Despite the Bank of Japan’s (BoJ) ramping up of her balance sheet, statistical economic growth remains sluggish
Japan’s economy unexpectedly shrank last quarter as falling exports and a business investment slump outweighed improved consumption, bolstering Prime Minister Shinzo Abe’s case for more monetary stimulus to end deflation.Gross domestic product contracted an annualized 0.4 percent, following a revised 3.8 percent fall in the previous quarter, the Cabinet Office said in Tokyo today. The median forecast of 32 economists surveyed by Bloomberg News was for 0.4 percent growth. Nominal GDP shrank 0.4 percent on quarter.An economy still mired in recession suggests a lag before Japan benefits from a weaker yen and rising stocks. Banks from Goldman Sachs Group Inc. to Nomura Holdings Inc. have raised their growth forecasts for this year on Abe’s plan to revive the economy through fiscal and monetary stimulus as central bank Governor Masaaki Shirakawa prepares to exit next month.
Let me be clear: I don’t deny that massive increases in monetary inflation could artificially boost the statistical economy. The issue is about intertemporal sustainability.
Yet one can’t help but notice that the despite the ballooning of the BoJ’s balance sheet from ¥ 10 Trillion in 2011 to a projected ¥ 80 Trillion or ¥ 40 Trillion realized (chart from Danske Bank), Japan’s statistical economic growth has been anemic or in a persistent state of stagnation.
Chart from tradingeconomics.com
Add to this the recent recession update, which “experts” find excuse as having been a “pre-Abenomics” condition. PM Shinzo Abe regained the political stewardship as Prime Minister in December of 2012.
Whether Abenomics or pre-Abenomics, the solution has been all the same. The difference has been in the magnitude applied. Politicians and their apologists expect magic from bigger doses of what has failed.
Such social policies can be characterized as “insanity”—doing the same thing over and over and expecting different results.
Rising stock markets in the face of sustained economic recession serve, not only as signs of parallel universe or of a distorted sense of reality, but importantly as symptoms of a deep seated monetary-economic disorder. They represent bubbles.
Japan’s economic minister even has the derring do to target the Nikkei at 13,000 as if inflationism can wish away structural political economic imbalances. Maybe Japan's officials have been covetous of Venezuela where the latter's stock market surged by 300% in 2012 but the people have been suffering from severe shortages of goods as consequence of shrinking supply of hard currencies due to inflationism.
To add, one would note how mainstream economists has wrongly forecasted Japan’s economy, most of them having been enthralled by the prospects of the supposed magic of inflationism.
The real reason for their optimism has been that the currency elixir via BoJ’s inflationism represents subsidies or transfers of wealth to the banking, insurance and finance industry at the expense of society.
Japan’s serial blowing of bubbles will surely end up in societal misery.
As the great Austrian economists and professor Ludwig von Mises warned,
It would be a serious blunder to neglect the fact that inflation also generates forces which tend toward capital consumption. One of its consequences is that it falsifies economic calculation and accounting. It produces the phenomenon of illusory or apparent profits. If the annual depreciation quotas are determined in such a way as not to pay full regard to the fact that the replacement of worn-out equipment will require higher costs than the amount for which it was purchased in the past, they are obviously insufficient. If in selling inventories and products the whole difference between the price spent for their acquisition and the price realized in the sale is entered in the books as a surplus, the error is the same. If the rise in the prices of stocks and real estate is considered as a gain, the illusion is no less manifest. What makes people believe that inflation results in general prosperity is precisely such illusory gains. They feel lucky and become openhanded in spending and enjoying life. They embellish their homes, they build new mansions and patronize the entertainment business. In spending apparent gains, the fanciful result of false reckoning, they are consuming capital. It does not matter who these spenders are. They may be businessmen or stock jobbers. They may be wage earners whose demand for higher pay is satisfied by the easygoing employers who think that they are getting richer from [p. 550] day to day. They may be people supported by taxes which usually absorb a great part of the apparent gains.Finally, with the progress of inflation more and more people become aware of the fall in purchasing power. For those not personally engaged in business and not familiar with the conditions of the stock market, the main vehicle of saving is the accumulation of savings deposits, the purchase of bonds and life insurance. All such savings are prejudiced by inflation. Thus saving is discouraged and extravagance seems to be indicated. The ultimate reaction of the public, the "flight into real values," is a desperate attempt to salvage some debris from the ruinous breakdown. It is, viewed from the angle of capital preservation, not a remedy, but merely a poor emergency measure. It can, at best, rescue a fraction of the saver's funds.
The illusions of inflationism as a path to prosperity will likely be unmasked either by a debt crisis-debt default or by hyperinflation or even by war.