Japan is going to show us that you don’t have to be a Third World kleptocracy — such as Zimbabwe — to undertake extraordinary and disastrous policies.
Thank you, Japan! Let us say a prayer for the Japanese and learn from your example!
Yes, just 48 hours after the end of QE in the US, the Bank of Japan announced the most absurdly audacious QE plan in history. It’s jacking up QE to $750 billion in asset purchases — both bonds and stocks — a year.
Adjusted to the size of the Japanese economy, that’s the equivalent of QE of about $3 trillion a year in the US. Anticipating a flood of new cash, stocks rose around the world.
Coincidence? Lucky timing for Yellen & Co.?
It is almost as though central bankers got together in advance and planned it that way. QE stops in the US; the Japanese put it into hyper-drive. Stocks rise in both countries. All is well.
The Nikkei 225, faithfully recording the hopes and dreams of Japanese investors, leapt 5% on the news. The Dow followed suit.
Foreign investors — no dopes — figured out that there was money to be made in a revival of the old Japanese “carry trade.†They can borrow in Japan — at some of the lowest interest rates ever recorded on the planet.
Then what to do with the money? Hey, why not carry it over to the only world economy still growing at a decent rate: the US?
The Dow jumped another 195 points on Friday.
What do you think? Was that because the economy is so healthy? Are stock market investors looking for years of healthy earnings growth ahead? Did buying the Dow at today’s valuations suddenly become a reasonable investment move?
Or could it be because Japan has just done something monumentally absurd?
It is hard to know what attitude to take when talking about Japanese financial policies. Mockery? Pity? Gratitude?
It is easy to mock the Japanese. They have a government debt-to-GDP ratio of 250% — the highest in the world. And year after year — for a quarter of a century — they “stimulate†their economy with QE and deficits.
