Thursday, November 13, 2014

How The Rich Get Richer, Japanese Style

Here's how I think it works.
  1. The Bank of Japan (BoJ) prints money and buys government bonds.
  2. Government retirement accounts sell their bonds to the BoJ to buy stocks.
  3. The Japanese stock market goes way up.
At the same time:
  1. Rich Japanese borrow money at artificially low interest rates using their accumulated wealth as collateral.
  2. They invest this money in the stock market.
  3. They make scads of cash because of numbers 2&3 above.
In other words, if I, rich Japanese dude, can borrow at 1.5% and invest in the stock market where the return is 10-20%, it's free money for me. Note that nothing was actually produced. No goods or services were provided. At the risk of seeming egotistical, I will quote myself from The Rise And Fall Of Bear Stearns.
Midway through the book, I found that I despised Alan Greenberg. He is the quintessential greedy banker. Nothing has value to him and all that matters is making more and more money. Even the money loses meaning as money after a while and it becomes just a pile of poker chips. In reality, money represents value created through human labor. $20 is equivalent to two grown men working for an hour on your landscaping, a point seeminly lost on Mr. Greenberg. When he found a new financial instrument that allowed Bear Stearns to reap more profits, those profits were just numbers in an adding machine. Contact with the real world was lost as time went on.
This is Alan Greenberg on a national scale. Short of some kind of Black Swan event, clobbering the market, this bet is a sure thing. Printed money is pouring into the stock market. What direction can it go but up? As soon as the central bank ceased to be independent of the government, this was bound to happen.

Meanwhile, you, wage slave that you are, have no such collateral or access to big, low-interest loans. You toil along and pay your mortgage or rent and buy groceries and gasoline without enough yen on the side to join the party. You stay where you are while I float in a sea of money.

This is what happens when governments, central banks and the wealthy collude. It's a hallmark of fascism. Awesome, no?


B-Daddy said...

Now you're talking. It was for this reason that I came around to supporting the gold standard as national currency, it makes such shenanigans harder to execute and shorter lived.

This is actually the core legitimate complaint of the Occupy movement, even if they didn't fully grasp it. Notice that this harms the upper middle class the most, because it devalues the wealth created through real businesses. Who is a threat to the wealthy? Not the poor, but the upper middle class. As a result, this scheme also serves to keep the wealthy in positions of power and influence.

B-Daddy said...

Also, Japan will collapse, due to demographics. I don't have a nickel invested in anything Japanese.

tim eisele said...

Yes, exactly. And I keep thinking that what is going on in Japan is that, after decades of thrifty Japanese saving their money at a higher rate than almost anyone else in the world[1], the government and the banks and the stock-market players have worked out a scheme to steal their savings from them.

[1] The Japanese household savings rate was almost 25% when I was a kid, and didn't drop below 10% until the late 1990s (see Figure 3.5 in this document, for example. I expect that all that money just sitting there in bank accounts is an overwhelming temptation to the kind of person who wants to get money at any cost.