Wednesday, August 31, 2016

The Next Experiment: Japan Prepares 
To Buy Pretty Much Everything
John Rubino* highlights the failure of Japan's monetary stimulus, suggests that Japan may now double-down for even more draconian monetary stimulus measures - like buying the entire stock market & other financial markets altogether .. "If tens of trillions of newly-minted yen didn’t work the first time around, why would tens of trillions more do any better? The answer is that they probably won’t, and are more likely to destabilize the system in one way or another than to produce steady, mildly-inflationary growth. Meanwhile, if Japan goes for it the way history suggests and most observers now expect, what will they buy with their new yen? BoJ already owns nearly all the available Japanese sovereign debt and a big chunk of domestic equities. So would it buy up the rest of the stock market, or encourage corporations to leverage themselves even further by issuing more debt? Or would it look abroad and start loading up on US and European stocks? All of these possibilities take BoJ outside the bounds of what used to be considered a central bank’s role. So whatever comes next will be new and fascinating from a theoretical standpoint and flat-out crazy from any other angle. And either way, win or lose, Japan’s next big move will set other players in motion. If it manages to send the yen off a cliff, then Japan’s exporting industries win big – but at the expense of European, U.S. and Chinese counterparts. Europe in particular would have to respond in kind with a big, fast euro devaluation (see the article on France that opens this post). So too would China, the U.S. and maybe even the emerging markets that will be destabilized by hot money inflows if the developed world escalates the currency war. Whatever way you slice it, 2017 is looking like quite a show. And as always these days, gold looks like the main beneficiary."
LINK HERE to the essay

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