In the third quarter of 2014, the Japanese economy, the third biggest in the world, fell back into a recession. The country’s gross domestic product (GDP), quarter-over-quarter, declined 0.4% in the third quarter after it declined 1.9% in the second quarter of 2014. The annual GDP growth rate for the Japanese economy now stands at negative (-)1.6%. (Source: Japan Cabinet Office, November 17, 2014.)
At an annual rate of -1.6% GDP, Japan’s economy will face its biggest contraction this year since 2009, when the Japanese economy plunged 5.5%. (Source: Federal Reserve Bank of St. Louis web site, last accessed November 17, 2014.)
Japan is back in a recession despite the Bank of Japan’s extreme stimulus measures.
Record Money Printing
The goal of the Bank of Japan was simple: print more paper money, drive the currency (yen) lower, and eventually this will result in higher exports and inflation leading to growth.
Since January of 2011, the monetary base in the Japanese economy—the measure of money supply—has increased 150%. In January of 2011, it stood at 102 trillion yen; in October of 2014, the monetary base in the Japanese economy was 256 trillion yen. (Source: Bank of Japan web site, last accessed November 17, 2014.)
As the central bank of Japan printed trillions of new yen (out of thin air), the yen plunged in value. Look at the weekly chart of the yen below to see the decline in its value compared to other major currencies in the global economy.
Chart courtesy of www.StockCharts.com
Since mid-2011, Japan’s currency has plunged 35% in value.
Sadly, even with all this money in the system, record-low interest rates, and a devalued currency, the country’s exports aren’t increasing and economic growth is negative.
The U.S. Economy
The actions that the central bank of Japan has undertaken have taken place in the U.S. economy, too. The Federal Reserve printed trillions of new U.S. dollars. And our money supply has skyrocketed, too.
In the first quarter of 2011, the monetary base in the U.S. economy stood at $2.22 trillion; in the third quarter of 2014, it was $4.02 trillion. This represents an increase of more than 81%. (Source: Federal Reserve Bank of St. Louis web site, last accessed November 17, 2014.)
With all the newly printed money and record-low interest rates, we are hoping for economic growth as well. The last two quarters of this year have shown stellar increases in the U.S. GDP. But in the first quarter of this year, we experienced negative GDP, and the fourth quarter, so far, doesn’t look good either.
The Stock Market
The only thing money printing has helped is the stock market. In Japan, as the central bank of that country printed money, key stock indices in the country skyrocketed. The same thing happened here in America.
After so many rounds of quantitative easing, there is clear evidence money printing isn’t helping the Japanese economy. In the U.S., all that new money that was printed helped the rich (who own assets), but it hasn’t helped the masses.
I have absolutely no doubt that when the U.S. economy starts to suffer again (in the eyes of Washington and the Fed), or when our stock market starts a steep decline, the Federal Reserve will resort to its old tactic of printing more paper money, just like Japan does every time its economy contracts. The U.S. needs to learn from Japan’s example that money printing doesn’t help the economy.