THE REAL DANGER

Two cardinal sins among the many that governments commit are propping up markets and keeping interest rates too low too long.

Japan is the latest example where the propping is under way with the second coming of Prime Minister Shinzo Abe and his goal of hogtying the Bank of Japan. Japan, an export-dependent nation, is currently the not-so proud owner of one of the strongest fiat currencies around.

To say that has weakened it exports is putting it mildly. The Land of the Rising Sun has been stuck in a de-leveraging death spiral for 20 years. A small island with an aging population and few natural resources, domestic demand remains in a major funk. Leveraging usually weakens a currency, not the other way around.


Once world-dominating companies like Sony and Panasonic now find themselves in a world of hurt, in the competitive television market, for example, running into tough competitors like Vizio. But that's just the tip of the economic iceberg. 

Japan's combined debt, public, private and corporate, is knocking on the the 500%-of- GDP door, nearly double the 250% number main stream media tosses around almost daily, just another example why one should not rely on MSM for their facts.

Over the last half year the yen lost nearly 20% of of its value placing it at the bottom in performance of the 10 developed-nation currencies followed by Bloomberg Correlation-Weighted Indexes. Much of the decline stems from the market's interpretation of what some are calling Abeonomics. 

A key point though is the announcement from the G7. In pledging to hold their exchange rates steady, the group tried to allay any fears about the beginning of currency wars starting up owing to what many see as Japan's new "beggar thy neighbor" policy.

A while back Business Insider blogged a piece about the Bank of Japan's anemic efforts to expand it balance sheet, labeling the bankers' effort "a real wuss," and showing a couple of charts to buttress the point by concluding " its (Japan's) aggressiveness pales in comparison to other central banks since the onset of the financial crisis."

This is a play straight from Chairman Ben's sandlot group. "Go down two Toyotas, past the green Buick and at the white Nissan cut left and look up. It'll be there."

You need to remember that these G7 folks are politicians, bureaucrats, and should something go a rye here, and it usually does, expect them to debase their currencies faster than you can say foreign exchange rates. That's the real danger.

Addendum: Keep your eye on 2/15-16 when G20, a group of the 20 largest economies is set to meet in Moscow to discuss shoring up medium-term fiscal commitments. A similar meeting in 2010 centered on cutting fiscal deficits in half by 2013. Apparently, someone forgot to tell the US.