Submitted by David Stockman via Contra Corner blog,
This is just plain sick. Hardly a day after the greatest central bank fraudster of all time, Maestro Greenspan, confessed that QE has not helped the main street economy and jobs, the lunatics at the BOJ flat-out jumped the monetary shark. Even then, the madman Kuroda pulled off his incendiary maneuver by a bare 5-4 vote. Apparently the dissenters – Messrs. Morimoto, Ishida, Sato and Kiuchi – are only semi-mad.
Never mind that the BOJ will now escalate its bond purchase rate to $750 billion per year – a figure so astonishingly large that it would amount to nearly $3 trillion per year if applied to a US scale GDP. And that comes on top of a central bank balance sheet which had previously exploded to nearly 50% of Japan’s national income or more than double the already mind-boggling US ratio of 25%.
In fact, this was just the beginning of a Ponzi scheme so vast that in a matter of seconds its ignited the Japanese stock averages by 5%. And here’s the reason: Japan Inc. is fixing to inject a massive bid into the stock market based on a monumental emission of central bank credit created out of thin air. So doing, it has generated the greatest front-running frenzy ever recorded.
The scheme is so insane that the surge of markets around the world in response to the BOJ’s announcement is proof positive that the mother of all central bank bubbles now envelopes the entire globe. Specifically, in order to go on a stock buying spree, Japan’s state pension fund (the GPIF) intends to dump massive amounts of Japanese government bonds (JCB’s). This will enable it to reduce its government bond holding – built up over decades – from about 60% to only 35% of its portfolio.
Needless to say, in an even quasi-honest capital market, the GPIF’s announced plan would unleash a relentless wave of selling and price decline. Yet, instead, the Japanese bond market soared on this dumping announcement because the JCBs are intended to tumble right into the maws of the BOJ’s endless bid. Charles Ponzi would have been truly envious!
Accordingly, the 10-year JGB is now trading at a microscopic 43 bps and the 5-year at a hardly recordable 11 bps. So, say again. The purpose of all this massive money printing is to drive the inflation rate to 2%. Nevertheless, Japanese government debt is heading deeper into the land of negative real returns because there are no rational buyers left in the market – just the BOJ and some robots trading for a few bps of spread on the carry.
Whether it attains its 2% inflation target or not, its is blindingly evident that the BOJ has destroyed every last vestige of honest price discovery in Japan’s vast bond market. Notwithstanding the massive hype of Abenomics, Japan’s real GDP is lower than it was in early 2013, while its trade accounts have continued to deteriorate and real wages have headed sharply south.
So there is no recovery whatsoever—-not even the faintest prospect that Japan can grow out if its massive debts. The latter now stands at a staggering 250% of GDP on the government account and upwards of 600% of GDP when the debts of business, households and the financial sectors are included. And on top of that there is Japan’s inexorable demographic bust—–a force which will shrink the labor force and squeeze even further its tepid growth of output as far as the eye can see.
Stated differently, Japan is an old age colony which is heading for bankruptcy. It has virtually no prospect for measurable economic growth and a virtual certainty that taxes will keep rising —since notwithstanding the much lamented but unavoidable consumption tax increase last spring it is still borrowing 40 cents on every dollar it spends.
So 5-year JGBs yielding just 11 bps are an insult to rationality everywhere, and a warning that Japan’s financial system is a disaster waiting to happen. But even that is not the end of it. Having slashed its historic holdings of JCBs, the GPIF will now double it allocation to equities, raising its investment in domestic and international stocks to 24% each.
Stated differently, 50% of GPIF’s $1.8 trillion portfolio will flow into world stock markets. On top of that—the BOJ will pile on too—-tripling its annual purchase of ETFs and other equity securities. This is surely madness, but the point of the whole enterprise explains why the world economy is in such extreme danger. A Japanese market watcher caught the essence of it in his observation about the madman who runs the bank of Japan,
“Kuroda loves a surprise — Kuroda doesn’t care about common sense, all he cares about is meeting the price target,” said Naomi Muguruma, a Tokyo-based economist at Mitsubishi UFJ Morgan Stanley Securities Co., who correctly forecast more stimulus today.
That’s right. Its 2% on the CPI…..come hell or high water. There is not a smidgeon of evidence that 2% inflation is any better for the real growth of enterprise, labor hours supplied and economic productivity than is 1% or 3%. Its pure Keynesian mythology. Yet all the world’s central banks are beating a path toward the same mindless 2% inflation target that lies behind this morning’s outbreak of monetary madness in Japan.
