Japan starts up the money printing presses

Prime Minister Shinzō Abe says,
"Let's print endless paper money."

A World Gone Mad
Japan's "Conservatives" go on an insane spending binge

- - - The old left-wing government was cutting spending while the new right-wing government wants endless money printing and spending.



With the Liberal Democrat Party back running the show it is doing what comes naturally: boosting government spending and, forcing the central bank, the Bank of Japan, to swamp financial markets with even more cash.

In the process, efforts by the previous government to cut government spending, which made for gripping prime-time television as bureaucrats were browbeaten to cut outlays on pet, but wasteful, projects, have been consigned to history.

 

The Bank of Japan caved in to pressure from the new government and committed itself to unlimited cash injections into the economy via asset purchases. And, perhaps more importantly, it has set an inflation target of 2 per cent annually in a bid to force the economy out of its long-running deflationary spiral. The caveat is that much of the new spending won't kick in until 2014 reports the Sydney Morning Herald.

Higher prices will force consumers to stop saving and start spending. That's the theory.

But with extreme nervousness over the outlook for economic growth that may not be easy, especially with the millions of ageing boomers headed for retirement and keen to hang on to savings for the years ahead.

And forcing the central bank to print more money may be more a case of ''be careful what you wish for'' since with rising prices will come higher interest rates as the yield curve begins to normalise.

In its wake, this will force down bond prices, which will leave banks and other financial institutions with heavy losses that will crimp their (financial) flexibility severely, potentially undercutting optimism of a sustained economic recovery.

The "monetary regime change" sees the Bank of Japan adopt the same strategy as the US Federal Reserve, which has committed to unlimited quantitative easing until the US unemployment rate drops below 6.5 per cent.

Japan's central bank has also set a 2 per cent inflation target to help tackle prolonged deflation. Price increases have been hovering below 0.5 per cent for two years despite surges in energy costs, while the world's third-biggest economy is also back in recession.

Masaaki Shirakawa, Bank of Japan governor, vowed to achieve the inflation benchmark "as soon as possible", with the programme of QE beginning in January next year when current efforts are completed.

Prime Minister Shinzō Abe is also seeking to spur growth through government spending on public works, as well as committing to improve the competitiveness of Japan's economy through the tax system.

(UK Independent)

The politicians can't stop printing money.  Time to buy more gold.