As the abject failures of the past few years’ monetary experiments became apparent, it was clear that something else would have to be tried. The only questions were when this would happen and how crazy the next iteration would be. Both answers are now coming into focus, and they’re looking like “soon” and “really, really crazy.”
Beginning with the most enthusiastic experimenter, Japan just reelected Shinzo Abe, of “Abenomics” fame, by a landslide, setting him free to turbo-charge his policy of massive government deficits fueled by unprecedented currency creation:
Abe orders drafting of new stimulus package to breathe life into Japan’s economy
(Japan Times) – Prime Minister Shinzo Abe ordered economic revitalization minister Nobuteru Ishihara on Tuesday to draft a range of economic measures to bust deflation and raise Japan’s growth potential, including with a supplementary budget for fiscal 2016.The government will submit the budget draft for fiscal 2016 to an extraordinary Diet session this fall, Ishihara told a news conference later in the day.
Ishihara declined to comment on the size of the economic measures, saying that will be decided at the end of the month using a “bottom-up approach.”
On Tuesday, the Nikkei financial newspaper reported the projects are likely to be worth about ¥10 trillion, including the supplementary budget and government-backed loans to businesses.
Ishihara said the budgets will likely benefit workers at nurseries and day care services for the elderly, but he declined to give any further details.
“The aim of the economic measures is to make investments for the future,” Ishihara said.
However, the list of planned projects also includes public works projects that are often used as sweeteners for the construction industry and to reward local politicians who helped secure the LDP’s election victory.
In a written instruction to Ishihara, Abe ordered the minister to accelerate construction of maglev railway lines and to expand the nation’s shinkansen bullet train network.
There will also be spending on measures to help farmers and fishermen export their products, the paper said.
Abe urged Ishihara to take advantage of the negative interest policy recently introduced by the Bank of Japan, which would lower borrowing costs for the already debt-ridden government.
This means Ishihara was urged to issue more public bonds to finance the projects, further adding to government debt.
Japan’s public debt amounts to more than 200 percent of gross domestic product, the highest of all developed countries.
But Ishihara emphasized that the government needs to do what it can to stimulate the economy and end deflation, which would then lead to economic growth and lower the ratio of debt to GDP.
Meanwhile Britain, post-Brexit, is a logical candidate for preemptive easing. And sure enough…
Carney Opens Lehman Playbook at Bank of England
(Bloomberg) – Mark Carney looks poised to repeat a strategy that served him well during the global financial crisis.As the Bank of England governor seeks to stave off any turmoil after Britain’s decision to quit the European Union, he has cited his experience at Canada’s central bank in 2008 as a guide. Acting early to prevent a deeper downturn became the hallmark of his approach in the prelude to the international slump, a perspective he can bring to the Monetary Policy Committee’s debate this week on whether to cut interest rates.
“One thing Carney is very good at doing is jumping ahead of the curve,” said James Rossiter, an economist at TD Securities in London and a former official at the both the British and Canadian central banks. “As governor of the Bank of Canada, he was cutting rates dramatically before Lehman went bust. To have that sort of foresight, to know this was going to be a bigger issue than perhaps the markets were appreciating, and to go forth on a clear easing strategy, is something that we could see him repeating.”
With Brexit roiling currency markets before a 2.6 percent rally in the pound this week, confidence gauges diving and Carney warning of a “material slowdown,” economists and investors see more stimulus on the way. The governor is still at the vanguard of Britain’s response as the government remains sidetracked by a change of leadership in the ruling Conservative Party.
Carney said shortly after the referendum that easing will probably be needed this summer, meaning the focus now is on whether officials act this week or wait until their Aug. 4 meeting. The advantage of the later date is that the BOE will publish new forecasts in the quarterly Inflation Report and the governor is due to hold a press conference.
And of course the US hates to be left out of global trends:
Fed’s Mester Says Helicopter Money “The Next Step” In US Monetary Policy
(Zero Hedge) – Speaking overnight in Australia, the Fed’s Loretta Mester said “helicopter money” could be considered to stimulate America’s economy if conventional monetary policy fails.As Australia’s ABC reports, Mester, president of the Federal Reserve Bank of Cleveland and a member of the rate-setting Federal Open Market Committee (FOMC), signalled direct payments to households and businesses to stoke spending was an option if interest rate cuts and quantitative easing fail.
