Error message

Deprecated function: The each() function is deprecated. This message will be suppressed on further calls in _menu_load_objects() (line 579 of /var/www/drupal-7.x/includes/

Daniel Yergin’s “The New Map”: How Rising Asia Will Ensure the Future of Fossil Fuels

Published by Anonymous (not verified) on Fri, 22/01/2021 - 12:27pm in

Published in Nikkei Asia 15/1/2021

“Over 80% of the world’s people have never been in an airplane. ‘Flight shaming’ may be a social mode in Sweden, population 10 million, but China, population 1.5 billion, is building eight new airports a year.”

That quotation is typical of the tough-minded, realistic approach that Daniel Yergin adopts in “The New Map: Energy, Climate and the Clash of Nations”. The book appears with perfect timing. President Joe Biden has pledged to take the United States into the Paris agreement on climate change and is expected to put green investment schemes at the centre of his economic recovery programme.

The EU had already committed itself to a zero net carbon economy by 2050, as has Boris Johnson’s UK government. Japanese Prime Minister Yoshihide Suga followed suit in late December. The governments of the wealthiest countries in the world are now solidly aligned with the green agenda.  What could possibly go wrong?

Quite a lot, in Yergin’s view. To hit the target, these countries (GDP per head of $40,000-$60,000) would need to see their per head emissions fall to the same level as India’s (GDP per head of $2,000). These are tremendously ambitious goals.

Japan has followed the UK in proposing to ban sales of standard ICE (internal combustion engine) automobiles, by the mid-2030s in Japan’s case. In an unusually blunt response, Akio Toyoda, CEO of Toyota, stated that such a restriction risked driving car manufacturing out of Japan while doing nothing for emissions. Indeed, unless the grid itself is de-carbonized, electrification of the car fleet will achieve little.

Akio Toyoda recreates the Lexus "champagne" ad. Akio Toyoda recreates the Lexus “champagne” ad.

Change in the U.S., with its high level of vehicle ownership, is far more challenging. The fleet of 280 million vehicles is currently 99% ICE-powered. One fifth is over 16 years old, a proportion that has been rising steadily due to quality improvements. Without a game-changing policy intervention, many ICE vehicles bought this decade will still be in service in the 2040s.

Any such intervention would incur immense costs at the very time the economic wounds of the Covid-19 crisis need to be healed. Is Joe Biden ready to raise fuel taxes to European levels and offer more subsidies to the usually wealthy buyers of battery-powered cars? If he does, America’s 3.5 million truck drivers are unlikely to be amused.

British Prime Minister Harold Wilson once declared that a week was a long time in politics. From the perspective of today’s politicians, 2050 probably seems like the far future. But in terms of a full-scale energy transition, the creation of the necessary infrastructure, the safety testing, delivery and commercialization of new technologies, it is just around the corner.

Daniel Yergin is an insider’s insider. Pullitzer prize winner, trustee of the Brookings Institute, board member of the Council of Foreign Relations, member of the U.S. Secretary of Energy Advisory Board under the past four presidents – he knows the issues inside out, and most of the major players too. His reputation is based on his intimate knowledge of the oil and gas industry and analysis of the geopolitics of energy.

Most of “The New Map” is a lively description of recent events. It features a colourful cast of characters that includes Vladimir Putin, Xi Jinping, Saudi leader Mohammed bin Salman, Uber’s Travis Kalanick, Tesla’s J.B. Strauber, shale oil pioneer Harold Hamm and Malcolm McLean, the man who invented the shipping container, thereby ushering in an era of explosive growth in world trade.yergin2

It is the last two chapters that are the most important and most controversial. Yergin’s main scenario is that the global fleet of planes will double over the next thirty years; that oil consumption will hardly fall at all in absolute terms, although its share of total energy consumption will decline significantly; that the number of ICE-powered vehicles will be more or less unchanged, although over half of the new cars sold in the world will be EVs.

“Oil will maintain a pre-eminent position as a global commodity, still the primary fuel that makes the world go around,” he declares. “Some will simply not want to hear that. But it is based on the reality of all the investment already made, lead times for new investment and innovation, supply chains, its central role in transportation, the need for plastics from the building blocks of the modern world to hospital waiting rooms, and the way the physical world is organized.”

