U.S., Japan, & The Eurozone Are Headed Down The Road To Serfdom/Fruitdom While Central Banks Are Creating A Pervasive Poverty Effect

March 4th, 2013

Michael Pento: Why, If You Think About It, We’re All Screwed

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“It is sad to say there are just two reasons why the U.S. is not yet a banana republic. The first reason is that the US dollar has not yet lost its world’s reserve currency status, which is helping to keep interest rates at record low levels. If the dollar, yen and euro were not involved in a currency war, the dollar’s intrinsic decline would become much more evident, causing domestic inflation to soar, and our bond market to immediately collapse.

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While some love to speak about the return of ‘King Dollar,’ the truth is any nation that seeks to remain viable through the life support provided by its central bank purchases of sovereign debt, should be designated a banana republic–regardless of its geographic location. That is why the U.S., Japan, and the eurozone are headed down the road to serfdom, or fruitdom if you will. This is also why the unquestionable winner of all these currency wars will be precious metals and energy related investments.”

Charles Hugh-Smith: Understanding Failed Policies: Wealth Effect, Wage Effect, Poverty Effect

Central banks’ attempts to boost borrowing, consumption and wages by inflating asset bubbles leads to the poverty effect, not the wealth effect.

Central bankers have been counting on “the wealth effect” to lift their economies out of the post-2009 global meltdown slump. The wealth effect concept is simple: flooding the economy with credit and zero-interest money boosts the value of assets such as housing, stocks and bonds. Those owning the assets feel wealthier, and thus more inclined to borrow and spend more money. This new spending creates more demand which then leads employers to hire more employees.

Unfortunately for the bottom 90% who don’t own enough stocks to feel any wealth effect, the central bankers got it wrong: wages don’t rise as a result of the wealth effect, they rise from an increased production of goods and services. Despite unprecedented money-printing, zero interest rates and vast credit expansion, real wages have declined.

It’s Clear That The Fed Is Starting To Prepare For A Future PR Nightmare

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It’s becoming clear that Fed is becoming increasingly concerned about public perception, especially given all of the chatter about how the Fed is going to exit.

Yellen and Bernanke are laying the groundwork, explaining why although the lack of remittances might not be great PR-wise, they’re not technically problematic for any economic reasons.

Japan Central Bank Nominee Pledges to Do Whatever Needed to Combat Deflation; Mother of all Pyrrhic Victories

Those who thought Japanese Prime Minister Shinzo Abe was not serious in his pledge to defeat deflation (and destroy the Yen in the process) need think again.

Haruhiko Kuroda (Abe’s nominee to head Japan’s central bank) pledges to do Whatever Needed to Combat Japan Deflation.

Haruhiko Kuroda, nominated to be the next Bank of Japan governor, said that a central bank under his leadership would do whatever is needed to combat 15 years of deflation.

“I would like to make my stance clear that we will do whatever we can do,” Kuroda, the president of the Asian Development Bank, said in a confirmation hearing in the parliament in Tokyo today.

Prime Minister Shinzo Abe’s nomination of Kuroda has raised expectations for more aggressive monetary easing to revive the world’s third-biggest economy after Masaaki Shirakawa exits the job on March 19. The opposition Democratic Party of Japan, the largest party in the upper house, has signaled it will back Kuroda, easing his passage through a split parliament.

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Japan Government Bonds Rise, Pushing 5-Year Yield to Record Low

Dagong Downgrades Japan’s Sovereign Credit Ratings