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Some Real Hope Appears In Japan, Of All Places

Summary:
There are things to feel optimistic about. I’ve been pegged as a doom and gloomer, and so long as things remain as they are, I don’t see what’s wrong about it. Long term, however, I’m as optimistic as anyone. There’s a gigantic wave of economic growth and prosperity just waiting to be unleashed – the moment the shackles of benign neglect are discarded in favor of competence and honesty. Those who have been calling for a BOND ROUT!!! the past few years, just you wait. To get to that point, first there must be a paradigm change in how the world recognizes economic reality. Some of that is going on, if only in dribs and drabs. The BIS, for example, is finally challenging Ben Bernanke’s preposterous global savings glut idea. That’s good. But researchers like Hyun Song Shin and Claudio Borio

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There are things to feel optimistic about. I’ve been pegged as a doom and gloomer, and so long as things remain as they are, I don’t see what’s wrong about it. Long term, however, I’m as optimistic as anyone. There’s a gigantic wave of economic growth and prosperity just waiting to be unleashed – the moment the shackles of benign neglect are discarded in favor of competence and honesty.

Those who have been calling for a BOND ROUT!!! the past few years, just you wait.

To get to that point, first there must be a paradigm change in how the world recognizes economic reality. Some of that is going on, if only in dribs and drabs.

The BIS, for example, is finally challenging Ben Bernanke’s preposterous global savings glut idea. That’s good. But researchers like Hyun Song Shin and Claudio Borio are attempting to replace his savings glut with what they are calling a banking glut.

An improvement, to be sure, but still not quite far enough to global money and the eurodollar. You can’t have a banking glut, after all, without some kind of monetary system behind it. They need to go further, be willing to think outside QE and “ample reserves” and get to the real shadow stuff (even the shadow shadow stuff). Thinking globally is at least a start.

While that is on the good side attempting to break new ground (though it’s actually very old ground by now), there are signs people have had enough of the old way, too. There should always be these parallel purposes, believe me I know, where we uncover the way things actually are at the same it becomes clearer the way they are not.

It’s easy to come to the conclusion that the Japanese people have just accepted their fate. In the process of committing demographic suicide, no matter how many times they’ve heard the economy isn’t as bad as it seems (just look at the per capita numbers!), it’s hard not see the grim characteristics of a land stripped of opportunity.

No one’s fooling the JGB’s.

Some Real Hope Appears In Japan, Of All PlacesSome Real Hope Appears In Japan, Of All Places

The fact that it has been three decades of this, it really does appear like there is nothing the Japanese people won’t just accept from their government and its central bank. It has been constant “stimulus” for just that long. When does the world finally realize that if you are stimulating for decades it cannot be stimulus?

Looking at Japan this way from the outside, it’s not just their lost cause that unnerves you. Maybe this is our future, too. After all, many Western central banks are still “stimulating” like the Bank of Japan, and the ones who aren’t are going to be again very soon. The list of rate cutters has already expanded.

Every once in a while, there is a ray of hope; a small block falling away from the intellectual logjam reviving the long dormant sense that perhaps even the most docile people have limits. Maybe these incompetent central bankers and Economists can push things too far, make one too many promises on one too many ridiculous schemes.

Last month, an article appeared in the Japan Times written because that particular feeling has become more widespread. In January 2016, BoJ faced with the uncertainties of Euro$ #3 unleashed NIRP.

It was a debacle, but still Kuroda had insisted it worked. In 2018, he said it had worked so well they’d stop QQE in 2019. But that’s not how this year is unfolding.

Three years on [from NIRP], there is a broad consensus that Japan’s experiment in shock-and-awe monetary policy has failed. An intense debate is underway within the BOJ over why Kuroda’s assumptions about how he could fundamentally change the trajectory of the economy proved wrong and what the bank’s next steps should be. The picture that emerges is of a central bank under pressure and at a moment of reckoning.

That statement right there is ultimately what “globally synchronized growth” had really been about. It was one last chance for not just Japanese officials but all those other “stimulus” proponents to get it right. They were all under pressure in 2016, every single one of them.

Some Real Hope Appears In Japan, Of All Places Some Real Hope Appears In Japan, Of All Places Some Real Hope Appears In Japan, Of All Places

When reflation hit by 2017, they hyped and hyped and hyped what was never really that impressive to begin with. Every single molehill was made into a Mount Everest – precisely because they were desperate to be vindicated. In the US, it was the unemployment rate. In Japan, it was the CPI.

In both places, the bond market shrugged, unconvinced and a bit puzzled by all the fuss. The curves flattened because nothing had meaningfully changed, there was never any legitimate economic basis for the inflation hysteria. It was always emotional. It was always political.

And you could tell right from the very start:

Is it any wonder BoJ and central bankers want to try something else, not something actually different just something, anything that might be free of this negative and harmful association? The BoJ has increased the level of “base money” in Japan by ¥184 trillion (thru the end of January 2016) via QQE/QE10 in what was supposed to by sheer size alone leave no doubt of its power and vigor. There are no doubts, anymore, which is precisely Kuroda’s problem. Recovery in Japan starts when it no longer is.

I wrote that in early February 2016, just a few weeks after the “shock and awe” of negative interest rates. NIRP wasn’t stimulus, it was an admission that QQE had failed. The big one, what they all called a bazooka was a clown’s pop gun in the hands of a real clown. Random good luck had a better shot than what Kuroda had proposed. Random good luck actually performed better; that’s all Reflation #3 was in the context of Japanese monetary policy.

What seems to be universal is how any population is willing to give these central bankers the benefit of the doubt. When faced with the enormous consequences of a bubble collapse or a great “recession”, people are willing to forego recriminations even on the small hopes that officials will rise to the occasion.

You got us into this, I’m willing to give you the chance to get us out. But then it’s another chance. And another. Followed by another. For the enormous damage that has been done, the people of the world have either been remarkably patient, or disastrously apathetic.

A real doom and gloomer would say it was the latter. I still believe, deep down, it has been the former.

The real question is, though, how many chances do they get?

With Euro$ #4 bearing down, there’s another moment of reckoning approaching. If serious questions are finally being raised, and in Japan of all places, there’s perhaps some optimism that even though 2019 and 2020 are likely lost, this may be their last chance.

We can at least hope so because one thing’s for sure: they’re definitely going to screw it up. Again. When they do, maybe that will finally be the last straw. That’s really the only optimistic case. You never want to wish for failure, but in the world’s current case that’s the only way it will ever succeed.

Jeffrey P. Snider
As Head of Global Investment Research for Alhambra Investment Partners, Jeff spearheads the investment research efforts while providing close contact to Alhambra’s client base. His company is a global investment adviser, hence potential Swiss clients should not hesitate to contact AIP

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