Levitation comes back down to Earth with a bump

Japan

You may have noticed that the Bank of Japan is going to be QEeeeing hup and haway at a much higher level in 2015. As in, $3 trillion. Just so we’re clear, that’s four times the Wall Street bailout money that Hank Paulson took off the taxpayer in 2009. It looks like this in zeros:

$3,000,000,000,000

Written the long way it is three thousand billion dollars. Three million millionaires blowing the entire stash on the 3.45 at Newmarket on a 2500-1 shot.

What you may not know, however, is the buying emphasis-cum-structure of the BoJ’s attempt to prove that Einstein was wrong about repeating experiments in search of a different result.

QE 11 (which is what this is) will hoover up every single government bond (JGBs) the Tokyo government issues to pay its debts….and then spend the same again on other ‘assets’: that is to say, Dodgey Debt. For example, the BoJ has pledged to invest a trillion Yen in exchange-traded funds alone.

As a relative layman, it is impossible to avoid asking the obvious question: why not just cut out the bond issuance part and announce that all Japanese debt will henceforth be underwritten by the Central Bank? There are actually very good reasons why that would be a terrible idea, but only the branding would be wrong if one announced that: this is effectively what’s going on here.

You see, political genius Abe-san thinks that the key to investor confidence is a high stock market. And since the announcement, the Nikkei has indeed risen just under 5%. But what Tokyo is going to do next year is effectively screen on all channels a live performance of Tommy Cooper hilariously messing up a conjuring trick….and then ask the audience to believe that he has genuinely magical powers.

A recent poll in Japan suggested strongly that the average Nipponese has spotted just how much complete bollocks Abenomics is. This is hardly surprising given that the average household income is already worth 6% less than it was when QE1 got off the ground, before the arm-flapping aviator crashed straight back to the ground.

This is the Abe/BoJ scam in a nutshell: ‘Convince everyone that huge sovereign debt issuance being bought 200% by worthless newly-printed paper from the Central Bank is something that will work into infinity.’

If Abe is Icarus, then on this basis his BoJ ally Haruhiko Kuroda is Bernie Madoff. I Kuruda you not, Haruhiko is committing hare-kiri in public.

Germany

Over now to Japan’s traditional allies in such matters. Let us away to Berlin, where the Pact of Steel involving honorary Aryans of yesteryear is become an equality of insane belief systems…only in their case, something involving even larger ramifications.

When the MerkeSchäuble steamroller of austerity hit ClubMed some years back, most bloggers were aghast at the stupidity involved in rationalising creditor greed in terms of long-term economic stimulation.

The figures that come out of Greece continue to demonstrate the level of folly involved in the ‘idea’, but some of us have been saying from the start that it would be a boomerang in the end: if one’s trading partners have no money, then they aren’t going to buy one’s goods, nicht?

Previously on Eastgermans, the Bundesrepublik’s wholesale price index was a gnat’s elbow off full-on deflation, at 0.1%. Most German commentators expected that number to be 0.2% this time. In fact, it’s just out today – and is minus 0.6%.

European Central Bank

It could we be that – in the light of that damning new stat above – ECB Chairman Mario Draghi will feel able to turn on his 1923-obsessed Bankfurt enemies and go hahahahahaha or whatever noise Italians make when laughing.

But the obvious ending of the Bundesbank pulling one way while Draghi pushes in the opposite direction was always going to be ‘tears’….and this is what we now have in the eurozone’s central bank. Ten days ago, Eurogroup President and all-round clown Jeroen Dijsselbloem told an utterly disbelieving media set that the Stress Test marked the end of the eurozone crisis. But as if to prove this daft observation right, late last week Reuters reported that eurozone banks would return €6.4billion in crisis loans to the European Central Bank over the next few days.

In fact this has nothing to do with ‘repairs finished’ and everything to do with cost: given the continuing economic madness of Zirp, it is still cheaper for banks to rely on the ECB’s regular refinancing operations, where they can fund themselves at record low rates of 0.05%.

But even if the eurobanking system was in a healthy state, we seem once again to be forgetting here that the patient is alive, but the hospital he stayed in is about to collapse. Eight days ago, the EC cut a swathe through its previously insane growth forecasts for the region,  changing to a growth prediction of 0.8% for the year. That bland average hides the huge problems in ClubMed, as well as the obvious fact that without Germany’s performance, the eurozone is a very sick bunny indeed.

Even with borrowing rates at 0.5%, the growth is only 0.8%. 2015 shows every sign of being much worse. A catastrophic econo-fiscal strategy dictated by the US for the benefit of its Wall Street paymasters is about to lay the biggest egg in history. Last week, Eurostat found eurozone retail sales had fallen 1.3% in September – and three times that in Germany. With great prescience, an ABC news piece a week ago noted, ‘A big concern the ECB is facing is that low inflation turns into a debilitating bout of deflation that could weigh on growth as consumers delay spending in hopes of cheaper bargains down the line.’

Germany is now, effectively, in deflation. And predictably, the US Federal Treasury is ‘slamming’ the ECB for not doing more. You really could not put this in a novel, not even a comic novel.

But all this will be as nought once the two big battles get fully underway: Bundesbank v ECB, and Fiskalübergruppenführer Schäuble v France the incontinent wastrel. And we didn’t even mention Italy.

Gold

There’s an interesting take on gold destruction by UK-based expert James Turk, and you can view it at YouTube. Pretty much in the same vein as The Slog, Turk too points out the obvious: that the paper/ETF value of gold is collapsing, but out in the real world of bullion, people can’t get enough of it.

Turk’s interviewer made great play about how James had been seen as a member of the looney tendency for calling out gold manipulation in 2009. Well, I was out there on the outer rings of Planet Zog in 2005, when a minor FT column observed that one piece on gold at The Slog’s predecessor Not Born Yesterday was ‘a classic example of the ignorant blogger’s rant’.

Meanwhile, nine years later the predicted rallyette in the shiny metal’s ‘price’ (to keep the mugs happy and avoid any buying signals popping out too soon) took place. But with every small gain thus far, the rally gets weaker and the falls deeper.

One day soon, reality in the face of the immutable law of supply and demand will intervene here too. Until that happy day (at which point I fully expect bullion-trading to be banned) the level to look out for remains around $750 an ounce.

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