Are we turning Japanese, I really think so

Sub Zero may be a good refrigerator, but it’s no way to run monetary policy.

So the third largest economy in the world is offering its banks negative interest rates on new assets held at its accounts at the central bank.

The Japanese central bank led by Haruhiko Kuroda, issued the new policy overnight to its member banks in an effort to spur lending.

And this is perceived as a good thing by equity markets in the shortest of terms as bond market yields crater. The US 10-year bond is trading well under 2% nearing 1.93%

Japan’s two-year government notes are trading at negative 0.75% and its 10-year note is at 0.1%. There is zero economic growth according to what the market sees.

The Nikkei 225 stock market has advance 0.001% or 40 points in the last year. That’s with trillions of yen injected into the market by the central bank.

Why is this important? Because the Japanese bank experiment is so far a failed template for getting out of an economic malaise.

You see Japan has been in zero growth mode for more than 25 years, due to failed monetary policy blunders.

The same type of easy-money blunders that caused the Internet and housing bubbles here. So Japan is a petri dish for what the US will face down the road.

Japan tried all forms of QE before we even knew what that was here in the US.

So look carefully at negative interest rates on overnight balances at the Fed to come at some point in the future.

The first look at 2015 Q4 GDP came in at a whopping 0.69% growth rate.

A good chunk of that growth came from increased spending by Americans on health care premiums. Only in America can a cost to taxpayers be called a benefit to economic growth.

Look for the GDP number to be revised down on second look as better (actually worse) revisions come in on trade and inventory builds.

I will be away from this blog for a week with limited connectivity. I will attempt to post, but give no guarantees. I will return on Feb. 8th to regular postings.


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