These charts have stock and currency traders drooling, the rest of us mere mortals are inclined to yawn if we understand their implications at all. The US and Japan stock markets are riding a cheap money high. Appropriately on Halloween the Bank of Japan announced it would institute another round of death-defying of monetary easing otherwise rationally known as money printing. Governor Kuroda said his bank would purchase annually ¥50 trillion worth of government bonds and ¥1 trillion of exchange trading funds
(QE 11 below). The markets went wild:
 |
| charts courtesy: John Mauldin |
The announcement means Japans monetary base will expand by 60 to 70 trillion a year, which means the Bank of Japan's balance sheet has expanded by 50% compared to the Federal Reserve's 25%! That's why it is death-defying-- like the guy walking a tight rope between two skyscrapers marked "Depression" and "Hyperinflation". No other central bank has attempted printing money on this scale. It is said that Prime Minister Abe keeps a stock ticker in his office. Perhaps he needs the reassurance. What such an extreme moneytary policy is doing to his country's moribund real economy is reflected in these charts:
Some commentators are calling the latest machinations from Japan, "a Ponzi scheme", a term that term is becoming trite. Former Reagan budget director
David Stockman puts it differently, "Japan is an old-age colony which is headed for bankruptcy. It has no prospect for measurable economic growth and a virtual certainty that taxes will keep rising...it is still borrowing 40¢ on every dollar it spends." The good news is that stock markets outside Japan will benefit enormously because the country plans to re-invest 50% of its $1.8 trillion pension portfolio in foreign equities; understandable when Japanese government bonds are yielding less than 1%. Governor Kuroda's Halloween trick was going nuclear on a 5-4 vote and blowing up Mr. and Mrs. Watonabe.
