Adjusted For GDP, Japan's Stimulus Will Be Twice the Size of America's!

I just read some more alarm bell ringing over at Zerohedge. Please refer to "Protecting Yourself From Japanese Insanity":

Sayonara to Japan 

First to Japan. You've got to love mainstream media, investors and stockbrokers. The Japanese central bank's plans to end deflation have been widely greeted as having surpassed expectations. They're described as "bold", "inventive" and just what Japan needs after sitting on its hands for 20 years. Nowhere have I seen words such as "stupid", "insane" or "half-witted". Because anyone with a brain can tell you that Japan's plans will have terrible consequences, whether they succeed or not.  

First, let's look at what Japan intends to do:

• It will double current stimulus to 7.5 trillion yen (US$81 billion) per month. This means buying the equivalent of 70% of the total long-term government bonds in markets.
• It will buy Japanese government bonds with maturities of up to 40 years, seeking to push the average duration of Bank of Japan (BoJ) bondholdings to seven years, from the current three years. 
• It will increase purchases of financial instruments linked to the stock and property markets to lift the prices in those sectors and encourage other investors to buy them. More specifically, the BoJ will increase purchases of exchange traded funds (ETFs) by 1 trillion yen per year and real-estate trust funds (REITs) by 30 billion yen per year.
• The BoJ put a timeline of two years on its prior promise to achieve 2% inflation. 

To put this into some context, Japan's stimulus of US$81 billion a month compares to the U.S.' own US$85 billion program. But Japan's economy is much smaller than the U.S.. Adjusted for GDP, Japan's stimulus will be twice as large as America's. (Emphasis mine).

I am very pleased to see enough people really starting to get the message; we are heading for a disaster, folks. In the article above, though, the writer does not mention what happened right here in Japan the last time this sort of money printing and Keynesian nonsense was tried in the 1930s.

Look folks, it's common sense that we cannot create wealth out of thin air just by printing money; if we could, then why doesn't the government just print a million dollars and give it away to every citizen of the country? That should make us rich, right?

Well... It won't. Forget what the economists say; this is common sense. Anyway, as I said, the writer above forgets to mention what happened in Japan the last time this was tried. So, for that, I thought I'd reprint this past post in full for you to read again. Here you go!

Cyprus is the Opening Act for Japan's Coming Calamity: Government Debt to GDP in Japan is Now 245%!

I sit and read about the disaster befalling the people of Cyprus. I've been wondering when this is going to hit Japan. It will.

I was discussing this banking crisis and the tax on savers with my wife. It seems the Japanese are still firm believers in the sanctity of their savings in banks. 

I like taking my girlfriend to drink and see the flowers

I really wonder why they think this. It wasn't that long ago that the banks of Japan closed one day, and when they reopened, their money had been massively devalued. My wife even said to me that she remembers her grandfather telling her,

"One day the banks all closed and when they reopened, 100 yen was no longer worth 100 yen. It was worth 10 yen."

I gawk when my wife tells me this. I've heard this story from other older Japanese too. But still, the younger people today seem oblivious to what is coming. Savings in the bank seem sacred... (Even though the interest on those savings is some absurd rate of something around one-percent...)

The last time Japan had a "bank holiday" like Cyprus is having now - and many other countries are now considering - very bad things happened as a result of it.... One thing was a little incident folks do remember well until this day... You might have heard of it? It was called "The Second World War." 

Wikipedia says:

The Japanese economy shrank by 8% during 1929–31. Japan's Finance Minister Takahashi Korekiyo was the first to implement what have come to be identified as Keynesian economic policies: first, by large fiscal stimulus involving deficit spending; and second, by devaluing the currency. Takahashi used the Bank of Japan to sterilize the deficit spending and minimize resulting inflationary pressures. Econometric studies have identified the fiscal stimulus as especially effective.[67] 
(Effective? Ha! Keynesians editing Wikipedia! - Mike)

The devaluation of the currency had an immediate effect. Japanese textiles began to displace British textiles in export markets. The deficit spending proved to be most profound. The deficit spending went into the purchase of munitions for the armed forces. By 1933, Japan was already out of the depression. By 1934, Takahashi realized that the economy was in danger of overheating, and to avoid inflation, moved to reduce the deficit spending that went towards armaments and munitions.

This resulted in a strong and swift negative reaction from nationalists, especially those in the army, culminating in his assassination in the course of the February 26 Incident. This had a chilling effect on all civilian bureaucrats in the Japanese government. From 1934, the military's dominance of the government continued to grow. Instead of reducing deficit spending, the government introduced price controls and rationing schemes that reduced, but did not eliminate inflation, which would remain a problem until the end of World War II.

