Learning from the “Japanese Example”

Through its quantitative easing program, the Federal Reserve has created about $3.0 trillion in new money out of thin air. This was all in the name of getting consumer confidence in the U.S. economy going again.

Did this actually occur?

As it stands right now, consumer confidence in the U.S. economy is bleak and quantitative easing is failing on this front. Quantitative easing, as far as I’m concerned, has helped all those connected to Wall Street, has created another stock market bubble, and hasn’t helped the average American.

I’ve said it many times in these pages, quantitative easing won‘t be the factor that will increase consumer confidence. All we have to do is look at the Japanese economy and see what’s happened there. Quantitative easing didn’t work there…it didn’t boost consumer confidence.

In July, consumer confidence in the Japanese economy fell again. The index gauging the confidence of consumers registered at 43.6 in July—declining from 44.3 in June. Note: Any reading below 50 on the index suggests consumers are pessimistic. The Cabinet Office, which tracks the index, said the pace of consumer confidence is slowing. (Source: Reuters, August 9, 2013.)

We can see from the “Japanese Example” that quantitative easing doesn’t increase consumer confidence. If it did, then we would see its effect on the Japanese economy, as the central bank there has been printing money for some time now.

Just like the Japanese economy, quantitative easing here has caused the stock market to rally.

Now, once quantitative easing ends, if it ever does, it can be damaging to both the bond market and the stock market. I remain firm on that belief and recent mixed messages from the Federal Reserve have only cemented my conviction. Whenever we heard members of the Federal Reserve talking about the Fed tapering off quantitative easing, the stock market declined and bond yields soared.

If the money printing ever does end, it won’t be pretty for the markets.