Japan Wants to Print its Way to Prosperity

Posted by Michael A. Kamperman on April 15, 2010

The news reported by the Daily Telegraph is “A draft by 130 lawmakers from premier Yukio Hatoyama’s Democratic Party of Japan said the country needs a radical shift towards growth policies, calling for an inflation target above 2pc. The exchange rate should be steered to ¥120 against the dollar, from the current ¥90.”  To achieve this lawmakers are  directly calling on the Bank of Japan to monetize the debt to help steer the country out of persistent deflation.  However, the Bank of Japan has cited the post World War II inflationary period as reason enough not to risk monetizing the debt.  What the Bank of Japan is missing is the world today is awash with idle factories as almost everything except I-Pad’s and 3-D movies are over-supplied.  After the war there were shortages of goods to meet massively pent up demand.  There is simply no comparison between then and now.  Yet the aged institutional memory of those who serve on the Bank of Japan is currently blocking the single best solution to Japan’s Two Lost Decades of debt-induced deflationary economic depression, namely massive quantitative easing known as printing money.  The ruling coalition will win in time as they get the chance to replace the members of the Central Bank.  This is the most important economic story in the world.  The Democratic Party of Japan wants to encourage consumption.  They do not believe a society that consumes less, saves more, produces more, and exports more is the key to prosperity.  They have been traveling down that hard road for 20 years and now they want off.

Japan’s government debt is already over 200% of GDP, the highest in the developed world.  There is really no way Japan can work hard and pay the debt back in a deflationary world.  There is no other realistic way out but to print money.  It will happen sooner or later.  So why not let it happen sooner and save everyone several more years of unnecessary hardship? 

In the U.S. we have only been in a debt induced deflationary depression for a little over two years, as opposed to 20 years in Japan.  Hence our leaders have yet to move to the best solution to solve the economic crisis.  Japan has moved and now looks poised to lead the way.  In the U.S. our leaders are all excited about the false dawn of economic recovery.  Japan’s ruling coalition has seen multiple false dawns and realizes they need to use drastic shock and awe to push the economy back into a long term growth mode.  We will need to wait for an official government statistic double dip recession for our leaders to get their heads out of the sand.  In Florida one in five mortgages are 90 days or more past due.  One in five.  The weekly jobless continue to signal no employment growth.  And, the small business survey shows the most pessimism in 10 months as sales have simply not returned.  Large companies have had access to the capital markets and have been able to take market share from smaller companies who have had a very difficult time accessing credit.  In February consumer credit sank another $11 billion.  We should not mistake an end to the Lehman Brothers financial panic and an Easter holiday a week sooner on the calendar as a sign of renewed economic prosperity.  Unfortunately, no major political figure is calling for us to follow Japan’s lead.  So like the Japanese we will sit and wait and wind up disappointed.