A few paragraphs above you can see where some nutcase wrote that the Keynesian economic policies were "effective." Yep. Real effective. You can read the results of these policies in the next paragraphs: deficit spending on munitions resulting in a 'boom bust cycle' that lead to a coup de etat and, eventually, World War Two. Yeah. Real effective. 

I am of the impression that things are really falling apart and going to hell in a handbasket here in Japan. 

I wrote about that in Japan: The End of an Era and last year in Here's Why A Weak Yen Will Destroy Japan:  

The clowns in the LDP think a weak yen will rescue Japan's faltering economy by making exports cheaper... Sounds good... That is, if there anyone to buy Japanese goods.  I fear that the weaker yen will be the last straw in breaking the Japanese Economy. Here's my reasoning why... 

China and Japan are in a row over islands. Boom! Down goes exports to Japan's biggest trading partner. Please refer to the NY Times article, "Japan Trade Suffers as China Ties Deteriorate":

"Shipments to China, which is Japan's biggest trading partner, tumbled 14.1 per cent as demand dropped for Japan-branded products..."

Also refer to Japanese Car Sales Plunge Amid China Rage.

Europe is in no condition to be big spenders on anything as Euro states are already in deep recession.

The USA isn't in good shape either as it is in recession too and Japanese cars aren't selling well due to Fukushima and other issues.

Gee? So what will a weak yen certainly buy for Japan? Answer: How about a 10% increase across the board on energy imports?

Recent figures show Japan's trade deficit hitting new records. 

From Testosterone Pit:

Japan's trade deficit in February jumped to ¥777.5 billion. Exports dropped "unexpectedly" by 2.9% from prior year, despite Abenomics. Imports surged 11.9%. Eighth monthly deficit in a row, worst since 1979... This year in January, the trade deficit hit a new record of ¥1.63 trillion, and now ¥777 billion.  

When things start to deteriorate, they begin to unravel quickly. Just this morning on ZeroHedge, I found a writer who makes my skepticism seem like I am the eternal optimist! 

Please refer to quotes from: Forget Cyprus, Japan is the Real Crisis:

Forget Cyprus. A much bigger story in the coming weeks and months will be in Japan, where one of the greatest economic experiments in the modern era is about to begin. A country where government debt even dwarfs those of Europe's crisis-ridden nations, Japan will attempt to inflate its way out of a 23-year deflationary spiral.

It's widely expected that the BoJ will expand its 101 trillion yen (US$1.06 trillion) asset buying program by more than 10 million yen. Also, it will start buying Japanese government bonds with remaining maturities of up to five years by scrapping the upper limit of three years by the end of April.

Why Japan will fail

The subtitle indicates where I stand on the matter. Given its over-indebtedness, Japan has few good options left. But the policies being pursued by Shinzo Abe will fast-forward a major debt and currency crisis. It's a matter of when, not if.

Government debt to GDP in Japan is now 245%, far higher than any other country. Total debt to GDP is 500%. Government expenditure to government revenue is a staggering 2000%. Meanwhile interest costs on government debt equal 25% of government revenue.

There's no way that Japan will ever repay this debt. It has two main options: either go through extraordinary pain by cutting back on government expenditure or print substantial money to inflate some of the debt away.

Japan is choosing the second option, as are most governments around the world. It would rather print money than cut spending and doom the economy to a substantial contraction. The choice to print money though will result in an even more painful and drawn-out outcome.

It's inevitable that the yen will fall further from here, potentially much further. I've previously said that the yen at 200 or 300 on the dollar would not surprise. This could prove optimistic.

It also seems inevitable that Japanese interest rates will rise and bonds will sell off. Yields have to rise to just 2% for interest costs on government debt to take up 80% of government revenue. The jig will be up well before that though.

Currency wars to begin in earnest

Talk of currency wars has been on the backburner for a few months. Expect that talk to heat up and become a reality as Japan ramps up stimulus in the next two weeks.

The likes of South Korea and Taiwan are already suffering from the sharp fall of the yen. They, and many others such as Germany and emerging countries, aren't going to sit by and watch their exporters get priced out of the market by the Japanese. They'll retaliate with currency depreciations of their own and the currency wars will be on in earnest. But the question is whether these countries will be able to keep up with a hyper-inflating Japan. I highly doubt it.

The yen at 200 ~ 300 per one US dollar? And "that could prove to be optimistic?" Wow! 

I've got two things to say about that. One is the February 26th Incident that was already mentioned in the Wikipedia reference earlier in this article. 