Folks, look-out below. As George W. Bush said in another context…..this sucker is going down!
The Fed very deliberately stopped a market correction and managed to turn the equity markets around, very consciously, in order to end their taper without any negative effects to Wall Street.
Last night the Bank of Japan announced a more aggressive quantitative easing AND pledged a portion of their national pension fund to buying not only Japanese equities but also the equities of foreign markets.
The Fed and the Bank of Japan are back doing the money printing tag team and carry trades that carried the markets higher from 2002 to 2007 and helped to create the housing bubble and the subsequent financial crisis.
And it is obvious that Wall Street and the ruling elite have learned absolutely nothing. They go from crisis to crisis, with their delusions of power growing with each successful fraud. If there is another financial crisis and bailout, prosecutions may be among the least of their problems.
Right now the BOJ is exporting deflation to the US in the form of a strong dollar. This is not going to help a recovery, but Yen based printed money may help to swell paper assets.
This is a formula for disaster.
Jesse
They laughed when I called the Dow at 55,000. Ha!
Zimbabwe had the best performing stock market during their recent hyperinflation. Ask the average Zimbabwean whether it benefited him at all.
I suspect a similar outcome awaits the Japanese. They’ve had a rough 25 years – courtesy of a government and banking elite that refuses to allow markets to function.
No doubt the same fate awaits the entire developed world. Very few will escape the onslaught unscathed.
STEVE. HOGAN– Agree with you 110% on that. What are your thoughts if there were a black swan event soon?
2014-10-31 06:19 by Karl Denninger
But I Thought It Worked?
Beware the tricks in your bag today….
Today’s decision to expand Japan’s monetary stimulus may be regarded as shock treatment in the central bank’s effort to affect confidence levels.
Bank of Japan Governor Haruhiko Kuroda’s remedy to reflate the world’s third-largest economy through influencing expectations saw the yen sliding and stocks climbing. Kuroda led a divided board in Tokyo in a surprise decision to expand unprecedented monetary stimulus.
Remember, folks, QE works.
It works so well that it has be repeated. Time and time again. Every time. All the time.
Where’s the exit for Japan? Two decades in coming, and yet here we still are, needing evermore.
What you got out of this was a big (~2%!) move in the Yen — weaker. That of course translated into a big move northbound in the futures. Remember that a collapsing currency results in a skyrocketing stock market priced in that currency, but whether this is “good” depends on whether you can eat your (electronic) shares.
Given this enormous move (weaker) in the Yen would you mind explaining where the inflation is that the BOJ wants to see? Since it has not materialized perhaps you might also muse on exactly what the impact of this “program” actually is.
And that’s the paradox, you see — despite the outrageously-large move in the Yen over the last few years there has been no inflation to be found in Japan itself — at least as measured from the government’s point of view, and thus what has been reported. But that there’s no reported inflation does not mean that your standard of living improved. One need only look here where there has been essentially no inflation over the last several years either (as reported by the government) and square that with the median family income numbers, or for that matter other periods of time here in America, to see that these so-called reported numbers mean exactly bupkis when it comes to whether your net purchasing power, as measured in the goods and services you can buy with an hour of labor, have improved or deteriorated.
So what’s to come for Japan?
Hint: If you’re a Japanese citizen I hope you enjoy grabbing your ankles.
This article is making the blog rounds and everything everyone says bout the ramifications of this policy change is correct. But…
It does not seem like anything that the central banking elites ever do comes back to bite them. The BOJ has been doing this for 25 years! An entire generation has been born and grown to adulthood under these conditions in Japan. TPTB have put stops on all the rigged markets worldwide to prevent Black Swan Events from causing extensive corrections. HFT can reverse a trend on a market in a millisecond and generate record gains on miniscule volume daily.
World monetary policy and financial trading has become just a game of Monopoly (that’s why Kuroda laughs) for the .001% and we don’t even know who the real players are!
I would like to see some speculation on what sort of event or change in policy that would have the power to “bring this sucker down” because, other than an unforeseen World War or alien invasion, I haven’t a clue what could do it.
JAH666
That’s spot on , but world wars are not unforeseen. Please read Albert Pikes letter written to Mazzini that was written in the 1870’s. Black swan event will go down when TPTB want to crash world financial markets. Will Japan be the first domino?