When a central bank decides to cut interest rates, it can do it. It just buys up all of the government’s bonds with newly counterfeited money. Nothing to it!
The government loves it. It can get all the money it wants at 0.31%. Anyone can afford that, especially the government, which never pays off debt.
Meanwhile, private lenders get ¥3 of interest annually for every ¥1,000 invested. What a deal!
So, Japanese investors have stopped saving. They are cashing out. They are selling their investments, especially government bonds. The nation that used to save 23% per year is now cashing out by 1.3%.
But who needs savings, when you have a central bank that creates wealth out of nothing?
Want to retire in comfort? You can feast on a plate full of sushi stuffed with digits!
Abenomics is Asian Keynesianism.
America’s most famous academic Keynesian economist, Nobel Prize-winner Paul Krugman, has been a cheerleader of Abenomics from day one. On January 13, 2013, almost two years ago, he gushed:
. . . Japan never had the kind of employment and human disaster we’ve experienced since 2008. Indeed, our policy response has been so inadequate that I’ve suggested that American economists who used to be very harsh in their condemnations of Japanese policy, a group that includes Ben Bernanke and, well, me, visit Tokyo to apologize to the emperor. We have, after all, done even worse.
And there’s another lesson in Japan’s experience: While getting out of a prolonged slump turns out to be very difficult, that’s mainly because it’s hard getting policy makers to accept the need for bold action. That is, the problem is mainly political and intellectual, rather than strictly economic. For the risks of action are much smaller than the Very Serious People want you to believe.
Consider, in particular, the alleged dangers of debt and deficits. Here in America, we are constantly warned that we must slash spending now now now or we’ll turn into Greece, Greece I tell you. But Greece, a country without a currency, doesn’t look much like the United States; surely Japan offers a more relevant model. And while doomsayers keep predicting a fiscal crisis in Japan, hyping each uptick in interest rates as a sign of the imminent apocalypse, it keeps not happening: Japan’s government can still borrow long term at a rate of less than 1 percent.
Enter Mr. Abe, who has been pressuring the Bank of Japan into seeking higher inflation — in effect, helping to inflate away part of the government’s debt — and has also just announced a large new program of fiscal stimulus. How have the market gods responded?
The answer is, it’s all good. Market measures of expected inflation, which were negative not long ago — the market was expecting deflation to continue — have now moved well into positive territory. But government borrowing costs have hardly changed at all; given the prospect of moderate inflation, this means that Japan’s fiscal outlook has actually improved sharply. True, the foreign-exchange value of the yen has fallen considerably — but that’s actually very good news, and Japanese exporters are cheering.
He ended his cheerleading with this: “Whatever his motives, Mr. Abe is breaking with a bad orthodoxy. And if he succeeds, something remarkable may be about to happen: Japan, which pioneered the economics of stagnation, may also end up showing the rest of us the way out.”
Krugman best represents America’s Keynesiaian economists, who run the economic show. He speaks for them. He encapsulates their wisdom. They love price inflation. Japan has now become their model of good things to come.
“When the going gets tough, the FED gets printing!”
The going is going to get tough. Very, very tough. Booms created by QE become busts when the QE stops. Then we will get more QE. Lots and lots of QE. Keynesians will cheer.
Ludwig von Mises was right back in 1948. Keynesianism is an economic philosophy of stones into bread.
In the early phases of Keynesianism, it looks as though the miracle of stones into bread is real. But at the end, it will be revealed as a system of bread into stones. King Solomon put it best 3,000 years ago. “Bread of deceit is sweet to a man; but afterwards his mouth shall be filled with gravel” (Proverbs 20:7). Keyesianism is deceit by means of graphs, equations, and jargon.