Stock Market Crash – Smart Money Is Leaving the Building
By: Graham Summers
Aug 13, 2013
Japan continues to dominate the economic news. The latest move concerns Prime Minister Abe’s new economic policies to cut corporate taxes. He also announced plans to run a shakeup at Japan’s political ministries.
This is “Plan B” for Abe who has found that his policy of “Abenomics” or pushing the Bank of Japan to print even more money has failed to stimulate Japan’s economy.
Abe won in a landslide last September on his platform of urging the Bank of Japan to do more. This platform ignored the failure of QE to stimulate growth in Japan in the previous 20 years (Japan had already engaged in QE programs equal to 25% of the country’s GDP). It also ignored the risks of unfettered money printing, namely higher inflation.
Sadly, Abe has discovered that ignoring both of these key issues, while good politically, has been disastrous economically. Abe won the election and the Bank of Japan announced a record $1.4 trillion QE effort in April 2013. To put this number into perspective, this would be the equivalent of Ben Bernanke announcing a $3.75 trillion QE plan in the US. Suffice to say it was a “shock and awe” move.
Unfortunately, it hasn’t worked. Japan’s industrial production fell 3.3% month over month in June. At the same time, Japan’s consumer price index registered its first increase in 14 months in June. The pace of increase was the fastest since 2008 when commodity prices were at record highs.
In plain terms, the Japanese economy is failing to respond to Abenomics. This is the single most important issue for the global financial system today.