The Federal Reserve has the luxury, if it would so indulge, of seeing the future.  All that is needed is to witness the gyrations Japan’s economic planners are spinning to see exactly where the United States is heading

Central planning, once engaged, is the most difficult situation from which to extricate.  Initially a soft hand is applied to free markets.  The excuse could be systemic emergency, as we had back in 2008.  Then, once the system is saved, to maintain the assuaging cures seems convenient and gratifying to all.  Keep the ball rolling.

In the year 2000, Japan was the first of the major economic powers to go to a ZIRP (zero interest rate policy).  It has never looked back.  No country has ever gone to a ZIRP and then exited.  Japan is essentially the lead sled dog here, and the team of huskies (EU, IMF, and the Federal Reserve) follows in its path.  The view from the dogs not in the lead never changes, as the story goes.  Can Janet and the others not notice the obvious folly.

Japan is the test case. How is it going, Japan? 

Japan went “all in," to use a Texas hold’em phrase, on its now centrally planned former free market system.  Yesterday they announced further, and some might say drastic measures.

“The central bank decided to increase the pace at which it expands base money to about 80 trillion yen ($726 billion) per year. Previously, the BOJ targeted an annual increase of 60-70 trillion yen.

The BOJ also decided to increase its purchases of government debt by about 30 trillion yen and extend the average duration of JGB holdings to around 10 years.

The BOJ also decided to triple its purchases of exchange-traded funds and Japan real estate investment trusts.”

A graphic display of these actions can be seen here.

And Peter borrows from Paul to buy Paul’s debt. 30 Trillion yen out of thin air to buy government debt.  That is roughly $103 billion.  And Peter borrows to buy stocks and real estate. What could go wrong.

More startling is the BOJ’s further investment in exchange traded funds (ETFs) and Japanese REITs (Real estate investment trusts).  To the self anointed, all knowing and all powerful Central Planners, it is but a natural progression to move from merely buying government debt as a monetary policy tool to buying real estate and stocks. Why not?

But, Central Planners can not know all that participants in free markets know.  These planners emit the air of “you don’t understand, but we do."  Furthermore, when decisions are made by these cabals, the value of that information is formidable.  Market insiders enjoy not only the action of propping up their investments, but some must also enjoy the luxury of knowing the timing of such actions.  The farther from free markets central planners push the system, the more their decisions become valuable insider wealth makers.

This recent knee jerk from the BOJ was precipitated by a slow down in economic numbers prompted by an elevation in their consumption tax.  (Note to those who push for a consumptive tax / fair tax in the United States.)  And to that point, we can see the future if we dare to look.  Newton’s second law should be read and reread by these Central Planners.  For every economic action, there is an equal and opposite economic reaction. Tax consumption and consumption goes down. If Consumption goes down, there must be new stimulus. Welcome to the cul du sac. Are you watching Janet?

Ruining the currency, supporting the real estate and stock markets with “new” money, central planners “planning” the stock markets, insiders getting the “nod” when market moving decisions are made by central planners, and consumptive taxes that dampen consumption, are all there to be seen as ineffective and inextricable strategies.  We are a trailing sled dog. Janet, take a long look and then change the view. 

James Longstreet