And now... the Japanese are desperate!

Nov 3, 2014

Baltimore, Maryland

Dear Diary,

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 growth and profits? Is buying stocks at today's prices 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. Year after year...for a quarter of a century...they 'stimulate' their economy with QE and deficits. And what do they get for it? More debt. Stock and housing prices are still just about a third of what they were 25 years ago. They missed the big boom of the late '90s. Then, they missed the real estate and finance boom of '05-'07. Meanwhile, their celebrated trade surplus is disappearing. And their people are getting old, retiring, and dying. Japan has become a huge pension plan headed for bankruptcy.

--- Advertisement ---
Strike it Rich" with these small caps...

Small Cap investments offer a huge money-making potential...

If you're able to pick out the right businesses at the right time of their lives, you could truly "Strike it Rich" with small caps.

In fact, we've been picking out such "Strike it Rich" Small Caps for a select group of investors for more than 6 years now.

And here's how we've performed:

250% in 2 years and 1 month
288% in 2 years and 5 months
160% in Just about 2 years
217% in 3 Years and 11 months
177% in Just about 2 years

Interested in finding out how you could get such solid and high-potential small cap recommendations as well?

Just click here for full details...

Yes, it is easy to pity the Japanese too. Most of their wounds may be self-inflicted. Still, they live in tiny houses...with a standard of living the rest of the developed world holds in contempt. And they've suffered two and a half decades of on-again, off again deflation. They've tried everything to get out of this slump...stimulus deficits, zero interest rates, quantitative easing. They've tried everything...except the one thing that would work! Not surprisingly, things have gotten worse. And just in September, real household income was falling at a 6% rate. Between 2013 and 2015 it's expected to decline by almost 10%.

And now the Japanese are desperate.

That is where the gratitude comes in. Americans and Europeans should thank them for having shown us what not to do...for proving, if it needed proving, that you can't fight a debt crisis with more credit. More importantly, they're showing what happens to Bismarck's social welfare economy when you run out of young people, growth, and credit.

Now, it's time to double our gratitude. Because now the Japanese are showing us that even a world class economy can do something worthy of a banana republic. Already, for every dollar the Japanese government collects in revenue, it spends 40 cents more. Total debt - government and private - is near the highest in the world, at about 6 times GDP. They're running out of time...and money. The Bank of Japan is financing the government; it buys 70% of Japanese government issued debt. Last week, it announced that it would buy 85%.

In other words, 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 their example!

Yes, just 48 hours after the end of QE in the US, Japanese officials announced the most absurdly audacious QE plan in history - with $750 billion in new money-printing per year. Adjusted to the relative size of the Japanese economy, that would be about $3 trillion annual QE in America. Anticipating a flood of new cash, stocks rose around the world.

Coincidence? Lucky timing for Yellen & Co? It is almost as if the central bankers got together in advance and planned it that way. QE stops in the US...while the Japanese put it into hyper-drive. Stocks rise in both countries. All is well.

The Nikkei Dow, faithfully recording the hopes and dreams of Japanese investors leap 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 too - 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 economy that is growing at a decent rate - the US?

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

Disclaimer: The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

Recent Articles

A New Infrastructure Boom March 26, 2019
Selva Freigedo talks about the potential in 5G network and how it could transform the way we communicate.
A 40 Somethings Guide to YouTube Hits March 20, 2019
Vivek dwells into a new YouTube phenomenon.
As the Economy Slows Down, Maruti and Two-Wheeler Companies Cut Production March 19, 2019
The country's largest car maker has cut production by more than a fourth.
In Supporting Demonetisation, RBI Behaved Like an Old Uncle Not Willing to Take a Stand March 13, 2019
The minutes of the meeting of the RBI Board which happened before demonetisation have been released.

Equitymaster requests your view! Post a comment on "And now... the Japanese are desperate!". Click here!

2 Responses to "And now... the Japanese are desperate!"


Nov 5, 2014

That is why they are looking at India for an early investment of $5Billion!


AB Pereira

Nov 3, 2014

It appears as if the central bankers around the world (perhaps with the only noble exception of RB of India) are writing their policies in vengeance with Bill Bonner! And the markets dance when Bill spells their doom! Many investors may perhaps feel that Bill has done a great disservice to them by his doom and gloom reporting that may have deprived investors the better part of 2014 euphoria in markets. When this will end? If Japan and US are in debt by around 3 times their GDP, then are they not likely to default? When is the next debt payment date? Is it too far off from now? which means there is more fire (albeit artificially caused) left in the equity markets? So that when that fire is ultimately doused, we will have some economies turned to ashes? Strange times, ruing from the sidelines!

Like (1)
Equitymaster requests your view! Post a comment on "And now... the Japanese are desperate!". Click here!