Japan Ramps Up its Monetary Race to the Bottom

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Ambrose Evans-Pritchard writes that the Bank of Japan is getting ready to really turn up the juice on money printing in order to “fight deflation.”

Premier Shinzo Abe has vowed an all-out assault on deflation, going for broke on multiple fronts with fiscal, monetary, and exchange stimulus.

This is a near copy of the remarkable experiment in the early 1930s under Korekiyo Takahasi, described by Ben Bernanke as the man who “brilliantly rescued” his country from the Great Depression.

Takahasi was the first of his era to tear up rule book completely. He took Japan off gold in December 1931. He ran “Keynesian” budget deficits deliberately, launching a New Deal blitz before Franklin Roosevelt took office.

So, the model for Japan today is their version of the New Deal. I’ll assume that Japanese politicians will ignore that connection between easy money, inflation and war, and forget that such policies ended rather badly for the Japanese in 1945.

Contrary to commonly-held misconceptions, Japan has never been a very free economy. Even more so than in the US, corporatism has long been the M.O. in that country where large corporations dominate the political scene and where flows of labor and good are heavily regulated. Such regulation is known as “fiscal stimulus” of course.

That fiscal stimulus has been deemed useless, however, so it’s time to get the money flowing via more borrowing at every level.

LRC’s own Mike Rogers reports from Tokyo that “Japan’s Debt Explosion [is] Coming Up”

I predict that the debt to GDP level in Japan is going to surpass over 250% this year and with it, a crash of the economy coming soon (not to mention overwhelming inflation)… I have been warning that this debt problem cannot continue.

Earlier, Rogers wrote that even the monied upper classes are starting to worry. Standards of living continue to fall or go nowhere.

And the latest plan is to devalue the Yen in a desperate attempt to stimulate exports because:

Japan is losing its safety buffers one by one. The trade surplus has evaporated, and will not recover soon after post-Fukushima closure of the nuclear industry. The savings rate has fallen to 2pc from 15pc in 1990. The work force is shrinking every year.

11:22 am on January 21, 2013