Japan Has Proven That Central Banks Cannot Generate Growth With QE

Phoenix Capital Research's picture

The following is an excerpt from a recent client letter.


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


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


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


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


$1.4 trillion is…


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

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

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


Moreover, with $1.4 trillion, you could…


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

2)   Fund NASA for the next 82 years.

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


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


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


To whit, since announcing this program Japan has seen:


1)   GDP growth accelerate for only two quarters before turning down again.

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

3)   Household spending crater 2.5% year over year in real terms.

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

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

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


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


Thus, the Bank of Japan’s massive QE campaign has revealed:


1)   That QE does not generate economic growth

2)   There will be political consequences for its failure


Now, Central Bankers will never openly admit that they or their policies have failed. But Japan has proved that they have. It’s only a matter of time before the world catches on.


This concludes this article, swing by www.gainspainscapital.com for a FREE investment reports Protect Your Portfolio, which outlines how to protect your portfolio from bear market collapses.


Best Regards


Phoenix Capital Research




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elwind45's picture

Throwing good fiat after bad fiat controlled by a revolving door of technocrats? Not to be trite but if China needs fast cash and sells something would it destablish a interconnected web of currencies in which it badly needs club access or would it focus on buying up excess domestic gold t o sell it to central banking cartel?

whidbey-2's picture

This appears to be more serious than I first thought it to be: for a few minutes after reading the whole thing I actually felt that I understood the essay. Fortunately, it turns out the feeling has gone away and I now am confused again.  Why don't all you genius types give Franklin Roosevent credit?  He was gifted in public finance and was very clever to solving problems.  So far as that goes, Woodrow Wilson helped create the Fed. President Jackson would have shot him, but everyone can understand that kind of murder.

GreatUncle's picture

No Keynesian idiot ever considered the inflationary process is inherently linked to the size of the real economy.

Need say no more but if you bust debt you destroy the real economic value OR a banker loses and cancels held paper value (not going to happen) or it is burned out of the real economy (not big enough to stand it.) Can you see in this the boom / bust cycle of the last 40 years and how it is going to get ever hardder to do as the corrective value far exceeds the size of the economy.


This is where we are at ... cancel go again ... or stagnate. Although to repeat the process not so sure people are so gullible a 2nd time round ... Am I?

Seeking Aphids's picture

Japan's problem is that the Yen is not the world's reserve currency...they can't get away with QE as the Yen inevitably gets killed in the process and the buying power of Japan goes down. The US on the other hand can get away with it (for now) as people still flock to the $US as a safe haven (incredibly) and the US can use its power base to ensure that the $ remains the currency of trade. The Russians and Chinese are fed up with this game and won't let it play out for too much longer. The next move will be the creation of a basket of currencies including gold. This is my world view - a rather prosaic one I admit (from a ZH perspective). If anyone can punch holes in this theory please feel free to do so ...I am here to learn.

GreatUncle's picture

Economic Glasnost.

China / Russia are dependant on the West existing to buy their goodies or their populations hasve no work, hence income = revolt.

So both sets of elites need each other to exist and where we are right now.

Polymarkos's picture

I'm glad we got all these financial wizards out there to relearn every hard lesson at our expense. It gives me hope for humanity's long term prospects.

disabledvet's picture

War with Russia is reflationary..."clearing out the inventory" as it were. (Just ask the French.)

Peace with Ukraine on the other hand is MASSIVELY deflationary. Right now we have peace...the irony being we've chosen sides.

And of course by definition "this war will be fought with two movements" (Ukraine and North Africa...just like the German Campaigns.)

The scale of such a conflict will have to equal that war at a minimum actually. The incentive for President Putin to attack first seems quite high to me right now.

Right now the initiative still appears to reside with the West....even though "appearance wise" the Russians are taking territory. The easiest and perhaps only way to change that is to change the facts on the ground.

The irony that by "doing nothing" the hand of the Administration's hand would be forced is not lost on me. Needless to say the US Navy would be compelled to attack to cover the withdrawal(s).

Who knows what the US Air Force would do as a consequence....but something tells me they will defend that Alliance at all costs and that says either or probably both "stand off weapons" and "deep strikes."

The Germans had kill ratios in excess of 100/1 in World War II on the Eastern Front. I think their top Ace had over 4 HUNDRED confirmed kills...and that's just the air war part.

40 million in "non lethal assistance"? This could be construed as weakness and reason to attack. What's the playbook here again? Because Putin's intent will be equal to the task..."consequences be damned." Once that happens "it's game on" bitchez.

There is only one way to regain the lost initiative at that point...and Putin knows it. Needless to say his regime will not be threatened should he attack...unfortunately.

Indeed the existence of a date certain for an election may be sufficient cause here.

Aussiekiwi's picture

But, if they had just given everyone a couple of million, then everyone would be rich, problem solved.

slightlyskeptical's picture

 Simple math says that QE must fail. All new money created is offset with new debt. That new debt carries interest.

New money = m

New debt = m+i

Basically the more you print, the less you have.

andrewp111's picture

That is why straight up Seigniorage is next. Mint trillion dollar (yen) coins, and make the debt go away.

MFL8240's picture

So what, the objective is to give the corrupt bankers money and that part works perfectly and to say we have no growth is untrue!  We have growth in Wall Street fraud, CEO's salaries, growth in political corruption, growth in bonuses from companies that were under until the taxpayer bailout, growth in debt, growth in unemployment, growth in food stamps, growth in free telephones, growth in poverty, and growth in food prices to name a few so, what the hell are they talking about, QE most certainly does produce growth!  And we have economic growth for the top 1% of the country so I dont understand this whole article.