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Bank of Japan "Action"In September 2013 we published the article Japan Rewinds Back To 1980 where we pointed out that the new Abe-nomics economic policies in Japan will result in yet another economic meltdown in that country. Abe (Japan's new-and-improved) prime minister has decided to take the unholy trinity (tax, borrow and print) for yet another spin. Yup! Taxes are up, up and up in Japan. Yup! Borrowing is up, up, up and up in Japan and Yup! printing is up, up and up in Japan.

Because of this wonderfully magical solution the Japanese economy is feeling a new revival. Wages are up. Sales are up. Profits are up and….

Oh… what?

Yes… yes… it's late. Time to wake up and go to work…

Oh… Japan? Not a chance. They are still in the same crappy economic conditions they were before Abe. Well… almost.

Before the breakthrough of Abe-nomics, Japanese people were "enjoying" what can probably be considered the longest running stagnation period of any country in the modern history of the world. About 24 years and counting thanks to the ultra-low interest rates that the Bank of Japan unleashed since 1980. But at least they had deflation to help them. Prices were going down steadily. Wages were stable. Money retained its value. Yes, the economy was in stand-by but at least it wasn't sinking. Realistically speaking short of letting the free market clean-up the mess and let bankrupted banks and organizations go bankrupt, there is nothing that can be done. Zombie banks are zombie banks and won't come back to life. Ever. The only sane solution is to bury the carcass and start again… but this is not "kosher" of course. Not politically correct. Politicians may lose face. Bank owners may lose money. This cannot be allowed to stand. Sounds familiar? It should. We saw the remake of this movie in 2008.

And so since about September 2013 the Central Bank of Japan (BoJ) has been pumping newly minted Yens as if digital ones and zeroes were going out of style. Or perhaps they are running out of electricity now that Fukuyama is all but gone. Who knows. Point in case is that simple rules of supply and demand apply. The BoJ creates JPY's out of thin air increasing supply hence their price drops. No mystery here. See for yourself.

Yen Loses due to Abe

As you can see, the price of the USD in JPY increased from roughly 101 in Sep 2013 to about 120 in Mar 2015. This would be a loss of about 20% in the purchasing value of the Yen over 1.5 years. Japan experienced an increase of JPY's purchasing value of about 1% per year over the last 20 years or about 22% in total. What this means is that Abe-nomics wipped-out 20 years worth of deflationary gains in about 1.5 years. Yes, this is all thanks to Central Bank "Action". Basically, all Japanese people have been robbed about 20% of their purchasing power for nothing. They got exactly nothing in return. No re-activation. No new jobs. No nothing. Well… this is not exactly right. They got much, much higher prices because all imports (including all fossil fuels) just went up by 20% and this will translate into prices. So, at least they got higher prices and lower wages out of it. Oh… hold on…that's not good…

But we are not done yet. This is just the tip of the iceberg. Consider that inflation hasn't really started in Japan. When it does all this money will cause a storm of incredible proportions. Do we expect a repeat of the Weimar republic with its now famous hyper-inflation? Who knows. Maybe Japanese people will be spared the worst should Japan defaults before that. But knowing history repeats itself and that Argentina is our guiding light, we doubt so. At some point Japan will experience hyper-inflation or near-hyper-inflation (i.e. double digits per months - yes, you read it correctly - per month).

And why would Abe do such a horribly stupid thing? Because in mainstream economics if you your economy is in the dump, you have to "stimulate" it. And how do you do this? By printing, printing and spending. Of course this is idiotic because this only leads to booms and busts, but for as long as booms last everybody is happy and happy people continue to vote those who made them happy.

This is precisely why we are Austro-Libertarians. Central Banks are dangerous to your pocket, your wealth, your health and ultimately your life.

Unless, this is, you believe that economies should be "managed" and "stimulated" through the wise use of Monetarist "models" (aka spreadsheets) by "enlightened public servants". But don't you worry. What happened in Japan can't possibly happen in your country. Because your country is "civilized". Because your country is "developed". Because your country is… what exactly is your country that Japan is not so that this may never happen? Because, you know, we are running out of excuses.

OK then. Since you know so much may we forward your address and phone number to the 128 million Japanese people that just lost 20% of their purchasing capacity so that you may explain to them all this "stimulus" they are getting?

Note: please see the Glossary if you are unfamiliar with certain words.

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