IMF Happy Talk Cannot Obscure Japan's Reality
By Staff News & Analysis - October 30, 2013

The Bank of Japan's massive stimulus is working, the International Monetary Fund's mission chief to Japan said, and there is still room to increase purchases of government bonds and exchange-traded funds if a further boost was needed. Jerry Schiff, who is also deputy director of the IMF's Asia-Pacific Department, stressed he saw no need for the central bank to offer additional stimulus for now with the world's third-largest economy in good shape. – Reuters

Dominant Social Theme: Print, print, print. Busy, busy, busy. That's how we work and play!

Free-Market Analysis: Printing a lot of money is really helping the Japanese economy, according to the International Monetary Fund. In fact, according to the IMF, there's plenty of room to do more if need be.

This is part of a larger trend we've been observing of late. Whether it is Janet Yellen in the US or Mark Carney in England or the ECB or the BOJ itself, aggressive money printing is becoming a signature calling card. Here's some more from the article:

"There's no need for the BOJ to change what they're doing," Schiff said. "There's a rise in actual inflation and a rise in inflation expectations. Neither are very dramatic yet, but are certainly in the right direction," he told Reuters on Tuesday. While market volatility and capital outflows have hurt emerging Asian economies, he said some signs in the region suggest Japan will get more support from exports next year.

Indeed, Anoop Singh, the IMF's top official for Asia, told a seminar in Tokyo that Prime Minister Shinzo Abe's aggressive stimulus, dubbed "Abenomics", had helped counter the outflows from the region triggered by expectations of a tapering of the U.S. Federal Reserve's asset-buying program.

The BOJ currently buys about 7 trillion yen ($72 billion) in government bonds each month, as well as riskier assets such as exchange-traded funds, under the stimulus it launched in April to try to escape deflation and drive inflation to 2 percent in roughly two years. Schiff did not see buying mortgage-backed securities (MBS), an idea floated by one of Abe's aides, as a realistic option for the BOJ given markets for the assets in Japan were quite small.

Some analysts believe the central bank may have to expand its stimulus next year if wages do not rise much or a rise in the consumption tax in April triggers a downturn in the economy. "There's a danger of appearing too reactive and changing your policy too quickly," Schiff said, adding the tax rise did not automatically serve as a reason to expand monetary stimulus. He said the BOJ may need to consider further action if the tax rise damaged economic momentum more than it expected, or if there was a lack of progress in lifting wages and inflation expectations.

"We still believe that if necessary, they can increase their purchases (of JGBs)," Schiff said, although he cautioned that buying too much could stoke fears the BOJ was directly bankrolling government debt.

Japan's economy has outpaced its G7 peers this year as Abe's stimulus policies bolstered business sentiment and consumer spending. The economy grew at an annualized pace of 3.8 percent in the second quarter. However, export volumes have sagged largely due to the slowdown in emerging Asia, casting some doubt on the sustainability of Japan's recovery.

You see, Japan is doing well, according to this article, right up until the necessary caveat toward the end where we learn that export volumes have "sagged." That's no little thing. Without exports Japan doesn't even HAVE much of an economy.

So what is all this money printing accomplishing?

Well … from our point of view, it's nothing more or less than a promotional exercise. It's clear to us. We couldn't figure it out at first but now we can. They're printing because there's nothing else to do.

Yes, they're printing because if they don't print, the world will lapse back into the Great Recession once again. Not that the world has really recovered from 2008. As we've often pointed out, money printing in the modern era is funneled through commercial banks. And these banks are actually being paid not to circulate the money they're given!

What money DOES get through is ending up as always in the securities markets and high-end real estate. The financial media will explain that these sectors are the ones that inflate first but they will never explain why. The reason is because the money men that live in expensive parts of town and have large portfolios are also the people closest to the money spigot.

But the average fellow is not benefiting much from this money printing. That's one reason why unemployment stays up. Other reasons have to do with the shadow economy and people not reporting what they're really earning off the books.

A third reason the "recovery" is weak – not even real – is that all this money printing has flooded the failing financial sector with enough cash to keep it afloat. The bankrupts have not been able to wither away though there's still plenty of debt to go around. And thus, no one is apt to lend to anyone else, as it is still difficult to tell who is solvent and who is not.

A recent Der Spiegel article pointed out that European banks alone were still sitting on well over US$1 trillion in debt; thus, even with the trillions printed, the West's financial system is still shaky. In fact, it doesn't really deserve to live.

It died in 2008 and it's been on life support ever since. That's not a popular statement, however. The mainstream media will claim that central bankers have done a heroic job of "shoring up" the system. Not true, however. The financial system we are living with today is bust. As we pointed out yesterday, some US$50 TRILLION has been dropped into the West's gaping, ruined maw in the past five years and now it seems the bankers are getting ready to DOUBLE that amount.

When a financial system absorbs US$100 trillion inside of a decade, as this one seems ready to do, you've doubtless reached a point of no return. It doesn't matter how much money is printed. The money that does make it into the economy is already creating asset bubbles and by the time the "real" economy is affected, those asset bubbles should be big ones, indeed.

In Japan, the birth rate keeps going down. Young people, it is said, are not interested in sex anymore. In reality, the young people involved are probably too tired after working 14 hours a day, six days a week to seek out the courtships necessary to let romance bloom.

Japan was always a society with a brutal delicacy about it. But Western-style commerce and industry has rendered the social conventions of another era almost inoperative. There is no time for finesse in the modern corporate world. And yet the Japanese cling to their conventions. The result, unsurprisingly, is a sick society with a plunging birth rate. Public discourse and private reality have long diverged.

Japan is NOT doing better because it is printing more money, no matter what the IMF says. It is, in fact, a sick society, with an agrarian culture ill-adapted to the West's modern monetization. That's not to say it is working anywhere else much better than in Japan.

The money men want to create a more globalized currency and are willing to submerge the world in chaos to do just that. But in the meantime, they don't want you to know. They will continue to float their dominant social themes about money as a science and inflation as a benign influence under their control.

After Thoughts

They will explain all this even as the evidence around them proves otherwise. And it is in large part this divergence between reality and politically correct discourse that may be storing up a good deal of difficulty. The system doesn't work and platitudes may buy some time but not forever. At some point, reality is going to set in.

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