When will politicians learn? It seems that all who follow in the Keynesian style of economics are lost. About six months ago the Japanese started hoarding there money outside of banks so much so that they ran out of safes to keep them in. Today in the news, alongside what I am sharing, the Japanese are raising their minimum wage for part time workers, making labor more expensive and the impact will be higher unemployment in the future. Now this stimulus package comes to try and crush the heavy deflation that is ruining their country.
“We’ve put together a bold stimulus proposal that is an investment in the future,” Mr. Abe said on Tuesday. It will allocate money to social programs and infrastructure, including the construction of a high-speed train that will use magnetic levitation, or maglev, technology to float above its tracks.
The stimulus program represents a redoubling of Mr. Abe’s effort to promote growth and crush deflation, which has dogged Japan since the 1990s.
Though he has approved spending increases before, he has relied heavily on the money being pumped into the economy by the central bank, the Bank of Japan. This year, the bank took the extreme measure of reducing its benchmark interest rate below zero.
Number one government stimulus packages never work, and are proof that the free market would ride out the bubble and force companies to liquidate or close their doors. Investing in things that should not be in government control is another thing that shouldn’t work. Social programs and infrastructure should not be the concern of the central government. In America we worry about inflation or the hidden tax that government uses to devalue our money. In Japan however people have been hoarding money which has caused the opposite. In America with our fractional reserve banking banks loan out their money with interest to hopefully get a return and to have money flowing in the economy.
When it gets to the point that you have negative interest rates there is a severe problem. It means money is not changing hands at all and instead is being kept out of circulation.
The central bank’s policies have let the government borrow at extremely low interest rates. Some economists saw the latest increase in spending as a sign that Mr. Abe is in effect assuming that the bank will underwrite government spending more directly in the future — an approach sometimes called helicopter money because it essentially drops money into the public’s hands.
“While helicopter money is a concept still frowned upon thus far, such coordination does make the first step in blurring the line as central banks run out of stimulus measures,” said Lee Jin-Yang, an analyst at Aberdeen Asset Management.
This is the problem with paper money. When you can print and print yourself into oblivion it makes your currency worthless. Furthermore when people start talking about “helicopter money” as Bernanke has done the people of the country hoard even more. It is a completely different culture there, the people of that country see all the money coming out of their central bank and instead of spending it wildly like Americans would do they hide it in their mattresses.
Mr. Abe is not only betting that Japan can spend its way to growth, but that economic expansion will help the country claw its way out of a canyon of debt. Japan’s government debt is bigger than that of any other country, relative to the size of its economy. Mr. Abe argues that things will only get worse if output keeps shrinking, so spending more now will make Japan financially stronger down the line.
When you have this kind of debt as a country people become scared. It is the whole reason why many Americans have started “prepping” for our own collapse as we hit the 20 trillion dollar mark. When you look at this kind of rampant debt there is only two ways government can make sure that they stay afloat. Its either option A where they take the dollar and inflate the debt away (along with the money you have saved for retirement) or B they cut off every program in order to make the debt payments.
When I talk about inflation I talk about the government printing so much money that our money is worthless. Venezuela is a perfect example of that. When you have to bring a duffle bag full of dollar bills to buy a gallon of milk, this is the problem of fiat currency. The even larger problem is that almost every government on the globe uses fiat currency.
(excerpts from nytimes.com)
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