By Bill Bonner
We can barely catch our breath. We can’t stop laughing.
Last week, Japan announced that it would undertake a bold and
radical experiment. After 23 years of on-again, off-again deflation,
the new government decided it had had enough of things getting cheaper.
The Bank of Japan will now obediently monetize debt until inflation
reaches 2%. This, the country’s central bankers believe, will encourage
people to spend. The economy will take off.
Why is it better for people to spend more tomorrow than they want to
spend today? Why is it better for prices to go up 2% than to go down
2%? Why is an economy that “takes off” better than one that sits calmly
on the runway?
Those questions will have to wait for another day; no one bothers to
ask today. Economists say the secret to prosperity is to stimulate
demand. Anything that stimulates demand is thought to be a good thing.
It doesn’t seem to matter that this proposition is transparent
poppycock. People always want stuff. Demand is infinite. Government
doesn’t have to stimulate it.
What really matters is buying power. And buying power is limited. The authorities try to get around this problem by printing money. Then, with this new money in hand, it is almost as though people had real demand!
The Demand Delusion
But that’s what is so breathtaking and so funny about this time we
live in. Who really believes you can increase demand… and make people
wealthier… by just printing up money? Who really believes you can
give people more buying power by giving them more pieces of paper?
Apparently, just about everybody! Ha ha ha!
Real demand depends on real earnings, not more currency. People buy
things by producing things. That’s “Say’s Law,” named after
Jean-Baptiste Say. Buying power — or demand — comes from production,
not pieces of paper.
Economists and central bankers cannot increase real demand. But they can sure move it around!
Giving money to poor nations — foreign aid — does not make them
richer; it undermines local industries and makes them poorer. But some
people get richer. Mercedes-Benz dealers in Africa noticed that
whenever a new foreign aid program was announced, sales of their
high-end models shot up. The insiders knew they could skim millions
from the aid programs.
Now, when new QE programs are announced in Japan, Ferrari sales shoot up. From Bloomberg:
Registrations of Fiat SpA (F)’s
ultra-luxury brand surged 40%, to 144 vehicles, in Japan last quarter,
according to the Japan Automobile Importers Association yesterday.
That’s more than twice the pace in the larger U.S. market, while demand
is slumping in China, at home and across Europe.
The surge in demand for luxury cars
adds to signs that Prime Minister Shinzo Abe and Bank of Japan Governor
Haruhiko Kuroda are succeeding in reviving spending in the country.
Stock prices are climbing back to levels before the September 2008
collapse of Lehman Brothers Holdings Inc., and households have become
more confident about the economic outlook.
“The growth is very promising, and I
think we can expect these super luxury brands to introduce more models
that they hadn’t introduced to Japan before and to strengthen their
dealership networks,” said Yoshiaki Kawano, a Tokyo-based auto analyst
at industry researcher IHS Automotive. “The optimism for an economic
recovery is spreading.”
To sustain growth, Ferrari opened a
new after-service facility in Japan this month, said Herbert Appleroth,
head of the company’s operations in the country.
Getting Poorer
When you print money,
it’s like issuing new shares in a public company. The existing shares
become worth less than they were before… because each one represents
less of the total company.
Likewise, the currency of a nation represents the goods and services
that the nation produces. Print more currency and each unit will have
fewer goods and services behind it.
But some people get the new shares… or new money… and are
richer. Everyone else may be poorer, but the people first in line for
the free cash come out ahead. Economists and other dim observers look
at the increase in Ferrari sales with approval. Again, from Bloomberg:
“It seems like demand is coming
back,” said Michiaki Ishida, a spokesman for the auto importers
association. “Some people are reacting to Abenomics, so the trend may
continue.”
What the mainstream press doesn’t realize is that, although high-end
demand goes up as insiders make wins from speculating on asset prices,
real demand goes down.
That’s because new money reduces the buying power of the old money.
Except for the few insiders, speculators and sharpies who are first in
line to get the EZ money, everyone else gets poorer.
Is that funny… or what?
Regards,
Bill
http://www.billbonnersdiary.com/articles/bonner-money-printing.html
