Deluded Central Planners

Zerohedge recently reported on an interview given by Lithuanian ECB council member Vitas Vasiliauskas, which demonstrates how utterly deluded the central planners in the so-called “capitalist” economies of the West have become. His statements are nothing short of bizarre (“we are magic guys!”) – although he is of course correct when he states that a central bank can never “run out of ammunition”.

 

Bank of Japan (BOJ) Governor Haruhiko Kuroda attends a news conference at the BOJ headquarters in Tokyo, Japan, December 18, 2015.BoJ governor Haruhiko Kuroda

Photo credit: Toru Hanai / Reuters

 

The mental state of BoJ governor Haruhiko Kuroda may be even more precarious though. As Marketwatch reports, he recently gave an interview to German financial newspaper Börsen-Zeitung, in which he inter alia threatened even more BoJ intervention:

 

Bank of Japan Gov. Haruhiko Kuroda said the central bank “can still ease [its] monetary policy substantially” if necessary, in an interview with German financial newspaper Börsen-Zeitung published Wednesday.

 

This is per se not surprising, although one wonders what Kuroda thinks can possibly be achieved by upping the ante on this:

 

1-BoJ assets vs. the NikkeiAssets held by the BoJ vs. the Nikkei index – April 1999 = 100 – click to enlarge.

 

We have added the Nikkei Index to the chart of BoJ assets above because inflating stock prices is one of the central bank’s declared goals – its stake in ETFs listed on the Tokyo Stock Exchange has in the meantime exploded to more than 50% (which we believe is eventually going to create a socialist calculation-type problem).

The results of this mad-cap buying spree are decidedly underwhelming so far. Although the pockets of central banks are of unlimited depth, this is also no big surprise, as central bankers are probably the worst traders in the world.  One also wonders how further monetary easing is supposed to “improve” on this situation:

 

2-JGB yieldJapan’s yield curve is in negative territory all the way to the 10 year JGB. Investors buying JGB’s at this juncture are certain to suffer a nominal loss of 11 basis points per year and a real loss of approx. 1.1% (if one adds the current “core inflation rate” as well) – click to enlarge.

 

Just You Wait!

However, it gets absolutely hilarious when Kuroda utters the next sentence. He’s not only patting himself on the back for the “achievements” of his policies to date, but offering an economic forecast as well (better put down the coffee):

 

Mr. Kuroda said the effects of quantitative and qualitative easing, or QQE, along with a negative interest rate are “already very clear” in financial markets, but “we have to wait a few months to see the effects in the real economy,” Börsen-Zeitung reported.

 

What is “clear” in the financial markets is inter alia that the Nikkei remains down approximately 60% from its peak of 1989 (!) in nominal terms and is down nearly 21% from its most recent interim peak.

The Japanese government bond market meanwhile has basically died. As the BoJ keeps buying up every bond in sight, liquidity in the market has dried up completely – there is no longer a normal price discovery mechanism at work. As Bloomberg reported in March, “Japan’s bond market is close to breaking point”. Amid exploding bond volatility and the repo market plunging into negative interest territory as well, one observer remarked:

 

“How can the BOJ head for the exit?” Dan Fuss, vice chairman of Loomis Sayles & Co., said at an event in Tokyo last week. “If they open the exit door, there’s a fire on the other side.”

 

3-Japan bond volJapan’s bond volatility soars to a 17 year high – click to enlarge.

 

Obviously, it is a great time to “do even more”!

But Kuroda’s remark that “we have to wait a few months to see the effects in the real economy” really takes the cake. What planet is this man living on? Dude, we have been waiting for 26 years! The BoJ is reportedly on its 11th iteration of QE over the past two decades (it depends a bit on how one counts the programs). Maybe Kuroda-san shouldn’t have eaten that mushroom soup.

Along the way, every Keynesian and monetarist shibboleth in the book has been implemented in spades. This has leftJapan with the biggest debtberg the world has ever seen – with absolutely nothing to show for it. The following chart of its public debt compared to nominal GDP illustrates the point.

 

4-debt vs GDP, JapanJapan’s government debt compared to nominal GDP – what happened to the Keynesian “multiplier”? – click to enlarge.

 

The size of Japan’s public debt is scary all by itself – if one adds the country’s private debt to that, one is looking at a truly monstrous mountain of debt, which by now exceeds 600% of GDP. As John Mauldin has once put it: Japan is a bug waiting for a wind shield.