“We’re always assessing tools that we could use,” Mester told the ABC’s AM program. “In the US we’ve done quantitative easing and I think that’s proven to be useful.
“So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative.
The surprising comments from a Fed hawk, come on the heels of two other Fed presidents hinting that more QE could be used as additional “ammo” should the US economy relapse back into recession, and as major central banks consider unconventional policy tools in a world of slowing growth, low inflation and record low interest rates. Mester said that concerns about the Brexit vote were a consideration in June when the Federal Reserve left rates at between 0.25 and 0.5 per cent, a consideration While the immediate impact of Brexit rattled financial markets, Mester said the Fed would be looking to medium and long term fallout.
“Between now and our next meeting and future meetings we are all going to be assessing what the impact of that decision will mean in terms of economic conditions and how they affect the medium term outlook for the US economy,” she explained.
And if all else fails, there is always Bernanke’s helicopter, first in Japan then coming to the US.
So many thoughts, so little time:
Japan has an “economic revitalization minister”? That seems like an admission of defeat right there, since the name implies an economy that (under current leadership) isn’t vital. But hey, at least it’s honest, unlike the US where the numbers are cooked to show vitality where there is none.
“The budgets will likely benefit workers at nurseries and day care services for the elderly, said [Japan’s] Ishihara. ‘The aim of the economic measures is to make investments for the future’.” Really, day care for the elderly is an investment? This illustrates the debasement not just of currency but of language, when anything a politician thinks will buy votes can, with a straight face, be called an investment.
That picture of Bernanke doesn’t convey any new information but it’s such a great example of parody revealing underlying truth that it deserves to be reprinted every few months.
The idea (now being pushed by a surprising number of people who ought to know better) that governments should take advantage of historically low interest rates to “invest” with borrowed money has an obvious fatal flaw. That is, accumulating even more negative or zero-rate debt will make it functionally impossible to raise rates to “normal” levels, which is to say levels where markets can once again function as mechanisms for moving savings into productive investments. It’s not a stretch to call this the end of capitalism and the beginning of a new Dark Age.
The coming experiments are of course not the end of the process. A full-on debt jubilee is still out there, and will be tried after a simple ramp-up of fiscal/monetary stimulus fails again. Be prepared for governments to start buying our houses at double the market price in 2017.
Any number of clear thinking economic analysts assure us that the current insanity simply cannot continue indefinitely, it will come to a crashing end. I totally agree and understand. Yet no one has convinced me or even put forth the argument that it won’t continue for another 10 years. We’ve seen it over and over. The market will “correct” 2-3% and a central bankster will come out and mention in passing that they are thinking that possibly some sort of easing might be considered and BANG, markets soar.
There are historic examples of massive “easing” or helicopter money totally trashing an economy without a market crash, Wiemar Germany and Zimbabwe come to mind.
OK, I’m open–anyone, convince me that this insanity will lead to a crash before 2026.
Unfortunately Bill you’re ruined. You see, this is a lifestyle now. Now you cannot not know what you already know. Sorry, it never ends. Doesn’t mean you can’t get rich though!
Hi Bill,
While not having the numbers in front of me a key issue for the US is the exponential growth of national debt. i.e. by 2021 all tax receipts will go on defense welfare and health and there will be borrowing for all other discretionary elements of government. The thing about exponential growth is that things can get out of hand incredibly quickly after looking quite benign. I agree that we’re not near an true inflection point yet but when it comes it will still be a sudden shock as our economic system tips over. Holding paper at that time will be ruinous and NO asset, including PMs will be guaranteed to be safe. A diversified range of hard assets like PMs and Real Estate will be the best bets, but no certainty.
BTW, I think that commentators who talk about a return to a “dark ages” economy are quite foolish. Once knowledge has been unlocked it cannot be reversed except for a cataclysmic event, e.g asteroid or world nuclear war. There will be a crisis in this, but we will come out the other side (however eventually) and a true recognition of the economic problem will be restored in some form.
