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Abenomics fails

USDJPY News by Allie Longford on 20:45 November 16, 2014 EST

Last year, newly elected Japanese Prime Minister Shinzō Abe embarked his country into yet another Keynesian experiment consisting in flooding the monetary system with cheap money, debasing the currency and starting government funded mega projects paid for with some of those newly electronically printed yens. And all that in one of the most indebted countries in the world.

Aside from the moral issue arising from stealing a significant part of the value of every yen from
millions of defend-less savers one has to question if, in the end, the experiment results in greater good for the country.

After similar government plans in the US and Europe, it is becoming increasingly clear that unless that new money is employed to produce needed innovation/infrastructure to increase medium/long term productivity a plan of that scale is counterproductive and destined to fail ultimately.

Governments have a poor record allocating money. They can, however, mask their failures because they can always get back to the taxpayers to extract more money from their pockets in order to compensate for their failed plans. A private investor with limited funds would inevitably have to end a failed project.

New GDP figures have been released this morning showing that the economy in the Asian powerhouse contracted by 0.4% last quarter. Since the previous quarter the Japanese economy shrank by 1.85%, the country is now officially in recession. To add insult to injury the Japanese people are holding yens that have devalued around 25% since Abe took office.