 

Conclusion:

It seems Kuroda actually believes what he said back in June of last year:

 

“I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it’. Yes, what we need is a positive attitude and conviction.”

 

Icarus may be providing the more apt metaphor.

 

Icarus-2Icarus gets sunburned. His attitude evidently wasn’t sufficiently positive…

Image credit: Thomas Herbrich

 

Charts by: St. Louis Federal Reserve Research, BigCharts, Bloomberg, Economist

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

One Response to “Kuroda-San in the Mouth of Madness”

  • therooster:

    Ha , ha …. he’s actually right when he says “can never run out of ammunition” but what he does not say is how or whether it’s directly or in partnership with some other segment of the market.

    Can you image if central banks have married with real-time gold ???

    Newflash …. it’s already in progress, but if you look up at the apex of power, you won’t see a shred of evidence.
    You have to look at the point of introduction which is right in the market. Look under your feet. It’s rising out of the earth. :-)

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • Punch-Drunk Investors & Extinct Bears, Part 1
      The Mother of All Blow-Offs We didn't really plan on writing about investor sentiment again so soon, but last week a few articles in the financial press caught our eye and after reviewing the data, we thought it would be a good idea to post a brief update. When positioning and sentiment reach levels that were never seen before after the market has gone through a blow-off move for more than a year, it may well be that it means something for once.   Sloshed as we are...   a...
  • Quantum Change in Gold Demand Continues - Precious Metals Supply-Demand Report
      Fundamental Developments In this New Year’s holiday shortened week, the price of gold moved up again, another $16 and silver another 29 cents. Or we should rather say the dollar moved down 0.03mg gold and 0.03 grams silver. It will make those who borrow to short the dollar happy...   Let’s take a look at the only true picture of the supply and demand fundamentals for the metals. But first, here are the charts of the prices of gold and silver, and the gold-silver...
  • Why You Should Embrace the Twilight of the Debt Bubble Age
      Onward Toward Default People are hard to please these days.  Clients, customers, and cohorts – the whole lot.  They’re quick to point out your faults and flaws, even if they’re guilty of the same derelictions.   The age-old art of assigning blame – in this case complemented by firm knowledge of the proper way to prosperity (see lower right corner). Jack Lew not only sees the future with perfect clarity these days, he also seems to have spent his time as treasury...
  • As the Controlled Inflation Scheme Rolls On
      Controlled Inflation American consumers are not only feeling good.  They are feeling great. They are borrowing money – and spending it – like tomorrow will never come.   After an extended period of indulging in excessive moderation (left), the US consumer makes his innermost wishes known (right). [PT]   On Monday the Federal Reserve released its latest report of consumer credit outstanding.  According to the Fed’s bean counters, U.S. consumers racked...
  • Punch-Drunk Investors & Extinct Bears, Part 2
      Rydex Ratios Go Bonkers, Bears Are Dying Off For many years we have heard that the poor polar bears were in danger of dying out due to global warming. A fake photograph of one of the magnificent creatures drifting aimlessly in the ocean on a break-away ice floe was reproduced thousands of times all over the internet. In the meantime it has turned out that polar bears are doing so well, they are considered a quite dangerous plague in some regions in Alaska. Alas, there is one species of...
  • 2018: The Weakest Year in the Presidential Election Cycle Has Begun
      The Vote Buying Mirror Our readers are probably aware of the influence the US election cycle has on the stock market. After Donald Trump was elected president, a particularly strong rally in stock prices ensued.  Contrary to what many market participants seem to believe, trends in the stock market depend only to a negligible extent on whether a Republican or a Democrat wins the presidency. The market was e.g. just as strong under Democratic president Bill Clinton as it was under...
  • Cryptonite 2
      Relative Scarcity and Bubble Dynamics There is widespread awareness about the relative scarcity of BTC compared to the ever-expanding fiat money supply, but it seems to us that the dynamics underlying their relationship are largely ignored. The scarcity argument underpins a lot of speculative activity in BTC and other cryptocurrencies – hence ignoring the related dynamics is probably not a very good idea.   One of the features of bitcoin people find enticing  - by no...
  • Cryptonite
      The Wingsuit Test of 1912 Late last year press reports informed us that by October, the number of active accounts at US cryptocurrency exchange Coinbase* had exceeded the number of accounts at Charles Schwab, one of the oldest US discount brokers, by 1.1 million. The report was dated November 27, by which time the number of accounts had just soared by another 1.6 million. We felt reminded of the final few weeks of China's stock market bubble, which saw similarly stunning growth in retail...

Support Acting Man

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com