The financial system has failed and remains a threat to us all. Only cheap money and the artificial inflation of asset values can make it appear temporarily healthy. Yet, the Fed (and the Obama Administration) continue to perpetuate the illusion that making the cost of (printed) money zero by any means has had a positive effect on the population at large, when in fact, all that has occurred is a pass-the-debt-ponzi-scheme co-engineered by the Fed and big US bank beneficiaries. That debt, caught in the crossfires of this central-private bank arrangement, is still doing nothing for American citizens or the broader national or global economy.
The Fed is already the largest hedge fund in the world, with a book of $4.5 trillion of assets. These will plummet in value if rates rise. Cue the banks that are gearing up their own (still small in comparison, but give them time) role in this big bamboozle. By doing so, they too are amassing additional risk with respect to interest rates rising, on top of all their other risk that counts on leveraging cheap money.
2--Koo: QE fails to generate credit growth, web of debt
Since November 2008, when QE1 was first implemented, the monetary base (money created by the Fed and the government) has indeed gone up. But the circulating money supply, M2, has not increased faster than in the previous decade, and loans have actually gone down. (See chart below from Richard Koo, Nomura Research Institute.)
3----Abenomics Creates "Potential For Economic Collapse Triggered By Bond Market Crash", Warns Richard Koo, zero hedge
When a year and a half of aggressive quantitative easing failed to produce a recovery in private demand for funds, the government should have realized that the answer to the economy’s problems was not in monetary policy and shifted its focus to the second and third arrows of Abenomics.
But the reflationists in academia and bureaucracy who are unable to accept that monetary policy is powerless in a balance sheet recession have basically said that if one pill doesn’t cure the patient, try two, and if two don’t work try four, 16, 256....
Most patients would start to question the doctor’s diagnosis before they agreed to swallow 256 pills. But such voices have been erased from Japan’s policy debate.
ECB President Mario Draghi quipped in a press conference on 6 November that “when evidence meets faith, it doesn’t stand a chance.” For those who believe monetary policy is always effective, no amount of evidence that there are times when monetary policy does not work will convince them otherwise....
The first group's scenario, in which the BOJ’s reckless attempts to achieve a 2% inflation target trigger a bond market crash and an eventual collapse of the Japanese economy, is of greater concern. After all, it is the same scenario the world’s QE pioneers—the US and the UK—are desperately trying to avert at this very moment.
4---Yellen Defends QE as Economic Benefit in Letter to Senator, Bloomberg
5--Reading Keynes at the Zero Lower Bound , carola binder
6--The purpose of QE is NOT employment, Kitco
Despite the trillions spent on QE, the effect on US employment rates was negligible.
6---Richard Koo: "Honeymoon For Abenomics Is Over", zero hedge
7--Bill Gross then ended his note with a warning and a quick summary:
So our PIMCO word of the month is to be “careful.” Bull markets are either caused by or accompanied by credit expansion. With credit growth slowing due in part to lower government deficits, and QE now tapering which will slow velocity, the U.S. and other similarly credit-based economies may find that future growth is not as robust as the IMF and other model-driven forecasters might assume. Perhaps the whisper word of “deflation” at Davos these past few weeks was a reflection of that. If so, high quality bonds will continue to be well bid and risk assets may lose some luster. In any case, don’t be a pig in today’s or any day’s future asset markets. The days of getting rich quickly are over, and the days of getting rich slowly may be as well. Most medieval, perhaps.
8---Japan has lost ground on five economic fronts since last China summit, JT
Economic eclipse: Japan’s GDP in 2006 was $4.3 trillion, ranking it No. 2 in the world while China’s GDP was $2.8 trillion, placing it fourth after the U.S., Japan and Germany. In 2013, China’s GDP was $9.4 trillion, doubling Japan’s $4.5 trillion.
China outguns Japan: China’s national defense budget has grown to 808.2 billion yuan ($132 billion) in 2014, from 283.8 billion yuan in 2006. Japan’s national defense budget was ¥4.78 trillion ($41.9 billion) in fiscal 2014, little changed from ¥4.79 trillion in 2006, Defense Ministry data show.
Japan needs China more, China needs Japan less: The share of China’s exports to Japan in the country’s total overseas shipments dropped to 7.9 percent in 2013 from 9.8 percent in 2006, according to data compiled by Bloomberg. China accounted for 20.6 percent of Japan’s total overseas shipments in 2013, up from 16.5 percent in 2006.
Investment shifts: In the first six months of this year, Japan and Japanese companies invested $2.9 billion in China, according to government data. In 2013, foreign direct investment was $9.1 billion, up from $6.2 billion in 2006. Chinese investment into Japan was $437 million in the first half of this year, up from $140 million in the whole of last year and just $12 million in 2006.
Tourists: Reflecting the increased wealth of its burgeoning middle class and a weakening yen, 1.8 million mainland Chinese visited Japan in the first nine months of 2014, compared to 0.8 million people in 2006, according to data from the Japan Tourism Agency.
9--A Liberal Democratic Party lawmaker is calling on Prime Minister Shinzo Abe to delay the next consumption tax increase “by 1½ years” to achieve the administration’s key policy goal of beating nearly two decades of deflation. JT
Kozo Yamamoto said in a recent interview that the administration believed the “Abenomics” policy mix would shore up stock prices and push down the yen, and that expansion of exports would offset the negative impact of the first sales tax hike, to 8 percent, last April l.
“But the assumption was wrong,” said Yamamoto, a former Finance Ministry official who is now head of an intraparty group of Diet members that supports Abe’s economic policies centering on drastic monetary easing and massive fiscal spending.
“We are concerned that Abenomics will end in failure if the administration repeats its mistake” and raises the consumption tax to 10 percent next October, Yamamoto said.
Amid lingering fears that a postponement would undermine Japan’s fiscal discipline and trigger a surge in long-term interest rates, Yamamoto said: “This will never happen.
“What people overseas are most concerned about is a slowdown of the Japanese economy. We can earn international trust if we explain that we will rebuild the economy and overcome deflation” by putting off the next tax hike.
Abe has told the world he will carry out the two-stage consumption tax increase for fiscal rehabilitation. But some lawmakers, including Yamamoto, and government officials have recently asked him to delay the second round, with economic data showing the first significantly stifled domestic demand.
The economy contracted an annualized real 7.1 percent in the three months through June, its worst setback since the first quarter of 2009 when it shrank an annualized 15.0 percent following the 2008 global financial crisis.
Under Abe, the yen has fallen to a seven-year low, fueling a jump in Japanese exports and a surge in corporate earnings. The benchmark Topix stock index has gained more than 70 percent since Abe was elected in December 2012 and closed at a six-year high today.
The International Monetary Fund has warned of the risks if Japan fails to increase the levy, with Japan mission chief Jerald Schiff saying last month it’s “really the only tool” for cutting the debt burden.
The IMF projects Japan’s gross government debt to swell to the equivalent of 245 percent of GDP this year, the most in the world.
11--China GDP to surpass US, economist