“On Friday [Nov. 6, A.D. 2015] the Bank of Japan [BoJ] revised down its inflation and growth forecasts, and pushed back its expectation of hitting the 2 per cent inflation target to the end of next year. It seems likely, and indeed desirable, that the BoJ will be forced to expand its programme of quantitative easing [QE] before too long.”
QE is intended to cause more borrowing, more spending and more inflation in whichever country/economy that promotes it. In the case of Japan, continued reliance on QE is strange since they’ve tried to use some version of QE for most of 25 years without much success.
Why does Japan continue to beat that dead horse? Could it be because that’s the only horse they have? Financial Times:
“Disappointing outcomes do not mean that the BoJ’s combination of an inflation target and using QE has failed, but that it needs to be more enthusiastically pursued. The BoJ can and should contemplate going further.”
Ohh, sure. Just because QE has “disappointed” everyone by not working for 25 years, that’s is no reason to conclude that QE has failed–right? Japan’s central bank should simply give it another “college try” and go deeper and deeper into QE for . . . hmm . . . how ’bout another 5 years?
In fact, QE has not only failed to stimulate the Japanese economy for most of 25 years—it’s also failed to stimulate the US economy for the past six years and is currently failing to stimulate the EU and Chinese economies. Despite these “disappointing outcomes” (a/k/a “reality”) Japan has nevertheless concluded that QE still might work.
The Financial Times’ recommendation that Japan to “go further” with more QE seems to reflect conventional wisdom that “If at first you don’t succeed, try, try again.” So, just because QE has so far failed to effectively stimulate the world’s four largest economies, there’s still no reason to suppose that QE is fundamentally incapable of stimulating the Japanese economy. QE might still somehow work. It could happen, y’know?
However, if “try, try again” is conventional wisdom, so is the conventional definition of insanity: “Doing the same thing over and over and expecting to get a different result.” In other words, after persistent and repeated QE failures, economists might be crazy to keep trying make QE work.
So, dear reader, which of these “conventional wisdoms” is more appropriate to the continued application of QE? “Try, try again”—or the practical definition of “insanity”?
No One’s In Control
Voters know that government and central banks no longer control the economy. They know because they’ve watched Zero Interest Rate Policy (ZIRP) persist for almost eight years. They may not understand ZIRP, but they know it hasn’t caused a significant improvement in the economy.
Likewise, they’ve watched QE, too-big-to-fail banks, too-big-to-jail corporate executives and politicians that will look you in the eye and lie, lie, lie. The majority of voters won’t usually object to any of that idiocy, immorality or criminality so long as our leaders can at least appear to “get ‘er done”. But now they can see from the persistent, repeated and long-term failures of QE, ZIRP, Wall Street and Washington DC, that their leaders are not only failing to “get ‘er done,” but are probably now incapable of ever “getting ‘er done”.
There are still people in public office and at the head of major institutions who have great influence—but nobody’s really in control.
The system, the nation runs on and stays cohesive based on public confidence. Leaders who persistently can’t “get ‘er done” diminish confidence in themselves and major institutions.
Declining confidence is true in the US and is also true in Japan, the EU and China. Financial Times:
“Setting a target date and missing it is bad for credibility [confidence], but so is endlessly deferring the goal into the future.
“Haruhiko Kuroda, the BoJ’s governor, observes that inflation rates have been pushed down by lower oil prices. But the weakness of real consumption, which fell 0.4 per cent in September on a year earlier, suggests there remain serious problems in generating domestically-driven demand and inflation.
By “serious problems in generating” they mean that, despite the Japanese government and BoJ throwing billions or even trillions of Yen at the Japanese people, QE has failed to stimulate Japan’s economy.
By “domestically-driven demand and inflation,” they mean the Japanese people must spend more, borrow more, create more demand, and thus cause inflation and economic stimulation.
But the people aren’t buying. They’re not borrowing. They’re not demanding more goods and services from their economy anymore than they’re demanding more truth from their politicians.
Something has happened. The Japanese people are no longer responding to economic stimulus as expected. The people’s Pavlovian conditioning has failed. They won’t buy when currency is plentiful and won’t borrow when interest rates are near zero. Public confidence in political leaders is waning.