“We’re always assessing tools that we could use,” Mester told the ABC’s AM program. “In the US we’ve done quantitative easing and I think that’s proven to be useful. So it’s my view that [helicopter money] would be sort of the next step if we ever found ourselves in a situation where we wanted to be more accommodative”.
Let me translate this for the little people (myself most certainly included):
After the near fatal financial heart attack in 2008, we have tried to revive our economic corpse through various QE operations – alas to no no avail. So if things won’t get better fast we’ll be throwing cash from an aeronautival device in main street, where people can pick up these pieces of paper and spend them on anything of their fancy, thus finally restoring life to something which was formerly known as a viable economy. Oh, and never mind the growing debt since 2008 and those negative interest rates now popping up all over the world. They are most defintiley NOT a sign of a deteriorating environment.
Thank you very much, mrs Mester, for insulting my common sense. Now go finish your bunker, be sure not to forget your water filter and wash your mouth with soap before making any statement to the public, because some of us are no longer entertained.
Time to buy more gold and silver.
That’s like saying it’s time for another beer! Yeahhhh!
Interesting to see how post Brexit and then leading up to the helicopter Ben initiatives, that the dollar was weaker and the price of gold and silver jumped. Now that helicopter money was started by BOJ, the dollar is still weak, but gold and silver are lower.
Manipulation no doubt. It will blow up in their faces.
These policy makers are demented. Do we have to endure 20 years of this dementia on the part of our economic leaders? Where will it end?
Hopefully it’s only 20 years and not the rest of our lives and our children’s lives as has been the case for how long now? The pain has been there it’s just getting acute.
I really would like to see a concentrated, intelligent (with verifiable facts) discussion of exactly what happened and is happening. I read some time ago that the 2008 “crisis” was not a real one, but that the big banks were speculating beyond reason and when everything was going to come down on them, they leaned on the US Gov’t to bail them out at taxpayers’ expense. And, this because of the repeal of Glass-Steagall (sp?). Without that safeguard, the companies/banks that screwed up and should have failed and gone under, didn’t. They call that crony capitalism, which is a perversion.
These people have no loyalty to any country, and will suck the blood out of any country they can intimidate into submission – which is nearly all of them except China and Russia, so far.
It was going to happen with or without G-S Act in place, but repeal meant it happened sooner.
I read every contrarian writer I can find, one thing they seem to have in common, like David Stockman who is good AND prolific, but they all scream from the rooftops about the COMING COLLAPSE!
People, the COLLAPSE came, this IS the aftermath. We are now governed by a cabal of Mafioso Banksters via a Federal Reserve they own, and a government they control.
The reason the founding fathers set up the republic with the House of Representatives in control of the purse strings and no central bank was that they deemed bankers, and elites in the upper house as well as the power of the executive branch, to be too risky to trust the budget and taxation with. It was part of the system of checks and balances they thought a republic required, and it gave the lower house the big stick it needed to hold the wealthy elites in the new country accountable. They saw that in every nation that had parliamentary revolutions the revolution was eventually sidelined by money and power.
Well, along came a central bank in 1913, and sure enough the government is now so dependent upon the privately issued credit from the corporate banksters who own the Fed that our government has only trivial meaning in ruling the country. The organs of our government are so divided they no longer are functional, that is the way the banksters want it. And these pukes are going to fleece us all the way to the inevitable break up of the USA. Then they will get their hooks into any resulting sub units that arise after the USA has gone the way of the old Soviet Union. Russia is a perfect example of our future. Vast swaths of population being given just enough bread and vodka to keep them subdued, while corporations run by mafia bosses skim off everything they can find.
