January 21, 2008
Elaine Meinel Supkis
As Japan flings its stock market off the cliff due to the collapse of the carry trade and the strengthening of the yen...which I correctly predicted way back in July....it is time to visit the headquarters of the tallest tower in Fortress Japan: the Bank of Japan. We also visit our own private muskateers at the Federal Reserve that reserves nothing, to see Bernanke talk about Taylor, a fellow economic running dog who has written all the magic formulas to justify the very stupid things our country's bankers and leaders have been doing this last 25 years. Yikes! We must understand all this in order to make accurate predictions. Aside from using Tarot cards or cracked turtle shells. And good old astrology.
TOKYO (Nikkei)--Bank of Japan policy board members will examine the impact of rising prices and its varying effects on different domestic regions when they gather for a two-day meeting beginning Monday.
Ah! Once again, the Bank of Japan has to tackle the nasty fact that there is real inflation in Japan and crushing the workers is no longer working out so hot because the inflation in energy is killing that project. The workers can't lose more wages while energy costs soar! They will riot, even the Japanese workers, the most helpless on earth, will get angry! So the bank is going to discuss other schemes. How can they kill inflation? Especially since the Bank of Japan, via the carry trade, their super low rates are responsible for a great degree of global speculation in commodities! This is one part of the many Horns of Dilemmas that are impaling every banking system on earth. Everyone wants contradictory things that are increasingly impossible to gain.
Just a few days ago, the Bank of Japan decided they would drop rates due to the US going off the fiscal cliff. But they can't do that since they have been near 0% for over a decade.
The yen strengthened against 13 of the 16 most-active currencies as rising concern the U.S. is headed for recession prompted investors to sell higher-yielding assets funded by loans made in Japan.
The Japanese currency gained the most versus the South African rand and approached the strongest since May 2005 against the dollar on speculation a report this week will show sales of existing homes in the U.S. fell in December, capping the biggest yearly slump in almost a generation. The yen is the best performing major currency this year as global stock markets have slumped on concern losses tied to U.S. mortgages are mounting.
``Amid the subprime turmoil, speculators will still remain aggressive in buying the yen,'' said Michiyoshi Kato, a senior vice president of currency sales in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's second-largest publicly traded lender by assets. ``Until the markets become calm, risk aversion will keep causing yen buying.''
The Bank of Japan will leave the nation's benchmark overnight lending rate at 0.5 percent tomorrow, according to all 38 economists surveyed by Bloomberg News. South Africa's benchmark interest rate is 11 percent.
I must pat myself on the back if my arm could reach around! Pat. Pat. I predicted this back in July. But not due to the housing mess in the US. This is MISDIRECTION. The housing mess was well known on July 17, 2007. But it was ignored! Japan even bet that they would drive down the yen to 130 to the dollar by October back then! Indeed, it is time to visit some of my previous postings as well as cartoons concerning the Japanese attempts at killing the yen during the last year. Starting with the more recent postings, we will go backwards to more than half a year ago. When the US stock market was racing to its climax, the buy-out schemes were climbing higher and higher and money was flowing at a mad rate thanks to the Japanese carry trade. We can see from these past stories how this dynamic was already falling apart last May. It is NOT a recent thing, it was developing a long time and China's currency flows are very much a part of how Japan's currency ceased to weaken and began to grow stronger...long before the traders or central bankers thought there were any problems at all.
Sept. 10, 2007
I am obsessive about the banking game going on in Asia and I am now 100% certain, Japan and China are now engaged in a full-scale FOREX currency war and we just saw the opening shots this last two months. And the West, up to its eyeballs in debts thanks to super-cheap interest rates created by Japan and China for the last 10 years as they used their FOREX machines to create TRADE SURPLUSES for themselves, is now in a heroic clash of wills: no longer are they worried about keeping the US afloat, they are aiming their ire at each other.
To have a faint idea of how this looks, recall the movie, 'The Lord of the Rings' and in the 'Fellowship of the Ring' section, Gandalf and Saruman throw spells at each other. Now imagine blundering in between them as they zap each other, yelling curses. Blam!
August 17, 2008
Real quick story today: I was right! I was right! The engine of this month's banking collapse was from China because the yen is now growing stronger and all central banks but China are frantically trying to reset the situation so that it goes back to the previous status quo but this is impossible because China is retaliating against the G7 for trying to force the yuan up while keeping the yen artificially low. Just look at these headlines!
