Japan’s New Framework Of Hyperinflationary Failure
Am I allowed to start with Deutsche Bank? Or do I have to defer to the Bank of Japan’s Keystone Kops; who once again laid a giant goose egg? Who, beyond a shadow of a doubt, proved they have not a clue what they are doing – in dramatically accelerating the pace at which the “Land of the Setting Sun” plunges to “second world” status, en route to becoming the first “Western Power” to experience 21st Century hyperinflation.
Hmmm, what to do? As sadly, I could easily write entire articles on countless other topics as well – such as the Bank of International Settlements issuing a dire warning about the massively over leveraged Chinese banking sector; Donald Trump’s surging popularity; Wells Fargo’s “crime of a lifetime”; the exploding worldwide pension crisis; OPEC’s Secretary General all but confirming “no deal” at next week’s “all-important” crude oil producers meeting; and the U.S. national debt – and budget deficit – expanding at the fastest rate since the 2008-09 financial crisis. And the answer is, I’m starting with Deutsche Bank – as unquestionably, it poses the greatest near-term risk to global political, economic, social, and monetary stability.
To that end, on June 13th article “the Lehman of Europe is on the verge of collapse,” I stated the following…
“In my view, the ‘powers that be’ are for some as yet unknown reason, distancing themselves from DB – just as was the case with Lehman in the States, as its competitors were serially deemed ‘too big to fail.’ I mean, the rapidly growing list of lawsuits and allegations against Deutsche Bank is utterly staggering – including its admission of manipulating Precious Metal markets for the past 15 years; to the point that clearly, this massive European crime center is not far from total, and irreversible, implosion. Only this time, the ramifications would be dozens of times uglier than Lehman, as its derivatives web is so large, it would likely entangle every financial institution in Europe – as well as countless non-European corporations, institutions, and sovereign governments. Not to mention, seven years after the Lehman crisis, the global banking sector is far less liquid, amidst the worst worldwide economic conditions since the Great Depression. Not to mention, an unprecedented, worldwide debt edifice nearly twice that of 2008’s level, with Central bank balance sheets so bloated – and credibility so thin – there is no chance they could ‘bail out’ the world again, unless they resort to outright hyperinflation. Which unfortunately, the sad, sordid history of all fiat Ponzi schemes guarantees.”
And that, two weeks before the IMF – incredulously, given the obviously horrific ramifications – labeled Deutsche Bank the “most important net contributor to (global) systemic risks!”
In other words, with each passing day it’s becoming more and more clear that for whatever reason, Deutsche Bank has been “marked for death” by “someone” or “someones” with the power and capital, to make it happen. Even I am clueless to guess why Deutsche Bank is being specifically targeted – which it most certainly is. Consequently, I am exploring all potentialities – including even a grand conspiracy, as discussed in last Friday’s must listen Emergency Podcast with Bix Weir; or perhaps, a geopolitical battle for Western domination, as suggested by Max Keiser. Whatever the reason, the fact remains that Deutsche Bank is unquestionably on the verge of collapse, as exemplified by exploding credit default swaps; and its stock closing yesterday at an all-time low, down 50% year-to-date, and 91% from its 2007 high.
At this point, I’m not sure there’s much more to add than the reams I’ve already published about my staunch belief that Deutsche Bank is not only going down, but going down soon. And that when it does, it will be the financial, political, and monetary equivalent of the 2004 Indian Ocean tsunami – which killed 230,000 people in 14 countries, the vast majority within a few minutes time.
On that happy note, let’s shift to the “Land of the Setting Sun” – whose lunatic Central bankers, yet again, proved the thesis of my July 29th article, that the “clueless Bank of Japan exemplifies the awe-inspiring, irreversibly destructive power of the printing press.”
Heading into the meeting, every manner of opinion was spewed from the mainstream media about what a desperate BOJ might do, given that nearly four years after Shinzo Abe took office; and 3½ years after his “two-year” Abenomics plan commenced; Japan has accomplished nothing but collapsing economic activity – and for “good measure,” a flat-lining stock market, despite the BOJ purchasing nearly two thirds of the ETFs tracking the Nikkei 225 average! This time, not only was Haruhiko Kuroda going to unveil his latest hyperinflationary effort (FYI, despite a “plunging CPI,” Tokyo’s cost of living is the same as London’s); but the results of the “comprehensive review” of Abenomics, as ordered at the BOJ’s July 29th meeting.
Foremost amongst “expectations” was the lunatic concept of a “Reverse Operation Twist” – in which the BOJ would lower rates further into negative territory, and shift its massive, $65 billion/month QE purchases (actually, Japan calls it QQE, or “Quantitative and Qualitative Easing”) toward shorter duration securities. The ludicrous “reasoning” was that a steeper yield curve would somehow benefit pension plans and insurance companies; but for the life of me, I fail to see how it would matter a whit, or how it could possibly be “beneficial” to reduce purchases of ultra-long-term duration bonds, causing massive capital losses to everyone that owns them. Most importantly, themselves, as the BOJ owns 40% of all JGB’s, or Japanese government bonds. Which is why, last week, I deemed such a proposal as a Frankenstein-like experiment.
