Friday, May 24, 2013

When You Print Gobs Of Money, Everything Will Be OK

... until it isn't.

Two days ago, Japan's Nikkei Index dropped more than 7%. Japan takes first place in the world's borrowing and debt monetization contest. They're stimulizing, printing, borrowing, everything they can think of to get their moribund economy going. Every Keynesian trick in the book has been tried in Godzilla-sized ways.

None of it has worked and that stock drop has shown just how unstable their system has become. Dig this 3 month chart of the Nikkei.

Much of the money they printed has gone into the stock market. That long rise doesn't correspond to real economic growth, it's just the best place to store the printed money. It's the only thing that earns a return, so they buy stocks. When they buy stocks, the prices go up. When the prices go up, people see a greater return and buy more stocks.

Nothing real has happened. It's just printed money chasing printed money.

And then comes some tiny bit of news that spooks people and WHAM! investors flee and the market drops 7%. Since the big investors all know what's happening - it's a sugar rush from the debt monetization binge, they're all on a hair trigger to get out at the first sign of a crash. This isn't buy-and-hold investing, it's gambling.

Fortunately, that can't happen here. Right?


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