Japan: Lessons of a debauched currency
Everything happening in the US today happened in Japan in the 1980's. And when their bubble burst, they fell into a decline from which they've never recovered.
Japanese yen notes are piled up after counting at a bank in Seoul, Oct. 8. Japanese economists tried to keep the yen low in the 80's, but yielded to international pressure and let it rise. Japan’s GDP growth rate fell by half. Japan cut rates 4 times in 1986, which kept the economy aloft for four years. Then, the bubble popped, and the economy went into a 20-year collapse.
Photo illustration / Lee Jae-Won / Reuters
Keynes was right about one thing…
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Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning (dailyreckoning.com).
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Peace talks broke down last weekend. Observers had expected the IMF meeting on the weekend to result in the equivalent of the Peace of Amiens or the Surrender at Appomattox. But Treasury secretaries and central bankers went home, unpacked their bags, and resumed their premeditated mischief.
The dollar went down. Why would anyone pay 100 cents for an old, worn out greenback when the Fed promises to create trillions more of them, brand spanking new? Europe and Japan resumed firing with their new QE guns. Asian nations sent out snipers to intervene in the currency markets directly. And China and the US resorted to “trench warfare,” reported The Financial Times, neither apparently ready to give up an inch; that is, neither was prepared to allow its currency to buy more today than it did yesterday. In America, China has become an election-year bogeyman. The electorate seems convinced that any nation that stockpiles $2 trillion worth of America’s I.O.U. greenbacks must be up to no good.
So, the war goes on. But it is an ersatz war. All the combatants really want the same thing – to debauch their currencies at the expense of savers and creditors. Sooner or later, they’ll conspire to get the job done. A full 93% of US financial professionals believe the Federal Reserve Bank is on the case. It is expected to launch major debauch in November. Investors have run up almost all asset classes in anticipation. The Dow passed 11,000 on Friday. Soft and hard commodities hit new highs. And if, on a given day, gold does not set a new record, it is probably because the markets are closed.
What a remarkable period in financial history! We can hardly believe our luck. Absurd things are happening. John Maynard Keynes was wrong about practically everything. But he was right about this:
There is no subtler, surer means of overturning society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction and does it in a way that not one man in a million is able to diagnose.
And we get to see it live. And probably dead. The US dollar fell under the control of the debauchers, partially, in 1913…when America’s central bank was formed…then fully, in 1971, when gold backing for the dollar was completely eliminated. In the 100 years before the Fed was formed, the dollar lost not a penny of its value. In the almost 100 years since, it has lost almost all of them. If the greenback were to lose another 5% of its 1914 value, there would be nothing left at all.
Such slow larceny bothered no one. As long as the dollar slid gradually, and peacefully towards worthlessness it seemed almost natural, even healthy. Central bankers could mix with polite company and hold their heads up. None was arrested, as far as we know. None was so tormented by his crime that he had to be restrained or sedated. But now central banks are committing their felonies in broad daylight. Economists argue for more. But investors are confused and worried. Today, they buy gold. Tomorrow they may buy shotguns.
