Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Economic Prosperity - You Can't Print, Borrow, ZIRP, QE, or OMF It

Stock-Markets / Quantitative Easing May 27, 2013 - 01:53 PM GMT

By: Bill_Bonner

Stock-Markets

Gold rose $24 per ounce Thursday. The Dow fell 12 points.

The smart money is using this dip to buy gold.

Why?


Because the world's major stock markets... currencies... and economies all depend on reckless measures by central banks. In the short run, the central banks can make things appear safe and stable.

How?

By making lending money at ultra-low rates the norm. It's hard for major players to go broke; they can just refinance.

But in the long run, those same policies can lead to instability, bubbles... and disaster.

Too bad, but you can't buy prosperity. You can't print prosperity. You can't borrow prosperity. You can't ZIRP, QE or OMF ("overt monetary financing," a phrase that is bound to become current soon) prosperity, either. Prosperity comes from hard work, saving and discipline.

That is, it comes from responsible policies, not reckless ones.

Paul Krugman says that economics is "not a morality play." But he's wrong. That's exactly what it is.

And Japan is going to prove it first. Yes, it may be a good thing we congratulated ourselves when we did. If we'd waited a few days, our Trade of the Decade wouldn't look so good.

The important news yesterday came from Japan. Bloomberg reports:

Japan's Topix index tumbled almost 7%, the most since the aftermath of the March 2011 tsunami and nuclear disaster, as financial firms slid amid rising bond yields. Nikkei 225 Stock Average futures traded in Osaka and Singapore fell in after-hours trade, signaling further declines.

Every company in the Nikkei 225 retreated for the first time since April 2005...

"Rising interest rates is the story today," said Tomomi Yamashita, a fund manager who helps oversee the equivalent of $5 billion at Shinkin Asset Management Co. in Tokyo. "There's also a lot of profit-taking going on. When volatility is high, investors want to take off risk."

Credibly Irresponsible

As you know, Japan is always ahead of us. Its go-go economy peaked out in 1990.

The US dot-com boom peaked out 10 years later. Japan's stock market hit a high in 1990. US stocks reached a high 10 years later (though prices hit nominal highs later). Japan resorted to bailouts... ZIRP and QE in the 1990s. The US began these experiments in the following decade.

And how about this? Japan's population has been falling for years. America's women only recently began reproducing at below-replacement levels.

There are differences, to be sure. In the US, we read left to right, front to back. And we eat our meat well-done! But in important matters, the Japanese are always ahead of us. And now they're being even more reckless than the Fed – increasing QE at a rate that we've never seen before. From Pragmatic Capitalism:

When a central bank commits to being "credibly irresponsible," it's not unusual for market participants to take it at its word. And the commitment to support equity prices gives traders a false sense of confidence that can then lead to a sort of Ponzi environment that leads to a huge boom.

By committing to being "credibly irresponsible," the central bank can actually contribute to the boom, which then creates the imbalance that results in the bust.

This is almost a "Volcker moment" for Japan. That is, Japan's central bank has changed direction. Investors take note.

But the Bank of Japan's new governor, Haruhiko Kuroda, is no Paul Volcker. He's more like Gideon Gono of the Reserve Bank of Zimbabwe. Volcker was incredibly responsible. Gono was credibly irresponsible. And when the markets realized how irresponsible he was... they went wild.

Mr. Kuroda announced that he will double Japan's monetary base. Investors have been buying stocks enthusiastically ever since. Which is why our Trade of the Decade – "Buy Japanese Stocks. Sell Japanese Bonds" – looks so good.

Stocks have gone up. Bonds have gone down. Does this mean that Japan's troubles are behind it? Not at all. It means only that, when you've got a reckless central banker, stocks are a better buy than bonds. Stocks will be lifted on a "rising tide." Bonds will always go in one direction: down.

Japan's real crisis is still ahead. That's what yesterday's big selloff signals – trouble. And there's more trouble is coming for the US and Europe too. Most likely, they'll want to follow Japan as it heads for disaster.

The new governor of the Bank of England, Canadian Mark Carney, has just proposed that his bank imitate the rapid money-printing policies of the Bank of Japan. From the Financial Times:

QE may have done its job as far as propping up the financial sector goes, but... For the economy to really recover, and for it to avoid another massive shock, there is still an urgent need to redirect much of the liquidity that's been created – currently chasing risk assets – to those frozen out of the economy more permanently.

Print more money! Drop it from helicopters!

Banzai!

Bill Bonner
Bill Bonner is a New York Times bestselling author and founder of Agora, one of the largest independent financial publishers in the world. If you would like to read more of Bill’s essays, sign-up for his free daily e-letter at Bill Bonner’s Diary of a Rogue Economist.

http://www.lewrockwell.com

    © 2013 Copyright Bill Bonner - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in