Sunday, March 30, 2014

Land of the setting sun

Note: This is a companion piece to “Saving to prosperity.”

As the Federal Reserve tapers quantitative easing after a failed 6-year experiment to boost aggregate demand, the Japanese government is quadrupling down, staring down the barrel of a third lost decade since the asset bubble burst in the ’90s.

The AP reports:

The strategy hinges on getting consumers and businesses to make purchases sooner rather than later. But so far wages have not risen, and the rising cost of living seems to be triggering still more belt-tightening.

In Japan, the interest rate hasn’t been north of 2 percent since 1993. Total credit market debt is a whopping 512 percent of GDP as of 2012. Japan boasts the highest government debt burden in the developed world, rising from 77 percent of GDP in 1993 to 227 percent.

Such lascivious monetary and fiscal policies have been intended to water down the currency and “stimulate” the economy, but they haven’t. Inflation has been virtually nil.

Bizarrely, the national sales tax will rise from 5 percent to 8 percent on April 1, breaking the Keynesian internal consistency. The only way a sales tax hike fits logically into the plan is if consumers rush to buy goods before the sales tax hike takes effect.

They’re not. They’re buying gold to hedge against inflation—inflation that will not come as long as capital stays tied up in static markets.

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