Unsurprisingly, Yergin has little time for the radicals, symbolized by teenage activist Greta Thurnberg, who want to ban fossil fuels right away. He quotes the response of David Swensen, legendary head of the Yale endowment, when faced with students’ demands to disinvest from the companies involved. “If we stopped producing fossil fuels today, we would all die…We wouldn’t have food. We wouldn’t have transportation… We wouldn’t have clothes.”

Yergin is no climate change denier, nor does he ignore the disruptive new technologies that are driving down the cost of renewables. He believes the energy transition is real and that breakthrough technologies such as hydrogen power have great potential.  What he disagrees about is the timescale. And the basis of his scepticism is the changing power balance in the world, specifically the rise of Asia.

China overtook the U.S. as the world’s largest energy consumer in 2009, and now accounts for 25% of world consumption. Some 85% of that is generated by fossil fuels, overwhelmingly coal. It has been adding three coal-fired plants a month.

Long-term energy security is crucial in the thinking of the Chinese leadership and plays a major part in the rapprochement with Russia. As Yergin observes, “a relationship that was once based on Marx and Lenin is now grounded in oil and gas.” China has made $80 billion of pre-payments to Rosneft, a state-controlled Russian energy company, for oil supplies to be delivered over the next twenty five years. It also financed the now functional 1,865 mile Power of Siberia natural gas pipeline, part of a mega-deal worth $400 billion over 30 years that cements the relationship between the two nations.

power of Sibera

China is indeed a leader in EVs, but the need to keep living standards rising– a must for the Chinese Communist Party – suggests that fossil fuels will remain the dominant source of electricity.

India, destined to become the world’s most populous nation by the end of this decade, is at a much earlier stage of development. For a large part of the population – 300 million live on the equivalent of $1.25 a day –  energy transition means moving away from pollutant-spewing wood and agricultural and animal waste.

The target is “to usher in a gas-based economy”, in the words of Petroleum Minister Dharmendra Pradhan. Currently, India has 37 cars for every thousand people. China has 160, Brazil 208, the EU 520 and the U.S. 867. In the sub-continent, motorization has barely begun.

If the G7 nations still ruled the world, you could colour the year 2050 a deep shade of green. But geopolitical power is flowing to countries that place significantly lower on Maslow’s hierarchy of needs. Until hardcore environmentalists make converts of Narendra Modi, Xi Jinping and the leaders of the emerging world, Daniel Yergin’s highly-informed scepticism seems well justified.



Can Biden Do What Ikeda Did? How Japan Ended An Era of Destructive Polarisation

Published by Anonymous (not verified) on Wed, 20/01/2021 - 8:20pm in

Published in Japan Forward 20/1/2021

The storming of the Capitol building by a mob of Trump supporters on January 6th has unleashed a cascade of dodgy comparisons.

It was an attempted coup d’etat, we are told. A rerun of the Nazis’ beer cellar putsch in Munich. Even a contemporary version of Japan’s “2.26” incident on February 26th 1936, when rebellious troops assassinated several important government figures and held part of central Tokyo for three days.

British historian Richard Evans has debunked crass attempts to associate Trump with fascism without downplaying the seriousness of what happened and what it signified. For the breaching of America’s seat of government by a horde of “deplorables” is a fitting symbol of the political polarization that was widening long before Donald Trump decided to run for president and is visible in several other Western countries.


Reaching for parallels is a natural impulse when people are confronted by shocking and confusing phenomena. Perhaps in this case there is something to be learnt from events in Japan’s not so distant past.

Japan today may seem like a placid, consensus-driven society, but it too has a history of political violence and bitter division.

The Meiji Restoration of 1868 was preceded by what amounted to a civil war between different regions. Radical socialists plotted to kill Emperor Meiji in 1910, and radical rightists wreaked havoc in the 1920s and 1930s, to the extent that the political dispensation of the time has been termed “government by assassination.”

Mass unrest continued in the immediate post-war period, with large-scale street battles between communist-controlled unions and police, sometimes aided by goons hired by managements.

In 1950, the Japan Communist Party, under instructions from Stalin, began a programme of terror attacks on police boxes and symbols of government authority. Hiroshi Teshigahara, later to become a noted film director and head of the Sogetsu flower arranging school, was a JCP member at the time and was arrested for his part in a plan to blow up the Ogouchi Dam, north of Tokyo.

Polarization peaked in 1960, with mass street protests against the amendment of the US-Japan Security. In a foreshadowing of recent events, protestors swarmed into the Diet building, hoping to prevent ratification, and were finally repelled by riot police.

