The Bank of Japan has announced a quantitative easing (mass inflation) QE program that matches Bernanke’s: $75 billion a month in purchases of Japanese government bonds. This is just under $1 trillion a year. But Japan’s GDP is only $6 trillion — 40% the United States’ GDP. This is way beyond Bernanke.
For the Bank of Japan, this is QE1. But it is QE3 in the United States. It’s the same policy.
The interest rate for bonds in Japan has been at 2% or less ever since 1998. It has been 1% or less since 2010. Now it is at 0.5%. This lower rate will change little in the capital markets.
This will pour money into Japanese commercial banks. If they refuse to lend — the way America’s banks refuse to lend — prices will not change in Japan. But the bank says it is trying to get prices moving up at 2% per year, just like the United States.
If the banks refuse to lend, this new bank policy will simply shift capital to the government, as it is doing in the United States. This will undermine economic growth in Japan.
The government of Japan has always been Keynesian. Now it has adopted desperation Keynesianism: just like the United States and the eurozone. The central bank is now the buyer of last resort for government bonds. This has been the official justification of all central banking ever since 1694: the creation of the Bank of England.
All over the West, central banks are replacing the free market as the suppliers of loans for governments. This is building the foundation for price inflation in the double-digit range when commercial banks start lending. If they refuse, then the national governments will gobble up the productive capital of the West.
It’s either hyperinflation (briefly), followed by a long depression, or else slow economic growth for decades. The bankers will decide.