Specifically about the February 26 Incident, Wikipedia says:

The February 26 Incident (also known as the 2-26 Incident) was an attempted coup d'état in Japan on 26 February 1936. It was organized by a group of young Imperial Japanese Army (IJA) officers with the goal of purging the government and military leadership of their factional rivals and ideological opponents.

Although the rebels succeeded in assassinating several leading officials and in occupying the government center of Tokyo, they failed to assassinate Prime Minister Keisuke Okada or secure control of the Imperial Palace. 

Wikipedia also says about one of the factions involved in this coup:

The Kōdō-ha emphasized the importance of Japanese culture, spiritual purity over material quality, and the need to attack the Soviet Union 

There's that nasty talk about war again. 

And the second comment I want to make about this entire mess isn't really a comment, it is an observation and a fact. Here is a small 5 gram gold bar... In 2008, this 5 gram bar of gold sold for ¥8,900 yen (at today's rate, that is about $94 USD)... As of yesterday, March 23, 2013, it sold for ¥27,924 (about $295.68 USD). That's a 313% increase.

Today the Japanese yen and US dollar rate is at 94.5 yen to one dollar.

This isn't rocket science, folks. The Japanese government has publicly announced inflationary policies and actions to devalue the currency.

In 5 years, gold - priced in yen terms - has tripled*... Now, reading the above is there any reason to not expect that this sort of climb is unreasonable to expect over the next 5 years? If the amount of money doubles in the next year or so, isn't it reasonable to assume that the price of gold will do the same?

We are heading for some very serious troubles folks. Prepare yourself as best you can. 

_____________________________

Got Gold or Silver? Where to Buy Physical Gold or Silver in Tokyo or try what my friend Mark recommended: http://www.olympic-gold.co.jp/

Rob also chimes in and recommends these two shops: http://gold-ichiba.com/ & http://www.coins.co.jp/

*Thanks to my friend, Jeremy Irwin

Japan: The End of an Era

I hate to say "I told you so!"... Well, no, that's not true. I LOVE saying, "I told you so!" Nearly four months ago, on December 29th, I predicted exactly what was going to happen with a weak yen. Now, this prediction has come to pass. Things are deteriorating quickly. I wrote in:

Here's Why A Weak Yen Will Destroy Japan  

The clowns in the LDP think a weak yen will rescue Japan's faltering economy by making exports cheaper... Sounds good... That is, if there anyone to buy Japanese goods.  I fear that the weaker yen will be the last straw in breaking the Japanese Economy. Here's my reasoning why... 

China and Japan are in a row over islands. Boom! Down goes exports to Japan's biggest trading partner. Please refer to the NY Times article, "Japan Trade Suffers as China Ties Deteriorate":

"Shipments to China, which is Japan's biggest trading partner, tumbled 14.1 per cent as demand dropped for Japan-branded products..."

Also refer to Japanese Car Sales Plunge Amid China Rage.

Europe is in no condition to be big spenders on anything as Euro states are already in deep recession.

The USA isn't in good shape either as it is in recession too and Japanese cars aren't selling well due to Fukushima and other issues.

Gee? So what will a weak yen certainly buy for Japan? Answer: How about a 10% increase across the board on energy imports?

Read more at: Here's Why A Weak Yen Will Destroy Japan 

Now, the numbers are coming in and they confirm what was (easily) predicted.

From: Testosterone Pit

Japan's trade deficit in February jumped to ¥777.5 billion. Exports dropped "unexpectedly" by 2.9% from prior year, despite Abenomics. Imports surged 11.9%. Eighth monthly deficit in a row, worst since 1979. Good news: exports to the US up 5.7%. But to China, they plunged 15.8%, to Hong Kong 14.3% (still iffy commercial relations due to island tiff). To the EU, they skidded 9.6% (tough economy). Not getting better: February 2012 had a surplus of ¥32.9 billion, after what was a record trade deficit in January of ¥1.4 trillion. This year in January, the trade deficit hit a new record of ¥1.63 trillion, and now ¥777 billion.    