August 8, 2008
The rosy news and happy faces on Wall Street are because the status quo has been saved: Japan just got the green light from the International Monetary Fund to CONTINUE NEAR ZERO INTEREST RATES! The carry trade will continue! But there is a very dark cloud on the horizon: one that surrounds a very angry dragon that breathes fire. This, I say, is why China gave dark hints to the financial traitors running America, that if they continue to demand the yuan rise while assisting the drop in the yen and dollar, open trade war will commence right after the Olympics!
June 29, 2007
Everyone in Japan knows that if the yen dies, Toyota lives! This is now so obvious, all the systems in Japan are set to do this one thing: kill the yen and keep Toyota healthy! This scheme is a very destructive set-up. It is like a cancer: it is growing faster and faster and as the yen dies more and more and Toyota surges ahead of all other nation's auto industries, the entire world fiscal system is grinding its gears as it accelerates and brakes at the same time!
Solving this is simple: force the Bank of Japan to raise interest rates and give those poor Japanese workers living in closets a pay raise and build some housing for them for crying out loud! Giving them more than 200 square feet to live in means they can become consumers instead of window shoppers.
Prices in Japan can fall infinitely because they were very high compared to other nations in the first place for a long time due to the Japanese government locking out free trade! Prices for the battered Japanese consumer were the highest on earth for a long time and are entirely disconnected from the value of the yen. Since consumers in Japan can't get much credit even at 1% to buy anything, the credit they get is the same we get, it is the same rate as here!---This is insanity. There has been no buying sprees in Japan since 1994 when the interest rates offered to the elites dropped to under 1%!
Every year, the pundits wail that China's growth rate will fall. It never does. The Dragon flies high thanks to Miz Japan's currency manipulations vis a vis the USA. Since Miz Japan needs to export zillions of Toyotas to America, she has to keep up this game and the shadow of the Dragon is falling on her but she can't stop doing this because she hopes the US will protect her from the Dragon or...she can always slam the world's economic monetary fiat system into reverse and destroy the Dragon's FOREX reserves.
Will Japan do this? YOU BET! I suspect they did this at the beginning of the Asian Currency Crisis that had a Mysterious Cause no one can fathom. But who benefitted from it?
Japan! And who had the reserves to play fiat currency games that are very dangerous?
Japan. And the plan was to have such an overwhelming FOREX reserves, no one could tell Miz Japan who to screw. Only the Dragon outwitted her! Its FOREX reserves are beginning to destroy her iron grip on the dollar's international value!
For the last five months, every time it looks like Japan will have to finally start inflating along with all the other industrial nations, the Bank of Japan finds a new way to stop it and continue as is. So the carry trade resumes as the yen resumes falling and the dollar is not far behind. But I look at the actual statistics of Japan and see clearly it is a vicious game they are playing because it is making them very rich. And the stocks of Japanese industrial exporters shot up on this news. They feel this game isn't done quite yet. The Federal Reserve will keep interest rates 5% higher than Japan. This is supposed to be good news.
June 26, 2007
Today we take a peek under the kimono of Miz Japan to see the Bank of Japan's interest rate history. Japan's ministers must read my blog because suddenly they realized the downside of a super-weak yen vis a vis a rising, stronger yuan. Heh. So they announce, by golly, there is inflation in Japan! US housing report just released says the obvious, the bubble that popped over a year ago is deflating at a faster and faster rate. No bottom here! And Forbes wonders why our government no longer stops interlocking cartels and monopolies. Well, duh. Who owns our government? Ask Goldman Sachs and the hedge hell hounds.
May 21, 2007
Yesterday, I compared Japan, Germany and the US using economic statistics collected by the CIA. It shows clearly that Japan's export/import numbers are reduced by 50% by keeping the value of the yen super-low vis a vis the dollar and the euro. On Friday, the dollar finally fell against the yen by a tiny amount but instead of trading at at least 100 yen to the dollar, the Japanese have successfully weakened their own currency so it is going now at 121 yen to the dollar. When will we hear yells for them to raise interest rates and defend the yen's value? Ha.
So, last May, the yen was 121 to the dollar. The carry trade spigots were wide open and we saw many $20 billion or $30 billion and even some $50 billion 'deals' being cobbled together using this fabulous flood of funny money. I recognized this as not only unsustainable but very destructive. I also predicted that the G7 nations attacking China over the weak yuan would irritate China to the point, they would work behind the curtain to raise the value of the yen if they raised the value of the yuan.
And so it was. The yuan has been floating upwards but so has the yen. And we can see how this is hammering Japan!In just 3 hours, the Nikkei lost 3% of its value. 466 point drop. This is a big collapse. And will cause panic at our own end tomorrow morning. The reassurance that the Central Bankers will wave their wands and produce lots of money for AMERICANS to spend may buoy up some stocks but the reality is, the US can't do this. We are too deep in debt. This emphatically includes the US government.
