only be available a few hours in the day.
So have you own self sufficient power supply.

Get used to 10fold higher food prices.
So have your own soil to grow it yourself.

Get used to 1932ff: say the wrong thing at the wrong time - and you get converted to tooth paste.

Get used to stonage society: the strongest and most cruel around will have the final say.
So either belong to the "right" clan - or have your own military. Or get used to kreeping and begging on your knees.

All of which boils down to the same: Gold and Silver will again be THE money. But without self sufficient force to defend it, and everything else you think you own at any given time, you and yours will just be food and slaves and prisoners for the stronger and more cruel ones.

ISIS, Syria, Iraq, etc - today - ARE - FOR SURE - no coincidence.
That's how our planet will look like in the decades to come. More or less everywhere.

There's no other way to go with paper becoming worthless.

What is our fault - as we have (re-)elected the current criminals in power.

Due to our current 100% ignorance, laziness and greed.

In fact - WE - CURRENTLY - are laying the groundwork for what will happen in the decades to come.

Due to our asses sitting day in day out infront of trading screens and/or TVs - instead of moving our asses out in the streets and doing human work = laying the groundwork for refusing to accept and re-elect the current corrupt parties and establishments and puppies which just serve wealthy interests and never the poeple.

We the people - have long gone down the river. Instead we are masturbating in and on twitter and facebook - while our rights and freedoms are taken away.

We the poeple - has long become a unknown myth.

We will pay an unbelievable hefty price for all that ignorance. In the decades ahead.

But who still cares? With all those juicy markets around, with all those games and TV series and tablets and iphones and social media and porn and burgers and coke and chips and free money from the government.

We are a lost generation. And there is no way out anymore. We all know it - and still we continue the same way unabated. Day in day out.

Not greed is our greatest enemy. Our own ignorance is.

new game's picture

fab retrace of population numbers.

do you feel lucky? prepared? opportunistic?

3 bullets left in the wheelgun...


will ling's picture
will ling (not verified) Dec 27, 2014 8:32 PM

'bout the only way out for the nips now is attack china at the monkey's behest after weaponizing all that uranium they got lyin' around.

suteibu's picture

The only way for Japan to escape this mess is to join China and Russia in a new economic partnership and dump the USD. 

That said, your scenario is probably the most likely to happen.

Midas's picture

I wonder what Japan's policy is toward ethnic Japanese who want to immigrate to Japan.  I don't know if they would have any takers, but if there is a shortage of workers in the future would people of Japanese descent living in Brazil, Peru, USofA or Canada be willing to immigrate to Japan?  Any guesses?

suteibu's picture

They've tried since the 80s (economic boom and increased opportunities) for those no more than 3rd generation believing it would be better to have ethnic Japanese rather than other Asians or Europeans/Americans.  There are many problems, utmost the language, levels of proficiencies are a requirement for all immigrants regardless of ethnicity.  But there is also the matter of acceptance by native Japanese not only because of the language but intermarriage with non-Japanese (Brazilian, Peruvian, etc.). 

Basically, you are either Japanese or an outsider. For what its worth, I don't see the problem with that attitude.  It protects an ancient culture even as it gives a finger to the multicultural globalists.

Of course, lately, not many want to emigrate back to Japan because the economy has been in a slide.

Overall, It has not made a significant impact on the population or the demographics.

ETA:  There is not a labor shortage in Japan.  Like the US and EU, labor is simply too expensive.  Immigration is designed merely to lower incomes.  In Japan, this is a particular problem in the government healthcare industry.  It is simply too expensive for the government to set competitive labor rates with a bankrupt welfare system.  They are trying to bring in Indonesians, Thais, and Filipinos (among other SE Asians) but the language barrier is simply to high for that level of worker to overcome.  And there is resistance from older Japanese not keen to have a foreigner taking care of them in their homes.

Midas's picture

Sounds believable.  I also have no problem with their immigration policy.  Kyle Bass refers to them as xenophobic, but I have no idea why prefering to live around your own tribe is something to be faulted for.   I would imagine watching the news coming out of the USA isn't changing any opinions in Japan about the "benefits" of diversity. 

suteibu's picture

There is not much news coming out of the US/EU as you would think.  For instance, there are Japanese language versions of CNN, the NY Times, Wall Street Journal, to name a few.  However, they tend to have the same editorial slant as the English versions in the states (meaning multiculturalism is not presented as a problem.  Then there is the government media (NHK) which tends to be non-critical of Japan's allies.

philipat's picture

There is a fine line between xenophobia and "preferring to live with your own tribe"? Especially when the choices are to survive or to die. Socail sepuku? All for one, one for all. very noble. I guess that at this stage it makes little difference, the only issue being how Japan will emerge from BK? My guess is that it will be in exactly the same way..

suteibu's picture

It depends on what your definition of survival is.  For some, maintaining a debt-based lifestyle at all costs which burdens future generations is important.  For others, passing their culture to their children is the goal.  Japanese would tend toward the latter, though they seem to have lost their way.

In any case, with the right policies, 100 million Japanese would have no problem surviving on their own.  They certainly were surviving - and flourishing - as a culture and a trading nation before the US "opened" them up to the world 170 years ago.

KuriousKat's picture

As the Fukushima glow spreads and adds to this unprecedented surge in prosperity  I doubt their will be a sudden nostalgic urge  to return home, anymore than the Irish yearned to go back during the potato famine. We all love and miss Atlantis..but certainly would not want to go down with it.

exartizo's picture

I can remember a time when America and Hollywood did not deliberately offend other nations in the deceptive guise of "freedom of speech".

Using the right of Freedom of Speech to justify offending other people is not the heart and spirit intended by the Founding Fathers of this great nation.

That's true whether it's done here in America or anywhere else.

buzzsaw99's picture

wow, what a revelation. [/SARCASM]

suteibu's picture

I'm actually surprised to read an article highlighting Japan's demographics that did not offer up the immigration solution.

BTW, it is not a demographics "trap."  The birth rate has been trending lower since the 70s like most all post-war developed nations even as welfare benefits have increased.  It hasn't crept up on anyone.

logicalman's picture

My kids and a lot of their friends have said they couldn't, in good conscience, bring another human being into this madness.


suteibu's picture

Same in Japan but more for economic reasons.  More and more kids being born to younger single mothers as well.  That's a double curse on the kids, the mothers, and the welfare system.  An increasing divorce rate only adds to the single-parent household tally. 

The family is has been destroyed.

Harbanger's picture

That´s western liberalism, aka westernization.