Sunday, June 19, 2016

Japan: A Future Of Stagnation,
The Bank Of Japan Is Getting Desperate
"The Keynesian Fantasy is that encouraging people to borrow money to replace what they no longer earn is a policy designed to fail, and fail it has. Borrowing money incurs interest payments, which even at low rates of interest eventually crimps disposable earnings. Banks must loan this money at a profit, so interest rates paid by borrowers can't fall to zero. If they do, banks can't earn enough to pay their operating costs, and they will close their doors .. The banking system is designed to fail, and fail it does. Japan has played the pretend-and-extend game for decades by extending defaulting borrowers enough new debt to make minimal interest payments, so the non-performing loan can be listed in the 'performing' category .. Central banks play the game by lowering interest rates so debtors can borrow more. This works like monetary cocaine for a while, boosting spending and giving the economy a false glow of health, but then the interest payments start sapping earnings, and once the borrowed money has been spent/squandered, what's left is the interest payments stretching into the future. Central banks played another game: buying assets to inflate asset bubbles, bubbles that were supposed to spark the wealth effect: once businesses and households see their net worth rise as assets bubble higher, they will be psychologically induced to borrow against that new wealth and spend, spend, spend. The Bank of Japan has played this game to little effect. The BOJ now owns a significant chunk of Japan's stock market, but the real economy continues its long descent into stagnation."
- Charles Hugh Smith*
LINK HERE to the essay

1 comment:

Anonymous said...

Yes and it goes on for decades don't it. Insight would come if one knew when it would end.