dailyreckoning.com.au / By Dan Denning / November 19th, 2012
The Japanese have their general election coming up in December. In the lead up, the challenger from the Liberal Democratic Party, Shinzo Abe, is calling for ‘unlimited’ monetary easing from the Bank of Japan. The goal is to ‘beat’ deflation by targeting inflation of 2-3% and spending more on public works and defence.
Yes, with a public-debt-to-GDP ratio already over 200%, Japan obviously needs more public spending. Because that has worked so well to ease the pain of Japan’s burst credit bubble. Really though, do you notice the trend now globally?
Central banks used to be the puppet masters in the economy and the political system. They acted as lender of last resort to the financial system and the government. But as the debt crisis has consumed governments (after their bailouts of banks), central banks have now become hostage to growing government deficits. As Das explains in one of today’s other articles on the US debt problem, the Fed now buys 60% of US Treasury debt.