A female student at prestigious Tokyo University died in the melee and became a symbolic victim of the struggle. Who knows – perhaps that will be the fate of the mother of four who was shot dead by a security guard at the Capitol.


Japan’s prime minister at the time was Nobusuke  Kishi, who had been a member of General Tojo’s wartime cabinet and was arrested during the American occupation as a war criminal, though never charged.

If that wasn’t enough to inflame matters, in order to get the vote through quickly, he chose to use a parliamentary device that was technically legal, but widely considered abusive – to the extent that some moderate members of his own Liberal Democratic Party failed to back him. Having done the dirty work, the unpopular Kishi resigned, to be replaced by former ministry of finance bureaucrat Hayato Ikeda.

In the midst of the crisis, Kishi made the following comment – “there’s a lot of noise around the Diet Building, but in the Ginza and the Korakuen baseball ground everything is normal. I can hear the voices of people who have no voice.” It was a formulation that his grandson, former Prime Minister Shinzo Abe, was to repeat sixty years later.

Kishi’s intuitions were spot-on, but he was not the right person to turn them into policy. In the general election that Ikeda soon called, parties supporting the security treaty won 26 million votes against just 5 million for parties opposing it. This was a significant increase over the 1958 election, when the pro-treaty parties had polled 23 million votes against 14 million votes for anti-treaty parties.

Admittedly, a group of social democrats had split from the largely Marxist Japan Socialist Party – probably with a little help from the CIA – but it seems  clear that the street mayhem, on a level that physically and metaphorically threatened Japan’s parliamentary democracy, was a massive turn-off to the voiceless majority.

Ikeda was ready with the positive proposition that would seal the deal – the “income-doubling plan” by which Japanese GDP was supposed to grow at a compound rate of 7% over ten years.

In the event, it grew at rate of 10% over seven years, thus hitting the target three years early. Key points included reduction of income inequality, full employment and large infrastructure projects, such as the bullet-train network.

In 1964, Japan staged  the Tokyo Olympics and joined the OECD and little-known start-ups like Honda and Sony were making remarkable inroads into overseas markets. The left continued to attract intellectuals and artists, some of whose criticisms were valid and constructive, but it never posed a serious challenge to the dominance of the growth-oriented, pragmatic Liberal Democratic Party of Hayato Ikeda.

Ikeda’s political watchwords were “tolerance and perseverance” and “taking a low profile.” In the Japanese idiom, “the season of politics” had given way to “the season of economics.” Basically, it has been the season of economics ever since.

The United States today has almost nothing in common with Japan in the 1960s apart from the fact of drastic polarisation and, very likely, an increasing distaste for its violent consequences. Ikeda’s solution was to ignore ideology and run the economy as hot as was possible. His successors learnt the art of stealing their opponents’ strongest policies, as with the hot-button issue of pollution in the 1970s.

Biden, a centrist with appeal to voters who backed Trump in 2016, is one of the few American politicians capable of pulling off a similar feat. He will need an economic boom, perhaps driven by infrastructure projects, and will have to ensure that the fruits are shared more equally than has usually been the case in America. Voters across the spectrum will be waiting to see whether he can cut the tech oligarchs down to size. “Tolerance” towards political opponents would be a welcome sign of confidence.

Even so, the disaffected radicals may not disappear. In Japan, there was a reprise of anti-American and anti-establishment protests in the late sixties and early seventies. It was considerably more extreme and violent, featuring murderous factional infighting and outrages such as the slaughter of tourists at Tel Aviv airport. By such tactics, the far left delegitimised itself in the eyes of the Japanese public and degenerated into a cult. Hopefully, America will experience nothing similar.

The world, and particularly East Asia, needs a stable and outward-looking America. It is in everybody’s interest that the Biden presidency proves to be as successful as the transformational stint in power of Hayato Ikeda.