Trade deficits aren’t the end of the world for Japan. But they’re the end of an era. Since the mid-1980s, Japan booked large annual trade surpluses, which helped fund budget deficits without having to rely on foreigners. But in 2011, there was a deficit of ¥2.56 trillion. A temporary blip, it was called. In 2012, ¥6.93 trillion ($78 billion). An all-time record. And so far this year, the trend is even worse. (Read more at Testosterone Pit)

And, Zerohedge adds:

Japanese Exports Drop More Than Expected Smashing Adj. Trade Balance To New Record Low 

It appears Abe and his henchmen had better stop doing things and say something as the huge devaluation of the JPY so far is NOT having the effect he had hoped for. Exports dropped 2.9% - more than expected - and while imports rose less than expected, the currency drop still meant an 11.9% surge in imports. All this means is that on a seasonally-adjusted basis, the Japanese Trade Balance just hit a new all-time record low (negative). USDJPY is strengthening on the news... it seems that well-placed non-news headline at 2am Japan time is well worth it now to cover this debacle... We assume the lesson is - just wait, "if we devalue, they will come."

Currency Wars Lead to Trade Wars Which Lead to Shooting Wars - Yen to Go to ¥200 to $1 US Dollar?

And so it begins. The currency wars have most definitely started. The last time this happened was in the 1930s and we know what that lead to as currency wars lead to trade wars which lead to shooting wars. 

I hear that Kyle Bass predicts the yen to drop to ¥200 to one US dollar.

And some people criticized me for predicting this event (though off by a few months) two years ago.

Start to stock up, folks. We're in for a rough ride. It's not coming, it has begun.

Getting Richer By Getting Poorer - Japan's FX-Bond-Stock Trilemma

JPY could fall a lot further because weak JPY has been the most effective tool to create equity market wealth and spur Japanese demand. Moreover, Citi's Steven Englander notes, Japanese policymakers do not have many other options. If JPY is ticket for the Nikkei to regains ground lost versus other equity markets, USDJPY would have to go into three digits. By implication JPY would have to weaken a lot more. The loss of market share in part reflects long-term structural issues but Japanese governments (like others) are more mindful of incurring the anger of domestic political constituencies by making tough structural reforms than of G20 counterparts by weakening the exchange rate. From a political perspective, the Nikkei-JPY relationship is too much a good thing for Japanese policymakers to give up - but divergences are abundant at the short- and long-end of the JGB curve - and too much of a good thing in this case is a disaster.

Read more at Zerohedge

If the G20 criticize Japan for currency manipulation, which they probably will, Japan can point out that their equity market poor performance over these last ten years  also reflects a major loss of export market share… This has occurred since 2000 and escalated since 2007. In fact, some economists would say that Korea has benefitted greatly on the Yen's strength and this is unfair to the Japanese economy. 

Please refer to: Yen's Drop to Give Boost to Earnings in Japan

South Korean manufacturers Samsung Electronics Co. and Hyundai Motor Co. snatched market share away from Japanese rivals, helped by several years of won weakness and yen strength. But some of those advantages are eroding with the weaker yen. The won has strengthened 27% against the yen since June 1. 

The Japanese representatives will also argue that there is undeniable evidence that the yen to dollar exchange rate has contributed to the weakness of the Nikkei and the overall Japanese economy. Couple this with a much more militant Shinzo Abe administration and I think it wouldn't be outside of possibility where we see Japan getting upset at the G20 and strongly protesting actions. Hell, the last time a world wide organization really put the Japanese on the spot for actions was when Japan walked out of the League of Nations on Feb. 24 1933 (Almost 80 years ago today!)

... Hey! Didn't I just read a sentence at the start of this exact blog post that said, 

"The last time this happened was in the 1930s and we know what that lead to as currency wars lead to trade wars which lead to shooting wars."

Yep. I did. 

This isn't going to turn out well....

Here's Why A Weak Yen Will Destroy Japan

The clowns in the LDP think a weak yen will rescue Japan's faltering economy by making exports cheaper... Sounds good... That is, if there anyone to buy Japanese goods.

I fear that the weaker yen will be the last straw in breaking the Japanese Economy. Here's my reasoning why... 

China and Japan are in a row over islands. Boom! Down goes exports to Japan's biggest trading partner. Please refer to the NY Times article, "Japan Trade Suffers as China Ties Deteriorate":

"Shipments to China, which is Japan's biggest trading partner, tumbled 14.1 per cent as demand dropped for Japan-branded products..."

Also refer to Japanese Car Sales Plunge Amid China Rage.

Europe is in no condition to be big spenders on anything as Euro states are already in deep recession.

The USA isn't in good shape either as it is in recession too and Japanese cars aren't selling well due to Fukushima and other issues.

Gee? So what will a weak yen certainly buy for Japan? Answer: How about a 10% increase across the board on energy imports?

