Thursday, November 6, 2014

Japan: Charging Into The Next Financial Crisis

Last week on the eve of Halloween, the Bank of Japan announced that they were beginning a new stimulus program to buy government bonds to the tune of $730B for the year. This will add to the debt ratio which is already the world's highest at 250%. They will be buying 85% of state obligations. This is up from 70%  because no one else in their right mind will these unrepayable notes. The US Fed now buys 63% of the government's notes. This is up from 50%.  Can you see a trend here? By the way the Japanese purchases is equivalent of US purchases at $3T a year. Think about that for a moment. Now, personalize it. You make $35K a year, but you owe or have accumulated obligations of $87.5K. You can't pay your bills! By some quirk of fate, a credit card company offers you a card, to which you pay your $87.5K off, but now, you owe someone else that much and more with interest. Interest is the key word. You are charging towards financial destruction. This is what all fiat central bankers are doing and the Bank of Japan is leading the way.
 "Only the Lonely..."
thank you, Roy Orbison. Sweden recently joined the club as it enacted its third phase of rate cuts after it raised them to combat inflation in 2010 and 2011. It is trying to devalue its currency to gain market share, which is a by-product of central banks QE programs. The ECB also raised rates in 2008 and twice in 2011 for the same reason, but now faces a recession. No central bank declares that the fiat model is a failure. They just increase the money supply to overwhelm any economic declines in activity. They believe that economic engineering works, but I beg to differ.
All its manipulating money spending has not lifted prices of its stock market or housing. They are at one-third of where they were 25 years ago. Central bankers believe money engineering will answer economic problems, but the equation is human not abstract. How do you equate or replace ageing, retirement and dying? How do you measure pension obligation that will increase due to longevity? How do you compensate falling revenues which add to the debt ratio? In Japan, household income declined by 6%, and it is expected to fall further, especially when a national sales tax is added to the economy.
Thanks Japan
They have more than demonstrated that the fiat model fails to maintaining the value of your currency, which is purchasing power, fails against inflation and puts your whole nation under the risk of collapse. Hey, I forgot to mention it allows your exports to grow which favors segments of society at the expense of all its citizens who pay higher prices for imports. This is the plan of Sweden, ECB an all countries that seek a lower value for their currency. Today, the US dollar is up at .87 cents. Dear reader, that is very, very sad. The world's reserve currency is worth less than a dollar, although the bill says it is a dollar. The Euro is down to 1.24 and like my previous blog on Japan, the Yen is at 114. Does anyone remember Zimbabwe? Weimar Republic? Japan is charging towards both of them with all central bankers followng