Insider: White House was Warned March was IllegalTrump’s Call to March Broke Organizer's Promise to DC Police

Published by Anonymous (not verified) on Fri, 15/01/2021 - 8:42pm in



Before Donald Trump exhorted the Jan. 6 rally to march on the Capitol, the White House had been warned by the rally sponsor that there was no permit for a march, that DC Metro Police were promised there would be no march, and that such an... READ MORE

Raffensperger Ignored Evidence of Wrongful Purges Before Runoff

Published by Anonymous (not verified) on Mon, 11/01/2021 - 6:56am in

Georgia’s Secretary of State Brad Raffensperger is no hero. Since the release of the tape in which Raffensperger is heard resisting Donald Trump’s bullying attempts to overturn Joe Biden’s victory, the Georgia politician has been portrayed as a defender of democracy. The record says otherwise.... READ MORE

Peering into 2021: Tanjiro Kamado Battles Big Tech

Published by Anonymous (not verified) on Sat, 09/01/2021 - 10:33am in

Published in Japan Forward 2/1/2021

This time last year I wrote in Japan Forward about the concept of “Lenin weeks”.

I was referring to Soviet leader Vladimir Lenin’s dictum that “there are decades where nothing happens, and there are weeks where decades happen.”

My thinking was that a random incident, such as a marine confrontation between China and the U.S. or Japan, could quickly escalate into a conflict that would change our world out of all recognition.

I had no idea that as I wrote a new coronavirus had manifested itself in the Chinese city of Wuhan and was already in the process of seeding a global pandemic that would cause the sharpest economic downturn of the modern era.

At the same time, the corona crisis has accelerated technological, social and political change in a way that Lenin would surely have appreciated.

Propaganda poster of Lenin Propaganda poster of Lenin

The digital economy has powered ahead, while businesses that depend on face-to-face transactions – whether selling pints of beer or automobiles – have suffered. In the wealthy countries, the middle classes with spacious homes and information-processing jobs that can be done remotely have felt no pain. Many low-paid workers have lost jobs that will never return.

In Japan, where such statistics are quickly available, suicides have started to rise after fifteen years of decline. The social malaise will be much deeper in Western countries that have suffered greater economic and human damage. Already, there have been reports of soaring depression, domestic violence and alcoholism.

Meanwhile central bank policies have made the asset rich even richer. Globally, there could hardly be a more favourable environment for populism and social unrest.

The stark contrast between the relatively mild crisis experienced by most East Asian countries and the economic and human carnage suffered by many Western countries raises another question.

Has the coronavirus speeded up the rise of East Asia and the relative decline of the West?  Infections and fatalities in Japan have hit new highs at the turn of the year, yet the gap with other G7 countries continues to widen even further in Japan’s favour.

None of this looked likely on New Year’s Day 2020, though with the advantage of hindsight, it now seems obvious and logical. Likewise, what seems improbable now may look obvious and logical in twelve months’ time. Trying to forecast the future is always mug’s game, but the uncertainties are even greater than usual after the extraordinary events of the last twelve months.

One of the key questions is to what extent the changes that have taken place in this tumultuous period are permanent and irreversible. To put it another way, will people continue to cocoon at home, with the aid of Zoom, Amazon, Uber Eats etc., even after the corona crisis has faded? If so, the structure of our cities, social lives, education systems and much else is set to undergo an almighty “reset”.

Clearly, some of the most powerful entities in the world are solidly behind this agenda, including the so-called FAANGs (Facebook, Amazon, Apple, Netflix and Google), various financial and entertainment behemoths and the World Economic Forum, famous for its annual confab at Davos. It is the WEF that pioneered the concept of the Great Reset, which it has been promoting for several years.

Klaus Schwab, founder of the WEF Klaus Schwab, founder of the WEF

This is not a conspiracy, as some cranks believe. Rather, to quote an article in the UK’s Spectator magazine, Davos functions as “an ideological synchronization environment for individuals, corporations, and governments to keep on the same page.”

Intrinsic to the ideology is a kind of technological determinism that holds that innovations are always beneficial and must be embraced without question or concern about the downside risks.

Working with impressive speed, this July WEF kingpin Klaus Schwab published “Covid-19: The Great Reset,” written in collaboration with economist Thierry Malleret.

“The corona pandemic marks a fundamental inflection point in our global trajectory,” the authors declare. “The world as we knew it in the early months of 2020 is no more.”

Standing up against these powerful forces is a pure-hearted young man of amazing bravery who hails from a remote village in the Japan Alps. He is of course Tanjiro Kamado, the hero of Demon Slayer, the hit manga, anime TV series and movie.

It is the success of the movie version which is most impressive and most encouraging for what it portends.