I visit the central banks to read their papers and speeches. It is a good way to gage how they think. Or avoid thinking. We are deep in one of the biggest financial/banking collapses in history. Like the 1873 panic, this one is heralding a new economic matrix, a new world order. Like the great 1929 crisis, this one will reach deep into the system and disorder many nations. But if we look at the speeches and bulletins of the US Fed and the Bank of Japan, all is well! Hardly anything amazing is going on. Ditto, the Bank of Europe. They seem all to be 'business as usual'. There is no sense of energetic movement.
When I read the old papers from 1873, I noted that there was less than six months between the collapse of the Vienna borse and the problems with the runs on the Bank of England and the New York Times reporter openly calling this a 'panic'. And running a full analysis of all the aspects feeding into this panic! But today, with modern communications, the news of this present panic is as slow as a turtle.
Day after day, I watch stocks fall in big steps. But no panic! Nope. Just despair, I guess.
When I read the speeches by the Bank of China, they are easy to read and figure out what they are talking about. And they have been giving more than one speech about the history of banking, panics and the need for bankers to not lend too much money or run carry trades! I love them for this. I wish these speeches were broadcast on CNN and carried in the New York Times! But they are ignored.
All we see is 'Will Bernanke drop interest rates so we can get more loans?' Every story, the whole of Wall Street, the politicians, all anxiously await rate cuts. They greet bad news as 'Now it is time to cut rates!' At first, there was jubilation when rates were cut. Then it got more and more depressing. Now, rate cuts less than 75 basis points are jeered as too little, too late.
So let's visit the Bank of Japan and look at the paper posted this week by the directors of the bank. It is very scholarly, utterly unintelligible and relies on magic formulas rather than history. It is trying to explain how 'expectations of inflation' work. Using the US methodology which has grown over the years, a monster machine that loves to plug in numbers that then spit out results. But which utterly ignores political and personal reality and the history of monetary manipulations but specific people who control the big banks.
First, let's go to the official Bank of Japan Mission Statement. This is where they explain their reason for existing and note that it matches the US Federal Reserve's excuses for how they do things. Namely, it is not a bank, really, but a mechanism for DICTATING INTEREST RATES and CONTROLLING PRICES! How Stalinist is that?
I would say, very. This is pure 'command economy' thinking and the paper this bank has published today shows this mentality.
The Bank of Japan Law states that the Bank's monetary policy should be "aimed at, through the pursuit of price stability, contributing to the sound development of the national economy."
Price stability is important because it provides the foundation for the nation's economic activity. In a market economy, individuals and firms make decisions on whether to consume or invest, based on the prices of goods and services. When prices fluctuate, individuals and firms find it hard to make appropriate consumption and investment decisions, and this can hinder the efficient allocation of resources in the economy. Unstable prices can also distort income distribution. For example, in times of high inflation, people holding only financial assets whose value is fixed in nominal terms, such as bank deposits, will suffer a decline in the value of those assets in real terms.
Deflation and inflation are both difficulties for various savings and investing schemes. If there is deflation, one doesn't need interest rates to make money by not spending. As we see in Japan. But when the central bank LIES about inflation and there is very real inflation and no interest is building on savings, we get a banking collapse. The Bank of Japan can't control prices. They can control the return on the yen. And they have unilaterally decided they want no return on yen no matter what inflation does. Also, they have ignored the effects of their pet project on global prices. Now they have priced raw materials they need so high via the carry trade speculators, inflation is raging in Japan right under the surface!
Monetary Policy and Money Market Operations
The Bank's Policy Board decides on the basic stance for monetary policy at MPMs. The Policy Board discusses the economic and financial situation and then decides an appropriate guideline for money market operations at MPMs. The Bank releases its views on economic and financial developments, which form the basis of the decision on the guideline for money market operations, in "The Bank's View" in the Monthly Report of Recent Economic and Financial Developments.
According to the guideline for money market operations decided at MPMs, the Bank controls the amount of funds in the money market, mainly through money market operations.
The Bank supplies funds to financial institutions when it purchases JGSs from them. Such an operation is called a funds-supplying operation. The opposite type of operation, in which the Bank absorbs funds by for example selling JGSs, is called a funds-absorbing operation.
Now we know the simple rules: the Bank of Japan does whatever the hell it wants. As far as I can detect, the only thing they really worry about or which they track is exports to mainly, the US. They then try to make the currency operate as a wrecking ball that smashes down trade rivals and destroys competing industries in their target markets. Today's news that Toyota is being hammered by the strong yen is a classic. Yes, this concerns the Bank of Japan and they will try to fix it somehow. My cartoons show some of the methods. Heh.
