[Editor's Note: The following post is by TDV correspondent, Tres Knippa]
As expected, the Liberal Democratic Party (LDP) won a majority in the Upper House in Japan Sunday night. The market has responded with a bit of a yawn in Yen and JGB futures. Now we get to see Shinzo Abe fire the “third arrow” of his economic plan.
For those who have not been following the day to day musings from Japan, the “Three Arrow” approach starts with a huge surge in monetary policy (check), an expansion of fiscal stimulus measures (check), and now the third arrow will be some structural changes in the Japanese business landscape (lower corporate taxes, international trade agreements, and increased market led competition in certain sectors of the economy). Let me state this clearly so there is no doubting my opinion on this matter. What is going on in Japan is an experiment. It is an experiment that has no basis in economic history.
It is taking the experiment Ben Bernanke is currently trying in the US and it is doing it on a much grander scale in Japan. It’s Kamikaze-QE!
Could stock values rise in nominal terms as they have since the announcement of destroying the Yen was announced? Yes.
Nikkei May 22, 2013
Could Japan see a short term bounce in GDP? You bet.
Will debt to GDP levels drop as the result of Abe’s approach? Absolutely not. Not under any circumstances.
Will the Japanese government bonds ever be repaid? Absolutely not. Not under any circumstances.
I will be writing follow up articles explaining in detail why I think the Shinzo Abe plan is putting Japan on a collision course with a debt crisis. I will be writing follow up opinions on the macro effects of “QE infinity” in both the US and Japan. Just ask yourself a simple question: If the Krugmans of the world are right, and all this government spending and bond buying is working, then are debt to GDP levels dropping globally?
Absolutely not. Not under any circumstances. QE and increased government spending paints over the bad decisions of policymakers. Government spending serves one primary purpose: winning elections. When studying the "three arrow" approach of the LDP in Japan, I am reminded of a fact of economics: how do you increase GDP? You increase GDP by increasing population or increasing productivity. Does one or all of the Shinzo's three arrows do either of those in Japan?
Absolutely not.
[Editor’s Note: Tres Knippa offers ways to short Japanese Government debt at Short Japan Debt.]
Tres Knippa is a professional trader and broker on the floor of the Chicago Mercantile Exchange. Mr. Knippa has been trading the futures markets for over 17 years and became a member of the Chicago Mercantile Exchange in 1996. Mr. Knippa focuses his efforts on energy, stock index, and agricultural futures but holds positions in markets all over the world. In April 2001 Tres started trading proprietarily for himself and this became his primary source of income. Tres is an owner and principal of Kenai Capital Management which seeks to profit from what Tres believes is the next sovereign debt crisis. Tres has also developed many financial websites including ShortJapanDebt.com. Tres is a regular contributor on most of the major financial news networks including CNBC, Fox Business, and Bloomberg. Tres also writes for The Dollar Vigilante.
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"Kamikaze QE".
Heh. Wish I'd said it first.
We here at TDV frequently suggest that you look to either Latin America or Southeast Asia for the future of economic growth. Heck, despite their totalitarian state and massive government spending, we would suggest even China before we suggest Japan which is essentially one of the doomed Western nations.
Some folks look at me funny when I suggest that Japan is part of the group of Western nations about to enter the biggest collapse the human world has ever seen. Sure, they are racially Asian, but their economy is decidely Western. But like their game shows, here the Japanese are putting an outrageous twist on the things they've copied from the West.
Jeff Berwick has been predicting a Japanese debt collapse for a while as part of TEOTMSAWKI and he personally recommends using Tres' services at ShortJapanDebt.com as the easiest way to do so.
When I've thought of countries best suited to ride out The End Of The Monetary System As We Know It, Japan has always been near the bottom of that list. Probably still better than the USSA which will likely end up as the absolute worst place to be, with its combination of economic collapse and total government surveillance.
You can see why we like Latin America so much, especially Chile. Chile's about as free market as you can get with a government and central bank still in existence. That's why it's becoming the economic jewel of Latin America…and a large part of why it was chosen for Galt's Gulch. I'll be heading down there in the upcoming weeks. Something tells me I won't want to leave.
Regards,
Gary Gibson
Editor, The Dollar Vigilante
