Japanese Consequences

The world’s 3rd largest economy, Japan, has entered another recession after a shock 1.6% contraction in the September quarter (they were expecting 2.2% expansion) after the previous quarter shrank 7.3%.  This from the worlds ‘leader’ in debt to GDP (over 260%) and most aggressive stimulus program ‘Abenomics’ which just 2 weeks ago was ramped up even further.  In the short term this pushes the gold price down as it strengthens the USD/YEN.  There are a number of takeaways from the Japanese situation (very briefly) to think about:

  • Japan is a classic example of how central bank artificial stimulus can only do so much, for a short amount of time, accumulating massive debt against a structural economic problem.
  • Japan is somewhat unique in it has massive globally invested  capital reserves – what happens when they need to start divesting that as their currency continues to collapse and they need to fund the impacts of one of the world’s worst aging and zero immigration demographic situations.  (Australia in particular would feel the brunt of this).
  • The snap election called in reaction to this will probably show how we humans will vote for more stimulus over structural reform (Abe has already ‘postponed’ their scheduled sales tax increase) and kick the can down the road.

The impact for gold and silver investors?  Well in the short term it may dish up more bargain prices to buy more.  In the medium to long term though this just adds weight to the need to balance and protect your wealth against the inevitable crash, the size and severity of which grows with each day of these desperate attempts by governments to not have it happen ‘on their watch’.  The choice won’t be theirs.