Gold, Japan & Bernanke

Bullion Vault

Gold up, inflation down…? Sounds a little too much like Japan…

WHAT’S GOING ON? asks Bill Bonner in his Daily Reckoning.

There are two main schools of thought. Ours. And theirs.

Who’s right? You decide.

They say “The crisis is over.” We can thank our lucky stars – and the feds.

Now we’re getting back to “normal”…or maybe a “new normal” with lower growth rates than before. Janet Yellen, San Francisco Fed governor, says the recovery will be “tepid”. Others say it will be weak…soft…drawn out.

“The slowest recovery since 1945,” says a Bloomberg report. It may be slow, they say, but it’s sure. The stock market proves it.

But in our view, there is no recovery. None. All of the improvement in the economy can be traced directly to bailouts. None of it – not a single penny – is organic, natural or durable. When the subsidies for new cars goes away, for example, so do auto sales.

We wrote a book, Financial Reckoning Day with Addison Wiggin, in 2003. In it, we predicted that the United States would follow Japan into a long slump. We thought it would begin after the tech crash of 2000. We were wrong about that. But it seems to be beginning now. And the government, predictably, is doing the same things the Japanese government did – despite Bernanke’s assurances that he won’t allow the country to fall into the Japanese deflation trap.

One thing the Japanese did was to reduce interest rates…practically giving away money to anyone who would borrow it. But Japanese consumers didn’t want to borrow; they wanted to save. They had speculated on the bubble and lost money. Then, with retirement approaching they wanted to replenish their savings and rebuild their balance sheets.

So, the Japanese government put out money…and it was taken up by speculators, not by the real economy. The speculators borrowed Yen, at very low interest rates, and then reinvested the money in go-go sectors elsewhere – such as the US dotcom bubble. The Yen became the world’s “financing currency”.

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