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Japan's Stimulus Won't Work. Here's Why.

Posted on July 27, 2016

Japan's Stimulus Won't Work. Here's Why.

Posted on July 27, 2016

This morning an article from Bloomberg was published speaking of Abe’s new plans for more stimulus1.  The country has been through numerous attempts of stimulus in the last few years in order to revive its ever-present deflationary economy. Granted, it’s more the trend among central bankers these days than ever before so my blame isn’t so harsh.  That said, if it had worked, there wouldn't have been need for more of it...so why has Abe kept trying?
 
The problem with Abe’s new plan is not that it's more stimulus, rather, that he's yet learned that it [again] won't work. I guess third time’s the charm…or fifth or sixth or whatever because everyone knows you can re-inflate flat tires after they’ve burst, right? [Sarcasm].
 
History proves that it doesn't work. In fact, every empire has failed due to its increased borrowing in order to depreciate & circulate more of its currency.
 
Now, the idea behind increasing more circulated currency in a populace is its ability to entice more spending to get the economy revived again. But, the formula has a flaw IF the populace isn't even in the mood to spend any of the newly circulated currency.
It’s a supply and demand issue: if you increase the supply of currency while the demand stays flat or recedes creates a deflationary environment with ever increasing debts and depreciated currency mounting.
 
The problem is the currency's depreciation and the people's lack of faith in its purchasing power lead to an ever larger black hole of greater and greater amounts of currency created and put in circulation. And more to the point, given how fiat currency is created these days allows for governments to borrow more than is prudent leading the nation or empire to go bankrupt because they can't make good on the repayment of their debts. One example is that at the beginning of our American nation our country went through hyperinflations a few different times before getting the formula for stability right2. The proper formula is doing away with fiat currency.
 
Why? Because if everyone trusts in the ever-Omni-present value of its currency, its purchasing power remains stable and cannot be tampered with nor speculated against amidst the expectations of a country's economic ups and downs, etc.
 
Now, in recent weeks the Yen [FXY] has already fallen 4% between its recent peak at its close of 96.36 the week ending July 5th, 2016 and last week’s close 92.38 ending the week of July 25th, 2016. Thus, the lack of faith in the Yen’s value and its expected depreciation come Abe’s stimulus has already been baked into it to a degree.
 
Conclusion:
Nothing good can come from Japan's stimulus. Only depreciated currency and added debt. Whether it's Japan or another nation (bc we're all adding more and more debts to our balance sheets), each will not be able to sustain the weight of its own burdensome debts.

Jos. G. Sellery
Indianapolis, IN
 
Sources:
1http://www.bloomberg.com/news/articles/2016-07-27/abe-plans-stimulus-of-more-than-28-trillion-yen-kyodo-says?bcomANews=true
2http://www.thenewamerican.com/culture/history/item/4791-america-s-inflation-and-hyperinflation
 
Further education: https://www.youtube.com/watch?v=DyV0OfU3-FU
Annnd because Japan’s growth is kind of under pressure: https://youtu.be/QgsY6TqqQCU