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Japan's War Economy - Explained. [Copy link] 中文

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Post time 2014-12-14 19:37:00 |Display all floors
This post was edited by abramicus at 2014-12-14 19:44

When the BOJ governor Kuroda announced in 2013 that he would engage in open-ended asset buying with printed fiat currency, he also hinted that this would double Japan's money supply to 270 trillion yen (or, 2.9 trillion dollars) by the end of 2014, which is today.  This equates to an injection of $1.4 trillion dollars worth of yens into the Japanese economy, all in the name of supposedly trying to induce an inflation rate of a mere 2%.  Indeed, mission accomplished.  Japan's inflation rate jumped from -0.03% in 2012, to 0.36% in 2013, and finally, 2.81% in 2014.

However, the numbers do not add up!

How can doubling the money supply for the same basket of goods and services not double the price of these items?  To achieve a 2.8% inflation after engineering a 100% increase in the money supply seems like the BOJ miscalculated, and ended up trying to push Japanese inflation like a string, instead of pulling it up.  

On top of this, Abe is planning in all seriousness to raise the sales tax further in 2015.  Japan's sales tax rose from 3% to 5% in 1997 and its economy went into a recession.  Then, in the midst of trying to bring Japan out of its present recession, Japan raised the sales tax from 5% to 8% on April 1, 2014, exactly one year after the BOJ began its open-ended asset buying program (QE).  Does not make any sense, does it?  Next April 1, 2015, Japan will raise its sales tax from 8% to 10%.  Makes even less sense.

No, the QE raised Japan's inflation rate too little for the enormous $1.4 trillion dollars the BOJ spent.  The only explanation for the meager inflation resulting from the massive printing of Yens, is that the Yens are sequestered abroad and therefore had only a marginal effect in causing inflation in Japan.  And the most plausible reason the Yens are sequestered abroad, is that the Yen used in buying raw materials and advanced weapons for the next war are sitting in the accounts of foreign banks, or more likely in international "clearing houses" that do the very opposite of clearing the transactions, but instead end up holding those transactions as IOU's to be satisfied when the trade balance of the debtor turns positive vis-a-vis the lender (the one owed the money), which is used to satisfy the obligation.

The upcoming sales tax hike from 8% to 10%, makes no sense if the aim is to create a 2% chronic inflation.  It makes sense, however, if the collected yens from the sales tax, is used to prevent runaway inflation from the astronomic increase in yens created by Japan in the past 2 years.  In short, Japan's QE is probably expected to generate a tsunami of inflation of up to 12%, and therefore the sales tax of 10% will offset this hyperinflation, to generate an inflation of only 2%.  Thus, Japan is not trying to achieve an inflation of 2%, but rather, it is trying to avoid an inflation of more than 2%, and thus the need, the absolute need for the sales tax to be increased further from 8% this year, to 10% in 2015.

In short, the antics of the BOJ can be taken from the playbook of Hjalmar Schacht, who managed to finance the reconstruction of Germany's Wehrmacht from the ashes of its defeat in WWI, without causing hyperinflation in Germany.  If this is not a war economy, what is?

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