Peter Schiff: How Long Before The Fed Has to Turn Japanese?
The comments below are an edited and abridged synopsis of an article by SchiffGold
Is the US about to go the way of Japan? The Japanese yen tanked after the Bank of Japan vowed to buy an unlimited number of Japanese government bonds in order to hold the 10-year yield under its 0.25% target.
This is quantitative easing infinity. If the central bank is going to buy an unlimited quantity of bonds, that means it will create an unlimited quantity of yen out of thin air. No wonder the yen tanked.
The BoJ followed through, buying just over $500 million in bonds last Monday and another $2 billion last Tuesday.
If the BoJ is willing to buy bonds at an artificially high price, why wouldn’t you sell your bonds to them? This creates a scenario where the central bank could potentially own virtually all of the government’s bonds.
Why did the BoJ make this extraordinary move? Why is it price-fixing the yield on government bonds? Why is it trying to control the long end of the yield curve?
The BoJ has been monetizing Japanese government debt for decades. The debt-to-GDP ratio is about 250%. They justify this by claiming there’s not enough inflation in Japan.
If the BoJ’s goal was to create more inflation, it succeeded. Why doesn’t it now let interest rates rise? Why keep printing money?
Of course, Japanese politicians don’t want to be held accountable for their reckless spending. They don’t want to have to give voters tax increases. They don’t want to cut government spending. So, the only way they can spare Japan from higher taxes is to buy bonds, monetize the debt and keep interest rates artificially low.
But now they have an inflation problem. The BoJ’s monetary policy likely robbed the Japanese of the falling prices they would have enjoyed from their productivity. But now, prices are rising and the central bank is pouring gasoline on the fire because it’s concerned about the Japanese government’s ability to service its debt.
At some point, the BoJ will have to turn away from this extraordinary loose monetary policy. If it doesn’t, the central bank’s balance sheet will explode. And inflation will explode.
Does this sound familiar? Because the question is, how long before the Fed has to turn Japanese?
