We have already talked about Japan’s escape ahead through the use of the money printing press, notably since the new Prime Minister, Shinzo Abe, named a new director for the central bank and forced the institution to do even more monetizing. Japan has stubbornly stuck to this policy since the crisis of the ‘90s, albeit with no tangible result, because growth is not picking up. But, on the other hand, public debt has grown to unheard-of levels until now : 230% of GDP! But, no matter, let’s continue... faster.
But the Prime Minister just received some strong support, quite unexpectedly, from Christine Lagarde, head of the IMF. Last Sunday, she « saluted the restructuration of Japan’s monetary policy, which constitutes a welcome support to world growth », according to Marketwatch. At a conference in South China, she declared « Monetary policies, including non-conventional measures, have contributed to support the advanced economies and, thus, world growth ». Bank of Japan has announced last week its intention of injecting the equivalent of 1,400 billions of dollars of liquidities in Japan’s financial system within two years (BoJ’s balance sheet should reach 60% of GDP at the end of 2014, compared to 30% at the end of 2012!). And this, according to Christine Lagarde, is good for growth?
Are we dreaming? The IMF has always been a proponent of balanced public budgets at all costs. It has always played the role of the « bad guy » coming to the rescue of a country as a last recourse, while demanding a drastic austerity plan, especially in public spending. One need only recall the riots in many countries against this international institution accused of empoverishing the people. Obviously, this reputation was too much for it to bear and, from now on, the IMF will follow the trendy ideas. The very ideas that are driving us toward bankruptcy.
True, on the short term, such a policy might give the impression that it’s working. In the last four months, the yen has dropped 20% to the dollar, while the Nikkei gained 40%, anticipating a recovery in exportations. But, what will really happen? It’s not as simple as devaluating one’s money to generate a surplus! But, on the other hand, this currency war coaxes other countries into more monetizing, to avoid any appreciation of their currency...
The IMF has its reputation at heart and wants to stay in good terms with the great developed countries. It hadn’t approved openly the use of the printing press in the past, but now it’s doing it, and with the country that has most abused it! She will now be treated like a rock star in the world’s greatest capitals and, thus, benefit from an excellent image in the media. Hmm... but wait, the French media is talking more and more about Christine Lagarde as a potential candidate in the 2017 presidential election. We heard that she has just put together an 80 person committee in Paris for that reason (an association called « La Grande Dame », for real!). But there’s nothing to see there, of course...
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Philippe Herlin Finance Researcher / Member of the Goldbroker Editorial Team
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.