From Forbes Magazines, please refer to: Japan's Energy Dependence 

Data from the Energy Data and Modeling Center (EDMC), Institute of Energy Economics, Japan, for 2008 published in the APEC Energy Overview (2010), paint a stark picture of Japan’s energy vulnerability: 

– Of total primary energy supply (508,327 kiloton of oil equivalent (ktoe)), 85 percent (433,725 ktoe) was imported.  The breakdown of primary energy was coal 23 percent, oil 44 percent, gas 17 percent, and other 17 percent.  

–For final energy consumption in ktoe, the industrial sector took 45 percent; the transport sector 24 percent; and other sectors 31 percent.  By type of energy:  coal 11 percent, oil 53 percent, gas 9 percent, and electricity and other 28 percent.  

Don't forget that these are 2008 figures - three years before the Fukushima Dai-ichi nuclear disaster. Things have gotten much worse since then. Now take all that imported oil and natural gas (and coal) and jack up the price 10%... What do you get?

Couple that sum with the 2% inflation rate targeted by the new government of Shinzo Abe and you get a collapse of the Japanese economy.

2013 is not going to be pretty for the Japanese economy.

Yen Devaluation Now Imminent? Being Called by Major Financials! Get out of debt - Get your financial house in order now!

Now, after yesterday's report that the main market analyst at China's Caixin Market News and Analysis reports that he is convinced of a 40% devaluation of the Japanese yen is imminent and inevitable, here comes another report hot on the heels from the United States. 

Market Watch reports in: The Yen's Looming Day of Reckoning

Japan is on an unsustainable path of a strong yen and deflation. The unprofitability of Japan's major exporters and emerging trade deficits suggest that the end of this path is in sight. The transition from a strong to weak yen will likely be abrupt, involving a sudden and big devaluation of 30% to 40%.

It will be a big shock to Japan's neighbors and its distant competitors like Germany. The yen's devaluation in 1996 was a main factor in triggering the Asian Financial Crisis. Japan's neighbors must have a strong banking system to withstand a bigger devaluation of the yen.Japan's nominal gross domestic product contracted 8% in the four years to the third quarter of 2011, and six percentage points of that was due to deflation. Without increased government expenditure, the contraction will be one percentage point more. Japan has not seen this kind of sustained deflation since the 1930s.

Without government deficits, Japan's economy will decline much more. Central government bonds and borrowings plus its guaranteed debts rose by 116.3 trillion yen ($1.4 trillion) during the period, equivalent to one-fourth of the level of the nominal GDP in the third quarter of 2011. If Japan had adopted balanced budgets, its economy would have contracted two to three times more. This will lead to a debt crisis in its private sector.

If you are living in Japan then it is time right now to get your house in order.

1) Stop using credit cards 
2) Get out of debt 
3) Store up at least three months (six months preferably) of food and water to get over the coming financial shock 
4) Protect your wealth by obtaining physical gold and silver

These warnings about Japan's collapse have been coming louder and louder and more often over these past two months. The crash that was predicted by Karl Bass and reported here in Debt in Japan Actually 492% of GDP! UK 497% of GDP!:

...People going along, as usual, in their ignorant bliss. The "leaders" knowing full well what's going on but trying to get out with what they can, while they can! The only difference between the sinking ship and the economy is there won't be any rescue coming for us.

While the entire world watches Greece and Italy, it seems, from looking at this chart, the real action is the UK, Japan, Spain and France. 

Business, government and household debt in Japan show a 492% of GDP problem for Japan. The tax and spend days are coming to an end soon in Europe, the USA and, of course, in Japan. 

This entire house of cards is going to collapse around our heads. When the collapse does come, it will come suddenly. Hope you have cash readily available and at least a few weeks of food and water ready. Because when the crash does come, stores will be empty in a matter if a few hours - if it takes that long.

You've read it on this blog and I seriously warn people to get ready... This could break any day now considering the still simmering situation in Greece, the worsening situation in Spain, Portugal and Italy, tensions and saber-rattling by the USA and Israel against Iran... And now more problems with a world wide move away from the US dollar.

May you live in interesting times.... Indeed. 

"A massive 40% devaluation of the Japanese yen is imminent and inevitable..."

Are you sitting down? I hope you're not drinking coffee right now....

From Zerohedge:

"Caixin's Andy Xie, who is now confident that a massive 40% devaluation of the Yen is imminent and inevitable (with dire consequences for regional trading partners) ... now that the Japanese economy is no longer competitive in the New Normal world (read trade surplus) of delaying what every other central banks has been doing so well.... "

(Caixin is News and Analysis on China's Markets)

I hope you have at least 3 months of food and water stored up and you hold some gold besides being ready for earthquakes and other natural disasters, you should be ready for the man-made one that is coming.

Read more: Four Years of Japanese Central Planning Failure Chart