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

Yen Devaluation Called for By Financial Houses Now Becoming Japanese Government Plan? 18% Yen Devaluation on the Horizon?

In March of this year, I posted,

Yen Devaluation Now Imminent? Being Called by Major Financials! Get out of debt - Get your financial house in order now!  Whereby I cited and quoted major financials predicting a yen devaluation of up to 40%.

Some readers scoffed.

I doubt they are scoffing now, the predicted soon-to-be new government of Japan not only wants a 18% yen devaluation, they also want interest rates and inflation to go up about 2%.

Please refer to Zerohedge, Is An 18% JPY Devaluation The 'Best-Case' Scenario For Abe's 'New' Japan? In that article it is discussed how the coming government of Shintaro Abe thinks that Japan can return to the "Golden Days" if only they can (artificially) force the yen back down to ¥100 yen to $1 US dollar! Madness! How could destroying the value of the currency return the nation to economic health?

After twenty-plus years of folling around with the economy and propping up failed banks and businesses, haven't these clowns figured out that the more they do the worse it gets? It really astounds me that, in some surveys, it is reported that some of the Japanese public support tax increases! Are these people crazy?

The other day I was at Shibuya station and a minor political party was holding a rally and their main pillar of their policy was "No Tax Increases!"... Yet, there were few people listening and you just know they'll get stomped in the election by the big money parties.

I wrote all about the Zeitgeist of the situation in "Japan is Collapsing" and two subsequent blog posts.

Besides the insanity of thinking that artificially destroying the value of the currency, Abe and his co-horts think that a 2% inflation target would be a good thing.

The Zerohedge article goes on to point out:

Even though the yield on 10-year Japanese Government Bonds (JGB) is only 1 percent, the interest expense is expected to top 22.3 trillion yen in the fiscal year that begins next month. This is one-quarter of the general account budget. If the bond yield rises to 2 percent, the interest expense would surpass the total expected tax revenue of 42.3 trillion yen.

Yup: a mere "surge" in interest rates to a whopping 2.00% will destroy the Japanese economy.

Once again, I warned people to have at least 2 or 3 months of food and water stored (Duh! Japan is an earth-quake prone country anyway). And protect your wealth by accumulating physical assets like precious metals.

Japan is Still a Very Rich Country - Average Japanese Savings Between 200% ~ 400% More than Americans

Whenever I go overseas, I often wonder just how poor the average Japanese is compared to their foreign counterparts. Well stacked up against the savings of the average American family, Japanese families look pretty good. 

Japanese family's average savings: Y16.64 mil

The average Japanese family has 16.64 million yen in savings, according to official data, more than twice the average annual salary in the nation of 128 million.

The number for 2011 was a 0.4% increase from a year earlier, with households of two or more people holding average debt of 4.62 million yen.

The Japanese have long enjoyed a reputation as disciplined savers, as rates generally declined in the West in recent decades, including the United States where economists and politicians have bemoaned low savings rates.

The average savings is ¥16.64 million yen (about $210,000 USD). Twice the average annual salary? That's a lot. Really? 

How does that stack up against, say, the USA? Well, I checked data for the average savings of American families and this is what I got:

The average total savings of a United States household is about $52,993 for standard savings and certificate of deposit (CD) accounts as of 2010. The average is $99,149 when it comes to retirement savings accounts as of 2010. The Federal Reserve releases these estimates each year in its "Flow of Funds" report, which lists both average household savings and debt totals.

I sure hope the people who do have savings are protecting the value of their wealth with precious metals and solid investments (no, I don't mean the stock market, either).... People who have all their eggs in one basket and all their their money stashed in one bank account are asking for trouble. There are rumors of an imminent Bank of Japan Yen devaluation.  


Of course, though, comparing life in the USA to life in Japan is like comparing Apples to oranges. Both places have good and bad points... But I always like to remember two of my favorite quotes on money:

"Money, if it does not bring you happiness, will at least help you be miserable in comfort." - Helen Gurley Brown

"Money is better than poverty, if only for financial reasons." - Woody Allen

Live in Japan? You Owe More Than ¥7 Million Yen - And Your Debt is Skyrocketing

I've been writing a lot recently about the terrible financial situation Japan is in and how I believe that this situation is coming to a head soon, possibly by this summer... I think the best analysis was in Japan's Collapse Will Be Absolute and It Cannot Be Stopped - Here's some Big Reasons Why.

Bugs predicting Japan's economic future

Recently, the Internet chatter about Japan's imminent collapse has been increasing exponentially. Many news sources and many other writers seem to be agreeing with me... Or, perhaps I should say that I agree with them... They are all probably smarter and richer than I am. Why just today, once again, another article was sent to me entitled, The Japanese Party is Ending that warned about a possible hyper-inflation scenario for Japan just around the corner and it could be possible that Bank of Japan is intentionally pursuing a plan to devalue the yen.