To recap, Demon Slayer, which was released in mid-October 2020,  has just broken Japan’s movie box office record, which was set in 2001 by another anime film, the Oscar-winning Spirited Away.  Total takings to date are $316 million, the equivalent of 23 million admissions.

Think about that. In the year of the coronavirus, more than one sixth of the entire Japanese population went to the cinema to watch Demon Slayer, or Kimetsu No Yaiba, as it is known in Japanese.

They clearly did not get the “everything has changed” memo from Klaus Schwab.


The film is smashing records in Taiwan too, luring over one tenth of the population into cinemas. Despite the fact that it has yet to be released in China, the US or any other major overseas markets, it was the sixth most successful film worldwide in 2020.

Why did so many people choose to go to the cinema, rather than wait for the film to be made available on streaming sites, as will happen at some point? There are two obvious reasons. Firstly, watching the film is only half the fun. Discussing it with your friends, swapping gossip about the mysterious authoress, reading the reviews –   this is all part of a communal experience that can only enjoyed when the film is hot.

Secondly, cinemas provide far better visual and auditory quality, which means a greater sense of immersion in the world of the film. Binge-watching on a TV screen at home or, worst of all, squinting at a smartphone screen, is the equivalent of gobbling a fast food takeout.

Likewise, there is no comparison between live music and a Spotify playlist, or a real conversation with work colleagues and a Zoom meeting.

The lesson of Demon Slayer is that most people are not willing to accept indefinite hikikomori (“social recluse”) lockdown lifestyles. They want to participate in what is happening in the society and culture around them. They want to travel, and will even try flights and cruises to nowhere, as happened in Singapore, just to have the feeling of being in motion.

Japan’s “Go To” subsidized domestic travel campaign was taken up fifty million people, which must be reckoned a tremendous success. It had to be suspended as infections rose late in the year. But did it cause the rise? Probably not.  Neighbouring South Korea has experienced a very similar mini-surge, despite the absence of any travel promotion campaign. Seasonality is the most likely culprit. Hopefully, “Go To” will be restarted as soon as conditions allow. The demand is clearly there.

As mentioned above, 2020 saw the sharpest economic decline of the modern era. For some countries, such as the UK, it was the steepest in centuries. It was also the strangest, being caused not by problems intrinsic to the economy, but by governments preventing certain kinds of consumption for reasons of public health.

The result is that almost everywhere household savings ratios soared to record highs as people were unable to spend.  They have subsequently fallen as restrictions eased, but the level of savings is still at historically elevated levels.

What comes next? Fear is a very powerful emotion.  If it dominates public psychology, savings rates will stay high, the recovery will fizzle out and the FAANGs will become ever more dominant in our economic and social lives.

Muzan Kibutsuji, supreme commander of the demons Muzan Kibutsuji, supreme commander of the demons

Yet fear tends to fade as people learn to adapt to whatever threat they face. If their innate sociability and lust for life comes to the fore, as I hope and expect, a splurge of spending, traveling and enjoying should lie ahead in 2021.

There are three core demon slayers; the brave, but brainless Inosuke, who charges around like a wild boar; the cry-baby Zenitsu who has childish tantrums; and the empathetic but super-tough Tanjiro.

What would happen to them if they were alive in 2020, rather than in the early years of the twentieth century, the story’s actual setting?

My guess is that Inosuke refused to wear a mask, took no notice of social distancing guidelines and ended up in hospital with a nasty dose of the coronavirus. Zenitsu spent the entire year cowering in his apartment and now has an eating disorder, depression and an addiction to social media.

As for Tanjiro, he went shopping for the old ladies in his neighbourhood, learnt how to play the shakuhachi and practiced his “water breathing” fight technique every day at dawn in the local shrine.

In 2021 he’s set to confront some gruesome demons, including those that belong to the highest rank of all, the FAANG brotherhood.

Good luck, Tanjiro!