Unable to Control
QE and ZIRP don’t work, but that’s all central banks have to control the economies. Therefore, Financial Times recommends:
“By continuing its QE programme, the BoJ has done a fair amount of what it can. It should continue to explore the possibilities for doing more. But it cannot just be up to [BoJ governor] Kuroda and his colleagues to get Japan’s sputtering economy up to cruising speed.”
Indeed, the BOJ has done “what it can” without getting Japan’s economy “up to speed”. That’s evidence that there’s not much more that Japan’s central bank can do. Japan’s central bank is not longer able to control the Japanese economy. That inability does not inspire public confidence.
Without public confidence, the system will tend to collapse.
The Financial Times article implicitly admitted the obvious: the BoJ and its QE programs have been proven incapable or reviving Japan’s depressed economy.
If QE won’t work . . . if QE can’t work . . . what will?
Depression as Disease or Remedy?
The Japanese, US and even global economies are threatened by possible economic depressions. Virtually everyone is anxious.
But must economic depressions be viewed as something intrinsically bad—like cancer? Or should depressions be viewed as something unpleasant but also necessary and even beneficial somewhat like a hangover?
I.e., what’s the bad thing? Having a hangover Saturday morning or getting drunk Friday night? Is the hangover the “bad thing” or is it simply the unpleasant result of the true “bad thing” (getting drunk)?
Is the hangover a “good thing” if it’s part of the cleansing and remedy for the bad thing (getting drunk)? If so, should we struggle to avoid the hangover? Should we take pills that prevent hangovers and therefore allow us to get drunk more often? Or should we struggle to stop getting drunk?
Similarly, should an economic depression be viewed as a terrible disease to be avoided at all costs? Or should the depression be viewed as a painful, but beneficial consequence of and remedy for the “bad thing” (prior economic imbalances)?
What are economic “imbalances”? Are these imbalances “bad” merely in the amoral sense that mathematical errors are undesirable? Or could persistent economic “imbalances” be “bad” in the moral sense of being evidence of intentional, institutionalized injustice?
Could it be that the reason the Japanese people don’t respond as expected to QE is that, unlike their leaders, the Japanese people want to be moral? I know it sounds crazy, but could it be that the majority of Japanese people sense that QE (printing fictional currency to be spent by people or institutions who didn’t earn it) is inherently immoral? Could it be that, sensing QE’s immoral nature, some significant percentage of the Japanese refuse to participate in that immorality and therefore refuse to be “stimulated” by QE?
Do most Japanese understand that the Zero Interest Rate Policy (ZIRP) robs creditors and destroys retirees’ savings by paying them only a fraction of a percent interest on the wealth they’ve saved for lending or retiring? Are the Japanese refusing to respond as expected to ZIRP because they’ve hit a gag reflex that prevents them from participating in ZIRP’s inherent theft and injustice?
What about Americans? Is their failure to adequately respond to the economic stimulus of ZIRP and QE the result of some economist’s mathematical miscalculation? Or, could it be that Americans also hit the gag limit to the immorality of paying creditors near-zero interest rates and awarding trillions of QE dollars to bankers (who are little more than gangsters) and to sub-prime borrowers who are little more than thieves?
Persistent “Economic Imbalance” = Injustice?
The term “persistent economic imbalance” ultimately means that someone is legally entitled to be paid more than they’ve earned and someone else is legally compelled to pay for more than they receive.
A persistent “economic imbalance” isn’t evidence of a mathematical anomaly. It’s evidence of an established policy to provide unearned, monetary benefit to “special interests”. A persistent economic imbalance (especially an imbalance caused by government and/or central banks rather than by the free market) is evidence of massive, institutionalized injustice.
For example, most of the economic gains achieved in the US economy since the Great Recession, have accrued to the richest 0.1% of the American people. That top 0.1% (one man in a thousand) reportedly now owns as much wealth as the bottom 90% (900 people out of a thousand).
That result would be justified if the top 0.1% personally earned their fortunes by dint of superior intellect, education and personal hard work in a free market where everyone could compete on an equal basis. However, that wealth imbalance would be unjust if the top 0.1% acquired their riches by bribing politicians with “political campaign contributions” to enact laws and/or support manipulated (un-free) markets that allow rich “special interests” to rob the poor, middle class and those who are “less rich”.
The issue of wealth distribution isn’t merely a matter of math. It’s mostly about morality.
Is the super-wealth of the super-rich due to their higher levels of morality? Or is it due to their higher levels of immorality (political bribes, restriction of competition and market manipulation)?
To whatever extent the fabulous wealth of top 0.1% results from bribing government officers and officials, that wealth is not the result of hard, smart work in the free market. It’s the result of massive, institutionalized injustice. If the politicians have rigged the game to favor the oligarchs, that’s institutionalized injustice.
In a recent interview, Gerald Celente (Trends Journal) claimed that, globally, the world’s richest 85 men own more wealth than the poorest 3.5 billion people. Is that wealth imbalance evidence of hard work and fair competition in a global free market? Or is it evidence of massive, institutionalized, persistent and intentional injustice?
Temporary Aberration vs Persistent Policy
When I refer to “economic imbalances,” I’m not talking about temporary fluctuations in prices, unemployment rates or profits. Volatility is a hallmark of a true free market. Whenever a product is overpriced and therefore unusually profitable, competitors rush in to grab some of the excess profits. The additional competition will push prices and profits back down to reasonable levels.
But, today, we have economies subject to the central control of a bunch of economists. Central control is ideologically opposed to a free market. Central control is inherently immoral since it sets policies that will provide riches to some who haven’t earned them, and forces others to pay debts that they didn’t personally incur
Our genius economists have deduced that, in order to protect the “economy” (read, “special interests,” the super-rich and central bank control mechanisms) we have to give trillions of fiat dollars to people and institutions that didn’t earn them and to banks that are “too big to fail” and then leave the bill for that debt to future generations of the great unwashed. Where is the justice in that manipulation/QE?
These same genius-economists have given us over 7 years of ZIRP which has robbed a generation of creditors, bank depositors and retirees. The -genius-economists declared that it was justifiable to rob the creditors and bank depositors with ZIRP because that theft would stimulate the poor and middle class into spending enough extra money to boost the economy into a recovery. Even if we assume that justification actually works, where’s the justice in any theft? What part of the Constitution or Bible authorizes our genius-economists to rob the people who were hard-working, prudent and frugal of whatever wealth they’d honestly acquired?
What’s the moral difference between Ben Bernanke’s establishment of a 0.25% prime rate that robs nation’s bank depositors of a decent return on their savings and a criminal who robs the bank? Bernanke’s ZIRP robbed every bank depositor in the country. The bank robber typically robs only a few banks. Who’s the bigger crook? Who’s the most immoral?
Who perpetrated the greater robbery? Who robbed the most people of the most currency? The bank robber with a gun? Or Helicopter Ben with ZIRP?
The “Invisible Hand” of Math or Morality?
In A.D. 1776, Adam Smith published The Wealth of Nations—the first great book on economics. Smith postulated the existence of an “invisible hand” that controlled markets. That “invisible hand” wasn’t simply about balancing supply, demand, wages and profits. It was about making sure that no one profited exorbitantly and no one was exploited. However chaotic it may have seemed, Adam Smith’s free market was about establishing justice.
Today, where’s the justice in QE, ZIRP, too-big-to-fail banks and too-big-to-jail bankers and politicians? Injustice has become the “new normal” and is horrific in that almost no one objects. Where’s the justice in fiat currency, a debt-based monetary system and artificially-suppressed prices of gold and silver?
Could it be that the current economic system can’t even function without institutionalized injustice? In other words, in our modern, debt-based economy, is injustice a temporary aberration or a fundamental requirement?
Immorality’s Remedy: Depression
If QE and ZIRP can’t rescue our stagnating economy, and economist have no other options, is it time to consider whether, maybe, an economic depression is the only viable remedy for the economic imbalances (injustice) created by our government and monetary system?
If QE (institutionalized injustice) can’t work, is the only remedy for the economic malaise seen in Japan, US, EU, China and even the globe, to stop trying to avoid the correction that only a depression can provide?
Look at little Iceland. Its government, banks and people played the fool for a number of years during which they allowed or even caused economic imbalances (injustice). They came to their senses, stopped the imbalances/injustice and “took their medicine”. I.e., they suffered through 18 to 24 months of economic depression, but emerged strengthened and their prosperity was soon restored.
Then, look at little Greece. Like Iceland, its government, banks and people also played the fool for several years during which they allowed and even caused economic imbalances (injustice) to occur. They lived beyond their means. Like all leftists, they claimed to be entitled to the wealth they didn’t earn. They supported an unearned standard of living and an irrational leftist government by borrowing from EU creditors.
Unlike Iceland, Greece has been writhing about for the past six years as they tried to avoid the pain of the economic depression that they’d earned as leftists living beyond their means. However, rather than simply “take their medicine” and endure a few years of economic depression/correction, the Greeks are demanding a “hair of the dog that bit them” (more unearned currency from their EU lenders). Unlike Iceland, the Greeks don’t want to live within their means.
Result? In their desperate attempt to avoid a national depression (remedy), the Greek people have, so far, suffered through six years of “austerity,” lost ownership of much of their property and the surrender of much of their national sovereignty. They’re economic alcoholics who don’t think they can make it without another drink/debt. There’ll be no relief until the Greeks admit the truth (they’re bankrupt) and embrace the justice of living within their means rather than living on credit.
Did Iceland regain prosperity while Greece wallowed in austerity because Iceland had a stronger economy than that of Greece? Or did Iceland regain prosperity because Iceland first regained its morality—while Greece suffers austerity because it continues the immoral pursuit of unearned (borrowed) wealth and the proverbial “free lunch”?
Could Greece also regain its prosperity if they confessed they’re bankrupt (not just monetarily, but morally), cancelled their existing debt, suffered a few years of depression and then regained their moral values?
Could the US?
Moral Gag Reflex
Do the ordinary peoples of Japan, the US, EU and China have some dim awareness that ZIRP and QE are immoral, unjust or even criminal? Is that why the peoples of these countries have become reluctant to take the “bribes” (free lunches) that are provided by ZIRP and QE?
Of course, government officials (who are far more experienced and open-minded when it comes to taking bribes), might be mystified by a nation’s reluctance to also take QE’s “free money” bribes. But, could it be that the people are inherently more moral than their leaders? Could it be that the people understand that it’s time to stop intoxicating themselves with more “free money” (injustice) and take their medicine—a relatively brief economic depression—to regain their strength, moral values and prosperity? Could it be that the people value some minimal degree of morality more highly than fiat currency?
I know. I know. My whole hypothesis sounds crazy. People who refuse to take “free money”? Ha! That’s as nutty as dogs that refuse to take Milk Bones. It just can’t be.
Still, what if it was true that the people had begun to reject their masters’ offers of “free money” (doggy treats) simply because that free money was immoral? How could the masters train their “dogs” to do tricks?
What kind of “tricks”?
Well, how ‘bout working and expending their energy and lives for worthless pieces of paper? That’s a pretty good trick and clearly immoral. It’s like tricking elephants to stand up on a huge ball in return for Styrofoam peanuts.
Or, how ‘bout getting people of the world to sell their land, their homes, their possessions, and even their children and creations for worthless pieces of paper? As tricks go, that ranks right up there with illusions that David Copperfield might’ve invented–and it’s also immoral as Hell.
Could it be that the peoples of Japan, the US, EU and China are starting to reject the Styrofoam peanuts (fiat currency) as rewards for their “tricks”?
If the public has lost its appetite for the Styrofoam peanuts provided by QE, ZIRP and central banks, could it be that the only remaining way for a nation to regain economic prosperity is to first regain its moral balance? Do we ultimately need our personal dignity more than we need free lunches and plastic peanuts? Could it be that the fundamental effect of an economic depression is not to impoverish people but rather to restore some semblance of their lost morality?
Is that why governments are so fearful of economic depressions? Because it tends to destroy the immorality on which all modern economies is based? Without systemic immorality and/or injustice, would modern economies, central planning and the New World Order all collapse?
Could it be that the reason ZIRP and QE don’t seem to work anywhere is because “free money” is fundamentally immoral and is therefore as odious to sensible, productive people as an endless supply of “free” crack?
Is the current economic recession and/or depression evidence that the people are simply sick, tired and hungover from government’s endless market manipulation, central control and economic injustice?
Is the only remaining remedy for that sickness a good, old-fashioned, Great Depression?
Sure, that’s a crazy, scary idea—but could it be true?