Even though I write about these things constantly and think about them a lot. I am just shocked that people I meet are so oblivious to what's going on. You'd think that the average person would care enough to know that their government has put each and every man, woman and child in Japan ¥7,632,897 in debt (as of the writing of this article). If you want to read more on that (please make sure you're sitting down when you do), refer to: Here Comes Europe's and Japan's Debt Crisis - Just in Time for Summer. There you can see a debt clock and other information that should wake you up.


Like I said, I'd say that almost everyone I meet either doesn't understand or doesn't care. I've met three people in the last month who knew what was going on... Trust that I meet a lot of people. Besides those three, most often express that they, "Hope that things get better."


Folks, when it comes to your and your families future and safety and security, "hope" isn't a very good business plan.


On that note, today, one simple lesson in why the Japanese government budget and deficit are such problems for you (if you live in Japan). First the relevant news as reported by Finance Nine:

Diet passes Y90.3 tril budget, adding to Japan's debt mountain

TOKYO — Japan passed a 90.3 trillion yen budget on Thursday, with about half the spending expected to be financed by new bonds that will add to Japan’s massive debt mountain.

...

Local media have reported that spending for the 2012-2013 fiscal year may be Japan’s highest ever, reaching more than 96 trillion yen when including extra public spending such as funds for rebuilding the nation’s northeast after last year’s earthquake and tsunami disaster.

About 49% of the budget would be financed by issuing new bonds, a plan fiercely contested by opposition lawmakers who are aiming to push Prime Minister Yoshihiko Noda to call snap elections, according to reports.

For those of you who are versed in this sort of thing and understand what bonds are and how much of a clusterf*ck situation Japan is in, you can stop reading this post right now and go back to doing something useful. This post is an explanation for the total and complete layman who doesn't - or can't - comprehend what this news means to them. Like I said, when I talk to people out and at work, I'm getting the impression that far too many people in Japan see this sort of news and these sorts of numbers and it just goes completely over their heads. 

This article is for people who don't understand why they should be near panic! Let me explain two very important points about this that you need to know. 

The two important points in this article are the amount of money at ¥96 trillion yen and an understanding of what a bond is. That's today's simple lesson in why the Japanese government budget and deficit are such problems for you (if you live in Japan). 

A trillion is a one with fifteen zeroes behind it. ¥96 trillion yen is this: ¥96,000,000,000,000,000. In US dollars that translates to: $1,160,000,000,000,000.00.

A lot of money. Too much too comprehend, isn't it? So let's now go to what a bond is. The simplest and best explanation for bond I could find was at allBusiness.com and the article is: What are Bonds and how do they work?

Most of us have borrowed money in our lives, be it to finance our college education or to ask the bank for a mortgage or auto loan. So just as people need money, so do companies and governments. One option for this money is to issue bonds in which thousands of investors each lend a portion of the capital needed.

What Is a Bond?

In essence, a bond is nothing more than an IOU. The organization that offers the IOU (the bond) is known as the “issuer,” while the purchaser is the “investor.” Because nobody would loan his or her hard-earned money to an unknown party for nothing, the bond issuer is required to pay the investor interest payments, which are made at a predetermined rate and schedule.

Please read that "What Is a Bond? again, "a bond is nothing more than an IOU." 

IOU's? Like in "totally useless and worthless pieces of paper?" This in a country that has a greatly aging society that is not saving, but spending savings and cashing in on bonds bought in the past? Who does the Japanese government think they can sell these bonds to? Working Japanese, the traditional customer for this market is now an elderly retired Japanese. Does the Japanese government think that they can sell these bonds to foreigners? 

Selling these bonds to foreigners is an interesting option. Problem is that foreigners will want competitive rates as Japan's rate are way below other countries. The foreigners will want much higher interest rates on those bonds bond yields. Problem with that is if Japan's interest rates rise to just 2% the interest payments on Japan's debts will surpass the entire expected tax revenue of ¥42.3 trillion yen.

Now, understand that the Japanese government and this country's gas tank is empty and running on fumes. The government wants to keep the party going and is expecting you - yeah, you if you live in Japan and are reading this - to finance an IOU to somebody in order to pay the debt on our debt and keep the good times rolling...

No problem, right? Not only do they want you to buy the IOU, when the money to pay back that IOU comes due, and they don't have it, you'll be forced to pay that back too.

I hope you have an extra ¥8 or ¥9 million yen in your piggy bank for each and every person in your family to pay for your high life and profligate spending!... But no problem, right? 

Let's just hope things get better.