PART ONE OF A TRIPLE-HEADER ABOUT LOST CONFIDENCE IN MONETARIST SOLUTIONS

Not that many of you are interested, but the Yen is strengthening against the Dollar. This now lumbers Japan not just with the biggest debt in the world, but also one of the strongest – ie most expensive – currencies in that very same world.

This has happened because, from having previously been simply Nips, the Japanese central has been taken over by the Nirps….followers, that is, of a negative interest rate policy. To the best of my knowledge, only one commentator (an American journalist) saw the move coming; and since it was introduced, almost everyone underestimated the immediate effect it would have. This means that if you and I are confused by the varietal illogic involved in all this, it’s OK: so is everyone else.

Or perhaps, the confusion is far from OK.

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When everything is connected, everything has unpredictable consequences. This fact alone should be enough to consign globalism to a footnote in history. Were it my decision, I’d insist on digging up Ted Levitt’s remains and scattering them across the oceans of the world. But in reality, Levitt was just another half-baked Ivory Tower Ivy League intellectual whose potty (and provably wrong) ideas about a Global Village were eagerly taken up by economic colonialists everywhere. He should’ve been universally discredited decades ago, but the reason his theory remains the planet’s default business model is that he was spouting exactly the kind of codswallop greedy multinationals and banks wanted to hear.

Globalism makes it easy to evade tax, move jobs offshore, pay slave wages in Asia, claim they didn’t know about stuff, move sovereign spies in under cover, bribe poor governments, amass illegal power, price-attack local competition until it goes to the wall, and cut production costs by insisting that one size fits all.

But unfortunately for everyone outside the 3%, it makes everything far too complex and interdependent to grasp, let alone control. Worse still, bamboozling business journalists and analysts becomes easier than falling off a log….and hiding the real financial condition of a business.

Overall, a globally connected econo-fiscal planet diffuses focus and catches even very smart people off guard.

The ‘idea’ of Nirp is to incentivise banks to lend to companies, so companies can invest more. It’s the same objective as QE – to get banks to do what they don’t want to do, or business doesn’t want in the first place: In Japan, a few banks are wary of lending, but mostly there is little or no demand for their loans. The main problem with most monetarist tosh is that it doesn’t ‘get’ the anthropology of business any more than communism does.

The theory goes that only an idiot would keep their money in a central bank where they have to pay for the dubious privilege: so better to lend it to business. That idea is flawed  first because it’s trying to solve a problem that isn’t there, and second because of the lind spot about human emotions: Japan’s problem is complex and longstanding; but the two biggest factors are confidence among business/consumers and motives among banks.

Divorced as monetarism is from humanity, it also can’t grasp that if you pauperise the population, they will buy cheap. Japanese export product quality is very high, but so too are its prices.

Finally, doing something extreme without warning may indeed catch the competition out, but they soon retaliate…. so this kind of banking ‘trick’ becomes a zero sum game.

Add to this the complexity of an idiotic theory like globalism, and you then also have to try and factor in unforeseen consequences.

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The main effect of full-on Nirp upon the Yen has been, at best, marginal: for two days after its shock introduction, the Yen/Dollar rate rose from 119 to 121. But for a week now, the Yen has been strengthening….and is now, at 114.8 as I write, a more expensive currency than it was before Nirp started.

This is actually the diametric opposite of what the BoJ wanted and most ‘experts’ predicted: the “additional benefit” of Nirp, they felt, would be lots of money moving out of Japan – thus pushing the yen down (and increasing inflation) to make Nipponese exports cheaper.

These are some of the observations being made:

  1. Investors prefer the Yen over the Buck as ‘a safe haven’.
  2. Actually, it’s mainly that the Buck is weakening.
  3. Geopolitical skullduggery is in play.
Japanese Finance Minister Taro Aso said yesterday the yen’s recent moves were “rough” and issued a warning to markets (about pushing up the currency too much) in what sounded like a threat to intervene directly in the Forex markets.

So just putting all this together, the Bank of Japan and its political mentor Mr Abe have tried two extreme forms of monetarist policy, and neither have achieved anything other than reducing confidence in their competence. Now Aso is talking about buying the very currency he wanted people to sell. Finally, I’ve yet to be convinced that investors will want to buy the biggest debt (to gdp) on the planet when they have to pay for the privilege.
For some reason, words like arse, elbow, pissup and brewery spring to mind. I think those words are also in the minds of BSD investors, and that – way above any other factor – is why we’re seeing a step by step correction down the tarnished steel of the helter-skelter towards Crash2.
When banks feel unsure about central bank competence, they start to get nervous – and more on the lookout for signs of fellow bankers in trouble. When businesses don’t feel at all good about the consumption outlook, they don’t borrow….a situation exacerbated by the track-record of banking perfidy when it comes to loans and valuations – see RBS et al. And when consumers don’t feel confident about their future earning potential, pensions, or job security, they consume less.
That penultimate paragraph is about real life for normal people. Those in the bubble don’t get it, and until ejected from the bubble, they never will.