The Bank controls the amount of funds in the money market mainly through money market operations, thereby bringing the uncollateralized overnight call rate to the target level specified in the guideline for money market operations. Money market rates, in turn, affect interest rates in other financial markets and the lending rates that financial institutions apply on loans to firms and individuals. In this way, the Bank's monetary policy influences economic activity overall.
This article is a rather opaque attempt at turning what is an obvious scam on the part of the central bankers into a formula that justifies whatever actual policies they use. Of course, if there is some sort of useful formula, we would have a computer set the rates, not a bunch of corrupt, lying, venal humans. But of course, the rate setters are conspirators who want to do things, not some economic logic. The 'expectations' which this article and which our own craven bankers talk about all the time are simply the DEMANDS of the powerful money people. They want something and the central bankers say, 'How high do we jump?'
And right now, what both Japan and the US want is the carry trade back. It poured trillions of dollars into the treasure chests of many a pirate this last 7 years! And they want it to continue.
E-stability? Sounds like the name of a web page! E-Stability.com! The Chinese often say they want stability. So perhaps they could log onto that web page and get some. I love the 'E-stable SUNSPOT equilibria' business, too. What is that? How many sun spots are stable in number? 10? 30? And how can a bank generate sunspots? Sunspots means eruptions on the solar surface and ejections of all sorts of energy, sometimes X rays and dangerous cosmic rays. This can destroy electrical systems on earth and cause auroras in the north. But how can the Bank of Japan do this? Isn't this the wrong imagery?
Next is the REE: rational expectations equilibria. I had to search the web for this name. I see nothing rational with ANY expectations of the rich who control our central banks. They do have 'expectations': an endless flow of money and wealth...to themselves. Any central bank that doesn't pay attention to this desire gets hammered by them behind the scenes. So up front, they can piously tell us there are these amazing formulas that explain 'expectations' but we can see with Mr. Cramer, the 'Blood is running in the streets' gentleman on TV, they are actually all cry babies. They expect a bottle and make it 98% proof, too. If the central bankers notice inflation, the expectant babies all set up to howling until the central bankers give them rate cuts, anyway. And while at it, cut the reserve ratios, too.
Also note how Mr. Muto talks about the bankers being the leaders! HAHAHA. They are tools, not leaders. If they fail in their mission, they get canned. And note the last line here: the inflation rate business. The job of the central bankers seems to be finding tricky ways of redefining inflation so it vanishes from sight even as it stomps all over the economic landscape.
This scholar in Japan admires Mr. Taylor. So I looked up more information about this guy. Oh my! A typical idiot like the army of idiots advising the Bush family on economic matters! A right wing monster who tries to justify destroying our economy via various formulas and hat tricks. I found this recent speech by Helicopter Bernanke, praising this goon.
October 12, 2007
During the late 1970s and early 1980s, John published a number of highly influential papers, including: "Conditions for Unique Solutions in Stochastic Macroeconomic Models with Rational Expectations," "Estimation and Control of a Macroeconomic Model with Rational Expectations," "Aggregate Dynamics and Staggered Contracts," and "Solution and Maximum Likelihood Estimation of Dynamic Nonlinear Rational Expectations Models." (As you can tell, John has always had a penchant for catchy titles.) Beyond its important technical contributions, this work showed that the insights and methods of the rational expectations revolution could be applied to models with sticky wages and prices. That observation has proved enormously influential in subsequent policy research.
The rational expectations revolution helped to kill the idea of a long-run tradeoff between the levels of inflation and unemployment. However, John's analysis showed that, in the presence of aggregate supply shocks, attempts by monetary policymakers to reduce the volatility of inflation over time could be associated with higher volatility in unemployment, and vice versa. John's visual depiction of this policy tradeoff has come to be known as the Taylor curve. Interestingly, John's work anticipated the possibility that improvements in the conduct of monetary policy or changes in the structure of the economy could result in a shift of the Taylor curve--that is, a change in the ability of policy to smooth both inflation and employment. And indeed, what economists have dubbed the Great Moderation--a simultaneous reduction in the volatility of inflation and the volatility of real economic activity--has occurred in the United States and in many other economies over the past quarter-century.
