Courtesy of Mish.
Some people are in favor of theft and fraud as long as it’s not deceitful. Financial Times columnist Martin Wolf is one of those people.
Let’s take a look some of Wolf’s ideas to “save” Japan with a campaign of forced inflation as presented in “Risky Task of Relaunching Japan“.
Here are some snips by Wolf followed by my immediate rebuttal.
Wolf: The question is whether inflation can be achieved and managed.
Mish: There is no question a policy of inflation for Japan is seriously misguided. If maintained, the policy will blow up in a spectacular currency crisis.
Wolf: According to economic advisers Smithers & Co net debt of non-financial companies has fallen from 150 per cent of equity in 1995 to 30 per cent. But government net debt has jumped from 29 per cent of gross domestic product at the end of 1996 to 135 per cent at the end of 2012. These facts have deep implications. First, ending deflation is going to be far harder than it would have been in the late 1990s.
Mish: The moral of the story is how futile (and how ridiculous) it was for Japan to try to “beat deflation”. Japan was once the world’s largest creditor. Japan now has debt approaching 250% of GDP, accumulated in ridiculous attempt to defeat deflation.
Wolf: Second, it would be helpful if higher inflation also made real interest rates negative, which would encourage people to spend.
Mish: Wolf implies “saving is bad” and spending is good. The idea is nonsensical. Savings allow banks to lend to credit-worthy customers without the need to inflate money supply. There can never be too much saving.
Wolf: Third, negative real rates would also redistribute wealth from the state’s creditors towards future taxpayers.
Mish: Exactly why should governments or central banks be in charge of redistributing anything? It is certainly not taxpayers who benefit from currency wrecking schemes, but rather those with first access to money, the banks and the already wealthy.
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