Printing Money Against all Economic Logic: Japan

I spend to much time trying to figure out why supposedly smart people at central banks around the world are unable to grasp any semblance of “reality” when it comes to monetary policy and a seeming lack of understanding of what humanity really needs to “save capitalism” before a global backlash threatens the best system we have collectively come up with to sustain life as we know it today.  Japan is the most wondrous example of the “me to” policies perpetuated by major central banks around the world irrespective of the reality on the ground.  See some graphics below.

This is what happens when you print money against all economic logic, when interest rates were already at historic lows but your demographics are working against you.  Where does the money go?  Speculation, Yes!  Investment? Consumption? No.

 Demographics can’t be ignored:

With the extremely low interest rates, aging population, declining workforce participation and practically zero interest rates, saving rates have turned negative as of December 2014…

Savers in Europe face the same dilemma, also with aging populations and zero return on savings, the elderly are just getting poorer, and when they are the largest segment of the population, where is all the money printing going to go?

Neither can economic reality of this effect when looking at Japan vs Rest of World GDP

So where has all the debt spending been going? Where are the growth numbers?  Most importantly, where would Japan be without all this debt spending / money printing? Once again… you can see where the money goes below. 

But unfortunately for the Japanese population, they are not participating in this “faux wealth creation” as shown by the low percentage of stocks held by individuals:

 As this article from the Future Tense blog illustrates:

Until late 2012, the Japanese stock and real estate markets experienced 23 years of declines. Imagine stocks and real estate peaking this year in the United States and declining for the next 23 years. What percentage of their assets would Americans hold in stocks and real estate in 2037? Probably close to 0%. Just like the Japanese today.

The sad part of this story is just as the Japanese have put their entire life savings into cash, the Bank of Japan (their central bank) has declared war on those savings. Most of their citizens will see the purchasing power of their savings decimated in the years ahead. The Bank of Japan has promised to unleash an unlimited amount of QE (and have kept their promise so far) until inflation reaches 2% and beyond.

And what of the earnings at Japan’s largest corporations doing business around the world?  With the above demographics, Japanese nationals are getting poorer by the month as they frantically try to keep their cash savings from declining instead of spending it, resulting in lackluster spending at home. So it’s clear what the corporate sector is doing with their earnings.  As stated in Bloomberg article, they are holding it or investing abroad:

Private companies’ cash and deposits rose 5.8 percent from a year before, to 225 trillion yen ($2.4 trillion) -- an amount in excess of the size of Italy’s economy or the liquid assets held by American firms, Bank of Japan data showed in Tokyo. Businesses held 55 trillion yen in direct investment abroad.

The report underscores the appetite for manufacturers to ramp up operations in faster-growing economies as they await evidence for Abe’s growth agenda opening new opportunities at home.

“The corporate sector is not going to take that money and suddenly start investing, start increasing wages or hiring more workers if it doesn’t see a more optimistic future.”

It’s going to be a VERY LONG wait.