More Magic from Abenomics: 10.3 Trillion Yen in Fiscal Stimulus

Not content that the Bank of Japan (BoJ) has increased monetary stimulus by 50 trillion yen ($595 billion), partly as a result of political pressures and mostly from ideology and peer pressure, the Shinzo Abe led Japanese government will expand fiscal stimulus from the earlier 1 trillion yen ($12.3 billion) to 10.3 trillion ($116 billion)

From Bloomberg,

The Japanese government will spend 10.3 trillion yen ($116 billion) to drive a recovery from a recession in Prime Minister Shinzo Abe’s first major policy initiative to end deflation and boost growth.

Around 3.8 trillion yen will be for disaster prevention and reconstruction, with 3.1 trillion yen directed to stimulating private investment and other measures, according to a statement released today by the Cabinet Office. Extra spending will increase gross domestic product by about 2 percentage points and create about 600,000 jobs, the government said.

PM Abe’s elixir of inflationism will achieve its goal of having price inflation. But as I explained earlier, the desperate attempts to try old ineffective ways but with more of it to achieve new effects is plain absurd.

Given Japan's government's huge debt levels (the world's largest), compounded by major factors as demographics (shrinking population or fertility rate), falling savings rate—which has been manifested through declining support by domestic investors on Japan’s sovereign bonds (JGBs) and where Japan's government has become increasingly reliant on the BoJ’s monetization—and the reversal of current account balance from surpluses to deficits, the ultimate outcome from all these short term nostrum will be one of debt crisis, sooner rather than later.

The initial effect of the combined aggressive interventions via inflationism has been to create a stock market boom…

…but such artificially constructed boom, as manifested by a falling yen, will have to rely on accelerated expansion or the infusions of credit and money which is unsustainable, and which should translate to a future bust—and this will be accompanied by a debt crisis.

Abenomics is really founded on the Philosopher's stone.

As the great Ludwig von Mises warned,

The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers' stone to make it last.

The real goal of the alleged radical "Abenomics" is the transfer of wealth from the average Japanese to the political class and their allies.

So aside from the bust, one of the expected consequence from such policies will be capital flight, incipient signs which we are already seeing today but masked as Portfolio flows or FDIs