EC Dollar’s Ride Is About To End

Under the stewardship of Shinzo Abe, the nation of Japan has become a global leader in debt, currency devaluation and inflation.  Unfortunately for the Japanese, Abenomics is also leading Japan into a hyper inflationary depression, as the first of his three arrows has shot right through the yen and put a gaping hole in the wallets of every Japanese citizen.

The Bank of Japan (BOJ) has placed all its chips on the bet that inflation will cure all the nation’s economic problems. Making deflation public enemy number one is rather convenient when your country's public debt to GDP is the highest in the world. In order to end deflation, the central bank has purchased 70% of all newly-issued Japanese Government Bonds. All this money printing is intended to get prices rising, and it has been very successful. Japan's consumer prices rose 3.1 percent in August from a year earlier.  Prices for fuel, light and water rose 6.4 percent on the year.  But as real wages continue to fall, the bull’s eye appears to be directed on destroying the Japanese middle class.

In the nonsensical world of Abenomics--where inflation is viewed to be the progenitor of growth--the 3.1% CPI reading is deemed to be insufficient. This is because the core rate of 1.1 percent was far shy of the 2% read they are aiming for. So, as expected, there are calls coming from the lobotomized economic experts in Japan for yet more money printing from the BOJ.  

Japan’s “experiment” with Abenomics would be much more interesting if we didn’t already know how it all ends.  This so called experiment of massive debt monetization has already been tried in countries such as Weimar Germany and, more recently, in Zimbabwe; with disastrous results.  The misguided policy of using inflation to create growth is predictably causing asset bubbles in JGBs and stocks. The BOJ is tirelessly printing money to monetize nearly all of the Japanese government’s enormous debt load and also to buy stocks. This has ballooned its equity portfolio alone to be an estimated 7 trillion yen ($63.6 billion).  However, all this has done nothing to boost real GDP, balance trade or boost real wages.  In fact, Industrial production shrank 1.5 percent month-on-month in August and spending among Japanese households fell a steeper-than-expected 4.7 percent.

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Michael Pento is the President and Founder of Pento Portfolio Strategies and Author of the book  more

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Danny Straus 7 years ago Member's comment

I'm looking for an update on this article. Mr. Pento, do you feel there has been any change since you last wrote this?

John Fitch 7 years ago Member's comment

If people are looking to protect themselves from inflation by selling fiat, there are alternatives to gold. Bitcoin is immune to M0/MB inflation due to its fixed supply. Although certainly less stable than gold, and even fiat for that matter, the upside is exponentially greater. I would not recommend converting all money and assets, but a small percentage of discretionary investment income could certainly be viewed as a calculated risk.

Ilene Carrie 7 years ago Contributor's comment

If the Fed restarts QE, can it prevent interest rates from rising and the disaster that would bring on? Can they somehow balance inflation, deflation, and interest rates as they are now by bringing on QE and then taking it away and then starting it up again when needed...? What would be the first thing to fail?

IPO Candy 7 years ago Contributor's comment

Interesting but am not convinced. I don't follow Japan closely but against a developed world basket if currencies the USD looks pretty good to me. It's had a big run given that EUO has gone from $17 to $20 in the past couple of months so probably needs a rest.

The US economy may not be surging but overall the US prospects appear better than many, possibly even China in the short term. Euroland is still structurally screwed up and while the EUR has had a great decade as a currency I wonder about it from here (at least relative to the USD.)

A USD/EUR of $1.15 or so feels right. Maybe a little lower. I think $1.40 is an upper band and $1.05 a lower one. I don't often do anything with currencies but a few months back got long EUO and will stick with it as long as the US appears to be better off than other developed economies.

Wall St. Wolf 7 years ago Member's comment

You make a good point!

Ilene Carrie 7 years ago Contributor's comment

Why are you going to stay long EUO as long as the US appears to be better off than other economies?

Clark Winslow 7 years ago Member's comment

Very engaging, thank you.