KW: Here are a number of items sourced from ZeroHedge, David Stockman’s Contra Corner and Dent Research that attempt to explain why all the money printing by central banks and the loose monetary policies that has occurred over the past 5 years are not working. We are in a deflationary period
First, we are now getting to desperation point. All the money printing is NOT adding to inflation that is so necessary to erode the effect of mountains of new (and old) debt that has been created that effectively mortgages the future of our children because our generation is spending money it does not deserve. Dent summarises the whole situation with the graph that shows the Velocity of Money. Money is not being spent… it is being hauded even if it losses purchasing power and this is all becasue aging populations spend less!
From ZeroHedge:
As previewed last week in “Something Big Is Coming: Bernanke To “Secretly” Meet With Kuroda; “Helicopter Money” On The Agenda“, the week’s key event, albeit behind closed doors, was the surprising meeting between Ben Bernanke and the BOJ’s Kuroda as well as Japan’s prime minister Abe. The outcome of the meeting has been, as we expected, nothing short of a whirlwind reaction in markets where speculation that Japan is set to become the first nation to openly espouse “helicopter money”, or central bank funded fiscal policy stimulus, has seng the Yen plunging (at least check the USDJPY was above 104), the Nikkei soaring and unleashed a global “risk on” wave. But what was actually said?
Since the meetings were held in private, nobody will ever know, although one can infer based on the upcoming actions by the BOJ and the Japanese Ministry of Finance, both of which are expected to boost monetary and fiscal stimulus, respectively, in the coming weeks, with Japan expected to unleash a new fiscal stimulus of around JPY 10 trillion or more. As such, we have to rely on heavily filtered and watered down official interpretations of what the Citadel analyst and Brookings blogger told the BOJ.
According to the WSJ, the former Federal Reserve Chairman Ben Bernanke rejected the notion that the Bank of Japan is short of ammunition when he met with Prime Minister Shinzo Abe Tuesday. Bernanke noted during the face-to-face meeting that Japan’s central bank still has a range of monetary easing measures at its disposal, according to Chief Cabinet Secretary Yoshihide Suga.
This contradicts BOJ executive director, Kazuo Momma, who just yesterday said that the Bank of Japan will need to reduce the pace of its record purchases of government debt as it is approaching the limits of the bond market. “Of course they can’t keep stacking up 80 trillion yen ($784 billion) of bonds forever,” said Kazuo Momma, who worked at the BOJ until the end of May. “They are aware they are nearing the limit, whether that is now or later.” “With that awareness, it’s not impossible that they will increase the pace from 80 trillion yen to 100 trillion yen or 120 trillion yen, but it’s incredibly difficult,” he said in an interview on Monday in Tokyo. “Based on common sense, you’d think they’d start considering reducing the pace a little bit in the near future.”
But despite Bernanke’s insistence to keep his mouth shut about what transpired during his historic meeting, the answer leaked out anyway: Koichi Hamada, a close adviser of the prime minister, said Mr. Bernanke may have discussed helicopter money with Japanese officials he met with during his visit, including BOJ Gov. Haruhiko Kuroda and Ministry of Finance policy makers. Hamada, a Yale University professor, attended Tuesday’s meeting with Bernanke and Abe.
From David Stockman’s Contra Corner:
Ben Bernanke is one of the most dangerous men walking the planet. In this age of central bank domination of economic life he is surely the pied piper of monetary ruin. At least since 2002 he has been talking about “helicopter money” as if a notion which is pure economic quackery actually had some legitimate basis. But strip away the pseudo scientific jargon, and it amounts to monetization of the public debt—–the very oldest form of something for nothing economics.
Back then, of course, Ben’s jabbering about helicopter money was taken to be some sort of theoretical metaphor about the ultimate powers of central bankers, and especially their ability to forestall the boogey-man of “deflation”.
Back to ZeroHedge:
Think “helicopter money” is/will be confined only to Japan, which has been sending conflicting trial balloons about this unprecedented next step in monetary policy for the past two days (first Japan’s Senkei reported that the government will be adopting “helicopter money” followed by a government spokesman denying the report, then followed by a separate Bloomberg report about a 10T yen stimulus plan, the concluding with Abe advisor Koici Hamada saying that “boosting fiscal and monetary stimulus at the same time would be effective” in Japan)? Think again.
Speaking overnight in Australia, the Fed‘s Loretta Mester said “helicopter money” could be considered to stimulate America’s economy if conventional monetary policy fails.
As Australia’s ABC reports, Mester, president of the Federal Reserve Bank of Cleveland and a member of the rate-setting Federal Open Market Committee (FOMC), signalled direct payments to households and businesses to stoke spending was an option if interest rate cuts and quantitative easing fail.
“We’re always assessing tools that we could use,” Mester told the ABC’s AM program. “In the US we’ve done quantitative easing and I think that’s proven to be useful.
So……….
All these part articles tend to show that Central Banks are trying new tricks that are at the extreme edge of economic experimentation never tired before and which no one even thought of until recently.
From Dent Research: A news letter
Our Money Velocity Sucks And That’s Bad News for Our Economy
DEFLATION!
There is no other cure for excessive use of financial drugs, and that is what excessive use of debt is – plain and simple. Debt is a financially-enhanced drug that has major costs down the road.
It’s like detox for heroin addicts. It is ugly, but it purges the system of the drug and allows it to be healthy and grow again. There is no easy way around that once you are highly addicted and toxic from it. And we are witnessing the greatest debt and financial asset bubble since the early 1970s, more so than 2000!
Dr. Lacy Hunt is a classical, Austrian economist that totally gets how debt and financial bubbles build and how they deleverage and burst. Only Steve Keen in Australia (now London) garners a similar respect from me for such research. Lacy has the “voice of God,” and always has interesting charts and research. His bond fund at Hoisington Investment Management has continued to be a long-term winner betting on deflation, not inflation, showing he puts his money where his mouth is.
But my favorite of all of his charts – and the most unique – is his chart on money velocity, going back to 1900.
This chart clearly shows a major cycle in rising and falling money velocity. And money velocity has everything to do with the expansion of our money supply from leveraged bank lending against 10% deposit and capital reserves.
When money velocity starts falling however, as it did after 1918 and after 1997, it is a sign that investment is going into more speculative pursuits that don’t create productive capacity and returns – like stock buybacks and mergers and acquisitions for businesses, or like flipping tech stocks or condos for households. That shows you are entering a bubble economy, like the Roaring 20s or the Roaring 2000s (as I termed it in my 1998 book title).
But when you start falling below that long-term average of money velocity you are entering a deflationary or deleveraging stage, which we did from 2008 forward… but such deleveraging and deflation has been simply covered over by endless QE and money-printing.
Despite such “something for nothing” stimulus, money velocity continues to decline. That’s why we aren’t getting inflation, nevertheless hyperinflation, and why we won’t in the future!
Deflation is the only trend for the next several years and no one understands that better than Lacy Hunt. I may have a little debate with him on the rising odds of a near-term spike in Treasury yields before we head towards even lower rates again.
Hope you follow all that.