Unfortunately, the reality wasn’t far from the description – although in true Central bank fashion, it was watered down with Fedspeak to avoid shocking markets, by euphemistically deeming the strategy shift “QQE with yield curve control.” In reality, it’s “new framework” of targeting the 10-year interest rate specifically – i.e., setting a de facto long-term cap at 0% – is hard to discern from what it was doing all along, as the 10-year JGB yield was -0.06% before the decision, and -0.03% afterwards. Moreover, interest rates were maintained at -0.1% – although expectations are that they’ll reduce this rate further in November; and QQE buying was maintained at the aforementioned $65 billion/month. Frankly, the only real change in standard operating procedure was to re-allocate half of the monthly $5 billion of equity ETF purchases to the smaller Topix index, given its ownership of the nation’s largest companies – i.e, the “the ultimate end game of communism” – was becoming too large.
However, what the “markets” are supposedly focusing more on – which given the fact that the Yen is higher than when the announcement was made, within 3% of its pre-Abenomics high, depicts yet another “failure on arrival” – is the fact that Japan appears to have eliminated its long-standing 2% “inflation target.” Yep, just like the Fed will validate later today – given that the “core CPI” the Fed has supposedly been “targeting” has been above 2% for the past ten months – Japan decided to “move its inflation goalpost” as well.
In other words, it announced QE to infinity – in true Central-bank-speak, describing this sea change in policy, by simply saying “the monetary base may fluctuate to achieve yield curve control.” Which anyone with half a brain knows is going on already, given that fiat currency, by definition, is a Ponzi scheme that must grow exponentially larger to survive. Which sadly, always ends in hyperinflation, as evidenced by a thousand fiat currency failures throughout history, and not a single success.
To that end, as we shift to the Fed’s – potentially equally historic – statement a few hours hence, keep in mind that Janet Yellen’s first official act as Fed Chairman in February 2014 was to remove Bernanke’s 6.5% “unemployment rate threshold” for raising rates, instituted when QE3 was commenced in December 2012. Moreover, just last month, right before Yellen’s, LOL, hawkish Jackson Hole speech, San Francisco Fed President John Williams published an official white paper, proposing the Fed should also remove its long-standing 2% inflation target (and institute negative interest rates), just as the Bank of Japan did today!
Yes, the BOJ, with the help of its relentless ETF buying, was able to push the Nikkei 2% higher today. However, as noted above, the Yen is higher than before the decision was announced – having only fallen for a mere hour before reversing, to its highest point of the day as I write at 8:15 AM EST. In response, Kuroda desperately attempted to jawbone the Yen lower at his post-decision press conference, by stating the BOJ “will not hesitate to ease policy further,” and “the commitment to overshoot inflation is aimed at boosting inflation expectations.” However, it’s clearly failing miserably – as thus far, gold and silver have been the market’s best post-BOJ performers. And FYI, gold priced in Yen, despite the Yen’s recent surge, is just 13% from its all-time high.
Well, that’s enough for now – as I get ready for the MAIN EVENT that is the Fed’s policy statement later today, at 2:00 PM EST – that is, if Deutsche Bank’s stock doesn’t dramatically collapse first. To that end, NEVER before have I seen a Central bank – i.e, the Fed – so badly pinned down by its own rhetoric, in so strongly hinting of potential rate hikes this past month, amidst collapsing economic data; a collapsing Hillary Clinton campaign; and oh yeah, the collapsing stock price, to an all-time low, of the world’s “most systematically dangerous bank.”
All I can say is, that if the extraordinary political, economic, and monetary events taking place worldwide aren’t enough to cause you PROTECT YOURSELF now, I don’t know what more needs to occur. And if your answer is “I need to see it collapse first,” you may well find that protecting yourself, is far more difficult, and costly, than you could have imagined.
To that end, if such action includes the purchase and/or storage of Precious Metals – in the latter case, involving some of the bullion industry’s most unique, value-added programs – please call Miles Franklin at 800-822-8080, and give us a chance to earn your business.
Andrew ("Andy") Hoffman, CFA joined Miles Franklin, one of America's oldest, largest bullion dealers, as Media Director in October 2011. For a decade, he was a US-based buy-side and sell-side analyst, most notably as an II-ranked oil service analyst at Salomon Smith Barney from 1999 through 2005. Since 2002, his focus has been entirely on precious metals, and since 2006 has written free missives regarding gold, silver and macroeconomics. Prior to joining the company he spent five years working as an investor relations officer or consultant to numerous junior mining companies.