Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Bank of Japan steps up its mercantilist attack upon the U.S. economic future.
The biggest financial news this morning is that the Bank of Japan announced last night that it was going to boost its money creation -- using the money to buy U.S. stocks. Here's a selection from an article on Zero Hedge, my favorite economics blog:
And here's an article about the same announcement being the cause of rising U.S. stock prices on the Yahoo Finance blog:
The Japanese government wants to buy American dollars and use the money to buy American stocks. This action boosts of the dollar versus the yen, giving Japanese companies more profits in their competition with American companies. Japanese companies, thus, make more money which they can invest in developing new or improved products.
The Bank of Japan doesn't want the U.S. stocks to appear on its balance sheet, so it buys Japanese bonds from Japanese pension funds and tells the pension funds to buy the U.S. stocks.
The effect upon the U.S. will be exactly in the opposite from the effect upon Japan. U.S. companies that compete with Japanese products will make lower profits and will have less available to invest. The long-term growth of the U.S. economy will suffer as a result.
But U.S. stock holders will benefit in the short-run. They will be able to sell their stock at an inflated price and consume the proceeds. They'll live high until the stock market bubble pops.
I don't think that Janet Yellen, at the Federal Reserve, is objecting to this action. I am not even sure that she is aware that the Bank of Japan is beggaring the United States. I guess it is only economic warfare if two countries fight. The leadership of the United States doesn't fight back.
Journal of Economic Literature:
Atlantic Economic Journal: