It is a puzzle why the George Soros-funded Institute of New Economics Thinking (INET) chose to hold its 2013 annual conference in April in Hong Kong, the favorite pet of market fundamentalists such as the late Milton Friedman, whose free-market theology has been summarily discredited by disastrous unfolding events in an unregulated globalized financial market since 2007. (See From colonialism to confusion, Asia Times Online, May 14, 2003)
Hong Kong is the last place on earth one can expect to find new economics thinking of any kind, especially when the conference was co-sponsored by a local billionaire who made his fortune from global outsourcing through cross-border wage arbitrage while the
sordid game was lucrative, backed by financing from transnational US institution Prudential Financial, a game that has adversely affected the lives of workers in all trading countries. It is even more puzzling why lead speakers at the conference, such as Jonathan Adair Turner, seconded by aspiring global reformist citizen George Soros, found it necessary to hit the Bank of Japan (BoJ) hard.
Lord Turner, Baron of Ecchinswell (created September 7, 2005), is a British businessman, academic, liberal technocrat, member of the UK Financial Policy Committee, chairman of the UK Financial Services Authority (until its abolition in March 2013 after having served as cheerleader for Big Bang deregulation of London's financial markets that serve the whole world), former vice-chairman of Merrill Lynch Europe and a non-executive director of Standard Chartered Bank, and one of the leading proponents of British membership of the euro - a stance he later said was mistaken. [1]
In 2009, Lord Turner famously said that a lot of banking activity was ''socially useless” and as chairman of the FSA, with only two weeks in office, infamously used his regulatory authority to nix the proposal by Britain's Barclay Bank to bail out fatally impaired US investment banking giant Lehman Brothers, That decision pushed Lehman into filing Chapter 11 bankruptcy protection in the US on September 15, 2008, the morning after the FSA decision, causing massive destructive financial chain reactions around the world, wiping out along the way small life savings of widows and trust funds of orphans.
Banks may be socially useless, but they are certainly not socially benign.
The BoJ does not deserve such harsh criticism from people of such dubious record. Under new governor Haruhiko Kuroda, the BoJ is the only central bank among Group of Seven governments taking a sensible Keynesian monetary policy to deal with protracted deflationary recession to help the segment of the population most hurt by the still-unfolding global financial crisis.
An inflation policy by the central bank in a deflationary financial crisis helps a large segment of the population who have put their life savings in fixed-income assets traditionally recommended to them for alleged security and in the market value of their homes, often the largest asset owned by an average family.
Kuroda has been a strong advocate of loose monetary policy in Japan to relieve the Japanese economy of needless financial pain suffered by the helpless general public. [2] His February 2013 nomination by the incoming restructuring-minded government of Shinzo Abe had been preordained. Nominated at the same time were Kuroda's two key deputies, Kikuo Iwata, known widely as ''a harsh critic of past BoJ policies'', and Hiroshi Nakaso, a senior BoJ official in charge of international economic and monetary affairs,. The previous BoJ governor, Masaaki Shirakawa left in March 2013.
''There is plenty of room for monetary easing'' in the Japanese economy, Kuroda said in a February 2013 interview, adding that the BoJ could go beyond purchasing government bonds to include corporate bonds ''or even stocks'' to perform the role of market maker in stalled markets. The unorthodox remark sent cold shivers down the whole spine of the global central banking snake. How can a central banker not accept the golden rule that the people must suffer austerity for the miscalculations of monetary policymakers?
The yen, which has fallen 10% against the dollar since Abe began his election campaign in November, 2012, fell further on the news of Kuroda's nomination in February 2013. However, the new governor is ''expected to use his experience as Japan’s top currency official until 2003 to rebut foreign criticism that Japan was using easy monetary policy to drive the yen lower, triggering a war of competitive currency devaluation''. [3]
When the new central banker was asked about the same accusation in the press conference at his assumption of office of BoJ Governor on March 21, Kuroda danced around the pointed question by noting that BoJ's role is to stabilize falling prices, and stabilizing the exchange rate is role of the finance ministry. The unspoken message was that Japan is not doing anything that other governments are not doing.
Kuroda, having assumed the BoJ position, immediately launched a discussion on bond buying with a two-year target of 2% inflation policy as goals to deal with a deflationary recession.
After the dollar toyed with 100 yen in currency markets by end of March, Japan’s Finance Minister Taro Aso hinted on April 9 that Japanese policymakers were unlikely to seek to slow the pace of the yen’s decline. Minister Aso said the yen was merely correcting after a period of government-supported excessive strength in currency markets.
The yen on April 8 had hit its lowest level against the dollar since April 2009, after the BoJ made its first government-bond purchase since announcing the policy a week before that it would add some 140 trillion yen (US$1.4 trillion) to the economy over the next two years as it seeks to moderate or end deflation.
The Nikkei jumped to close above 13,500 on April 11, the first time it had seen that level in five years. The smart money expects the Nikkei to rise 40% to 14,500 in 2013 with the yen sliding 18% against the dollar to around 102. Parity with the dollar is very likely. The yen traded at 99.73 to the dollar on April 11, after hitting 99.88 yen to a dollar. By April 17, it was trading at 98.19.
The rise in Japanese equity markets has also been helped by data supportive of a recovery in the Chinese economy - notably signs of growing domestic demand and easier credit.
Data out on Thursday, April 11, showed Chinese banks made 1.06 trillion yuan (US$171.2 billion) of new, local currency loans in March; trade figures last week showed a sharp rise in imports. The Japanese market is also helped by indications from the European central Bank in the first week of April that it is considering a further rate cut in euro loans.
Reports on the Cyprus Central Bank selling its gold reserves drove gold prices down, which the market saw as the beginning of collapse of the gold bubble. But a gold bubble collapse engineered by central bank action is not the big news.
The big news will be the euro being saved from disintegration by Germany, but at a discounted exchange rate that will serve the German national interest of having a cheap currency to boost German exports outside of the eurozone, mostly to China. Germany will be soaking up the wealth created by a common currency in the eurozone through the portion of its trade outside of the euro zone denominated in a cheap euro.
It is a direct transfer of wealth to Germany from those eurozone countries which have been forced to adopt austerity programs to stay with the euro and in the eurozone. The world is waiting for Europeans to realize its time for a political response to the sovereign debt crisis by driving neoliberal monetarists into the sea to drown, instead of dumping surplus grain to keep food prices up.
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