Monday, August 19, 2013

The 15 Zero Magic

It all depends on how long investors are willing to suspend their disbelief over the facts in Japan: an impossibly large debt load, an aging population and a propensity for political paralysis. Were that moment of clarity to arrive, the global economy would be shaken by the worst debt crisis in history. Forget Greece -- Japan’s debt burden is larger than that of Germany, France and the U.K. combined. - Bloomberg

The governor of Japanese Central Bank, Haruhiko Kuroda has done something magical, says William Pesek. This miracle refers to the act of "creating the biggest bubble in history", the act of printing money that caused Japan now to reach its 1 quadrillion yen debt.

Ben Bernanke, said Pesek, wanted to know Kuroda's secret. The secret has two forms - "transfering money via monetary policy from citizens to the government" and "monetization of public debt". Kuroda learned this secret from Japan's finance minister during the Great Depression, Korekiyo Takahashi.

It is critical that this secret must be kept hidden for once known, will arouse public anger. The longer the secret is hidden from the public, the better Shinzo Abe can apply his own magic "of deregulating the economy." 

Pesek claims that as long as investors trust Japan, everything will be fine. But once reality starts to sink in, world economy will be in big trouble. It "would be shaken by the worst debt crisis in history." So the magic must continue for it " ' is the last chance for Japan's economy.' " 

Pesek was amazed how Kuroda's magic silenced those "mysterious cast of characters", "the bond vigilantes", "the skeptics". Perhaps, they were hypnotized staring that instead of reducing debt, Kuroda doubled it. For the governor, this is the way to secure the nation's finance, by redistributing wealth from the people to the government. 

Personal Response:

There are several things that I find difficult to accept in reading this Bloomberg  article. I find it hard to understand why Pesek keeps on describing both "financial repression" and "monetization of debt" as magic to be kept in secret and yet such information was accessible to the public. Is it because the Japanese public are incapable of comprehending the intricacies of this type of monetary policy?

Pesek also said that once this secret is known to the public, anger would be the natural response. If Robert Reich mentioned about American's anger and confusion as to the real cause of their economic trouble, Japan on the other hand remains calm due to lack of public awareness. Moreover, Robert Reich also specifies that in order to pacify American's dissatisfaction and anger, politicians must look for scapegoats. Capitalists are one. And I think Japan is another. Here, it's difficult to go beyond the mere appearances of current events. It is as if the original magician in the person of Bernanke appears to be innocent and has nothing to do with the present condition of global economy; it also appears as if in case that global economy will crash this time, the Federal Reserve has found a scapegoat in the Bank of Japan; and it is also as if the global economy is not in present trouble and it would be Kuroda's fault once the economy would be "shaken again". 

Finally, William Pesek clearly identified the real nature of the popular web message about "redistribution of wealth". It has something to do with the transfer of wealth "from creditors (the people) to debtors" (government). There are Christians today who think that this redistribution of wealth particularly pertains to the trasfer of wealth from the "wicked" into the hands of the "righteous" originally taken from the Bible, specifically the book of Exodus. There we read that Egyptians gave articles of gold and silver to the Jews. So they are expecting this to happen soon and mistakenly thought that they will benefit from it. They have no idea that the biblical reference has nothing to do with the impending collapse of existing monetary system. It's sad to see Christians fall in such a low state of mind.