19 November 2014

Japan’s Failed Experiment

It seems ironic that you can have one of the biggest monetary stimulus programs in modern times and have it achieve almost nothing for the economy. Well, that is now the case, as according to an article in Bloomberg, Japan has entered a recession.

The Japan monetary failure demonstrates the limitations that Central Banks have in positively impacting the true underlying fundamentals of an economy. The Bloomberg article stated that gross domestic product slid an annualized 1.6% for the third quarter.

This came after a 7.3% slide in the previous period. (Source: Bloomberg 2014/11/17) As all of the money printing by the Bank of Japan has done little for the economy and only dug a deeper hole, which will be very difficult to get out of.

Tax Hike

In addition to a falling currency, the Japanese people are now also facing a tax hike. In April of this year Japan’s consumption tax increased from 5 to 8% and is likely one of the reasons for the poor GDP numbers. 

Taxes are slated to again increase in Oct. of next year but now it may be delayed. According to the same Bloomberg article the recent GDP numbers make it “certain the tax increase will be delayed, said Kenji Shiomura, a Tokyo-based senior strategist at Daiwa Securities Group Inc. 

According to an article in Business Insider, the IMF is advocating a scenario where the authorities would increase consumption tax to at least 15% after 2015. (Source: Business Insider 2014/11/18). This is a response to the high debt levels in Japan.

No Way Out

The situation in Japan highlights the significance of the challenge that many countries are faced with right now. Because of slowing economies, increasing taxes without wage or economic growth is not going to be enough to bring the debt into balance.

On the other hand, prolonged periods of money printing is only going to increase the risk of a crash in bonds, currencies and stocks. October brought one of the wildest trading periods in many years. So this will likely be the norm moving forward as trying to balance budgets through austerity and tax increases will not be a viable option politically. 

If you live live in Japan now is a good time to consider Gold and Silver as your ultimate protection

Author: celticgold.eu

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