Sorry but when they start to drop money in your bank account there won’t be gold or silver at any price and bullets will be $20 a piece. Those who saw it coming (about 1 percent) are already prepared the rest will be blindsided in their apathy and indifference.
bullets will be $20 a piece
A friend of mine keeps offering to pay me to stand in line for him while he is at work, because I am retired. There is one store that gets bullets delivered at 6-10 a.m. on Thursdays, but there is always a line and they sell out before half the customers can buy shells. They have a three box limit, and they cost so much practice on the range is limited. Most gun owners know now have .22’s for practice and even those are almost impossible to get bullets for, they cost fifty cents a bullet. We used to get a BAG of 250 .22’s for 2 cents a bullet in the seventies and eighties.
If you can’t outlaw guns you can make ammo so expensive only determined gun nuts will buy it.
Rubino won’t abandon the notion of a bunch of incompetent bureaucrats and politicians running the money system. Why doesn’t Rubino explore the possibility that BANKERS own the system, control the politicians and bureaucrats, and their objective is to keep us buried in debt for eternity as a form of slavery? The Federal Reserve is privately-owned by private bankers. Why wouldn’t we presume that ALL central banks are privately owned by these bankers, including the Chinese and Japanese Central banks?
P.S. When is the dollar collapse? Did I miss it?
The charts do not show a dollar collapse, especially relative to other currencies, but I see it when I go into the grocery store or pay my auto insurance renewal.
Helicopter Money can be summed-up in nine words, ‘Rich get Richer’. And the flipside, in six words, ‘Poor Get Their Bread And Circus’. The rest of us are trying to survive the nine words.
And they call it a class war. Rich against the poor, right!!!!
This is so FRUSTRATING! If I see the word deflation one more time I will just LOSE it.
I am unhappy living in a townhouse next door to three un or marginally employed women and their kids and their couch surfing boyfriends, 9 people in a two bedroom place, cars everywhere, and I think they must all be tweekers. But, I can’t find anyplace else to live, I look on Craigslist which is now the only source of housing ads here (county of 270,000) and I put in 2 bed/2bath 900-1000 per month and I come up with a single ad for a single wide trailer in the sticks. Three years ago you could get a very upscale apartment in town for $700. There used to be a vacancy rate of 4-5% and that is now very close to zero percent. Well under 1% anyway.
I see ads for 80 year old shacks in the worst neighborhoods in the county, 2 bed one bath tiny rooms with no central heat or air, no D/W, no parking, washer/dryer? Are you serious? No insulation, inadequate electrical service which might have been just OK in 1935, now renting for 1200 per month when they were 400 per month just in 2012. Rents here have skyrocketed as those who lost their homes have to rent and even as the bubble was reflated they do not qualify for mortgages, not to mention having been burned last time they know better than to buy into this RE bubble. Rents up by 70% or more in 3 years.
Food, auto insurance, health insurance, all up 40% but many basic items in the grocery are up 100’s of percent. I used to eat an avocado almost every day, they have gone from 59 cents to $1.25 and the organic ones now at $2.49. Makes me wonder what on earth they spray on avocadoes to make the organic ones worth two and a half bucks, but for that much it better at least be radioactive human waste.
Inflation here at the consumer level for staples is pushing 15% is my best estimate, but ominously it is gaining momentum. Sure retail foot traffic in the mall is down, and the stores there have no pricing ability, but the supermarkets have nearly doubled their grosses in just a few years. Even gasoline is back up to $2.759 here. That is regular, premium is no longer 20 cents more, it is 46 cents more, $3.219 a gallon. One station sells alcohol free gas and that is $3.999 a gallon.
Inflation here is wildly out of control, the 12-14% inflation that cost first Ford then Carter their jobs seems tame by comparison. And all I hear is DEFLATION? That is downright dishonest. My COLA’s as a retired disabled vet have amounted to 8.5% since 2009, seven years. While REAL inflation here has amounted to nothing under 70%. Meaning in total about a 40% drop in living standards.
I do not mind scrimping and struggling when times are hard, but I ask two things, one is DO NOT LIE TO ME and tell me it is raining when you are pissing on my legs. Don’t say there is deflation when what we really have is hyperinflation. And the other things is that if there is this bad of an economy that requires sacrifice and austerity you need to SHARE THE PAIN. Do not expect the elderly and poor to quietly bear the brunt of this monstrous wildly out of control economic mess.
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