The 'Great Moderation' is old fashioned 'kill wages by bringing in or outsourcing to cheaper countries, especially Asia.' This is EXACTLY what the 'Gilded Age' did after the 1873 Panic. They let a flood of immigrants from Europe pour into the US to drop wages here. And 'free trade' was used to open markets for LABOR so wages fell all over the earth. For 20 long years! The build up of anger and energy exploded across the 20th century! Right now, easy loans coupled with dropping wages plus cheap imported goods staved off labor's potential rage. But now, the loans are gone. The easy money has vanished. Cheap goods are no longer so cheap due to the dying dollar.
As usual in the US, Bernanke studiously refuses to mention the trade deficit. His praise of this goon coupled with his myopia is exactly why the US will be forced to learn Chinese later. We cannot talk about 'Great Moderation' when we are really talking about the 'Great Tsunami of Red Ink.' The cost of this 'moderation' has been trillion in trade deficits over the years! Far from being an achievement, it is a disaster. But since it made the bankers and their buddies richer, they are very happy with it.
In 1989, John became a member of the first President Bush's Council of Economic Advisers. During the next four years, he played a key role in shaping the Administration's positions on macroeconomic, fiscal, international finance, and trade issues. The U.S. economy was entering a difficult period at that point. Among other problems, significant pressures on bank balance sheets were beginning to emerge that would damp economic growth for the next several years. While dealing with the serious economic issues of the time, John and the other members of the Council simultaneously produced an impressive manifesto for policymaking. They developed a rules-based approach to the conduct of monetary and fiscal policy and published it in 1990 in the Economic Report of the President.
That essay laid the foundation for what is perhaps John's most well-known contribution to economics--the simple description of the determinants of monetary policy that eventually became known as the Taylor rule.1 John's analysis triggered an avalanche of studies examining the stabilization properties of Taylor rules in the context of macroeconomic models. Other work investigated the ability of variants of the Taylor rule to describe empirically the actual course of monetary policy in the United States and in other economies.
The Taylor rule also embeds a basic principle of sound monetary policy that has subsequently been referred to as the Taylor principle.2 According to this principle, when a shock causes a shift in the inflation rate, the central bank must adjust the nominal interest rate by more than one-for-one. This ensures that the real interest rate moves in the right direction to restore price stability. The Taylor principle provides essential guidance for central banks on how to anchor long-run inflation expectations and foster stable growth and low inflation.
There has been NO STABILITY. Not only have interest rates jerked up and down with increasing violence since this guy figured out how to have 'Great Moderation', we can see the 'curve' for nearly all our economic systems has been STRAIGHT DOWN. True, assets and stocks have managed to inflate during this 'Great Moderation' but they are now deflating. The only thing to go up and up have been commodities. And they are now going up as fast as ever. Even as other things decline or run in the red, commodities are not. And note how Bernanke yaps about pegging rates slightly above the rate of inflation?
The BASTARD knows perfectly well, it is pegged below the rate of REAL inflation. But being a criminal rather than a leader, he and his buddies like Taylor have cut out all commodities from the inflation statistics! So we have this cruel paradox with Bernanke, right smack in the middle of the Great Banking Meltdown of 2007, praising the idiot who helped make this inevitable!
After his stint at Treasury, John returned once again to the less tumultuous life of a professor, ensconced in his offices at Stanford University and the Hoover Institution. I'm sure that, in between teaching and guiding the work of graduate students, he will continue to offer insightful commentary on monetary policy and other economic issues. And doubtless he will also continue to do pathbreaking research. Indeed, with our appetites whetted by the Taylor rule, principle, and curve, we now look forward to the Taylor dictum, the Taylor hyperbola, and maybe even the Taylor conundrum.
I want to look forward to the Taylor Vacuum. This is where I take my Hoover vacuum and suck him and his chair at Stanford into the cleaner's bag and dispose of him and his ilk. And the Taylor condundrum: this is the formula whereby we figure out how many deluded right wing monetarists can dance on the head of a pin while spinning numbers and lying about inflation.
And while Bernanke was making this speech, this is the article I wrote that same day. Note how it is full of alarm over developments in our economic landscape. It is as if Bernanke and I live on different planets.
A major fiction for the biggest central banks is that they can prevent recessions or make them 'soft landings' via monetarist manipulations of interest rates. So here we go again, another downturn in the West that is triggering interest rate cuts which are now boosting speculative spending and stock markets. This supposedly will fix what really ails world economic dynamics but in reality, it is making it worse for the present system is set in 'self-destruct' mode. The IMF warns about a slow down which is triggering more interest rate cuts. Also, I visit Japan to examine yet another facet of Fortress Japan and how they keep out those pesky foreigners. And inflation is ravaging Japan which is leading to wage cutting as an off-set scheme.