Democracy Now! Stealing Georgia198,000 Georgia Residents Were Illegally Purged

Published by Anonymous (not verified) on Wed, 06/01/2021 - 5:05am in

Democracy Now! airs our report on vote theft in Georgia, narrated by Debra Messing, and speaks with activist LaTosha Brown, co-founder of Black Voters Matter and the co-plaintiff in our case against Georgia Secretary of State, Brad Raffensperger ... READ MORE

Stealing Georgia: Raffensperger is No HeroThe Real Story of Jim Crow Tactics in the Senate Runoff Race

Published by Anonymous (not verified) on Tue, 05/01/2021 - 9:25am in

Despite the hype, an investigative report released today reveals Georgia Secretary of State Brad Raffensperger is no hero defending democracy from Trump. Rather, in this investigative film Raffensperger is exposed for using vote suppression Jim Crow tactics — even misleading a federal court to keep... READ MORE

Sec. of State Raffensperger Speaks with Forked TongueThe Georgia Fraud Story You Haven’t Heard

Published by Anonymous (not verified) on Mon, 04/01/2021 - 4:43am in

News has been that GA’s Sec. of State, Brad Raffensperger, bravely stood up to Trump’s claim of voter fraud in the 2020 election and continues to do so now that Georgians are heading to the polls to decide a crucial runoff election that will decide who controls the Senate. Journalist Greg Palast exposes what’s... READ MORE

Civil Rights Groups Fight Back Against Georgia’s Voter Purges

Published by Anonymous (not verified) on Thu, 31/12/2020 - 3:20am in

The importance of the January 5 Senate runoff elections in Georgia cannot be overestimated. They will determine which party controls the Senate, with vast ramifications for economic policy, climate change, workers’ rights, immigrants’ rights, judicial nominees, and much more. The purging of nearly 200,000 registered voters from the voting rolls in Georgia could spell the... READ MORE

Moby BoJ: How the Bank of Japan Can Exit its ETF Trap

Published by Anonymous (not verified) on Tue, 29/12/2020 - 7:29pm in

Published in Nikkei Asia 18/12/2020

If the Bank of Japan were a hedge fund, it would be congratulating itself on a blow-out year, and getting ready to pay out generous bonuses.

In March and April, when stocks plunged across the world as fears spread of a global COVID-19 depression, the BoJ waded into the Japanese market and bought Exchange Traded Funds worth 2.7 trillion yen ($26 billion). That proved to be a highly successful contrarian call. By the end of December, the Nikkei 225 index had rallied 67% from its spring lows.

Central banks are not usually noted for their market savvy. One unhappy example is the Bank of England, which – on government orders – sold a large part of the U.K.’s gold reserves at a price below $300 an ounce in 1999-2002. That was pretty much the bottom, and the yellow metal has subsequently risen more than six-fold

The BoJ developed a different approach, mirroring Warren Buffett’s famous dictum: “Be greedy when others are fearful and be fearful when others are greedy.” Its purchase program requires it to accumulate ETFs every year, but the amount and timing are flexible. This year, the BoJ invested three times as much in March as it had in January and, as the Tokyo market recovered in the autumn, its purchases tailed off to negligible proportions.

Japan’s central bank ownership of public equities started in small way ten years ago, under the austere regime of Governor Masaaki Shirakawa. The idea was to allow distressed banks to unload shareholdings of related companies without crushing their stock prices. Purchases of equities became an explicit instrument of “non-conventional monetary policy” when the current BoJ governor, Haruhiko Kuroda, took over the reins in 2013.

This was intended to be a temporary measure but, like many of the policy innovations spawned by the global financial crisis of 2008, it has endured much longer than expected. Initially, Kuroda set the annual purchase limit at Yen 1 trillion yen, but subsequently lifted it step-by-step. To cope with coronavirus crisis, he has raised the ceiling to Yen 12 trillion. That is roughly enough to buy a company the size of Sony, Japan’s third largest, every year– though by using ETF’s the BoJ buys the market index, not particular stocks.

The BoJ is under no compulsion to use all its potential fire-power and rarely does so, but the existence of this huge unconstrained buyer has a significant effect on market psychology – as intended.

Altogether, the BoJ now owns some 45 trillion yen of equities, equivalent to 7% of the Tokyo market. That makes it the largest single investor, overshadowing the Government Investment Pension Fund, once known as the whale of Tokyo. Thanks to its “buy on weakness” approach, the BoJ is currently sitting on an unrealized profit of 10 trillion yen — enough to finance Japan’s defense budget for 20 months.

JMBTETF Index (Japan Bank of Jap 2020-12-29 17-05-55

Clearly, this is a bizarre state of affairs, but perhaps no more bizarre than a central bank owning half the outstanding stock of government bonds, which is the case in Japan, the U.K. and some other countries. Traditionally, government bonds have been considered the ultimate safe asset because buyers always get their money back at maturity. But in today’s world of negative rates, they offer not a risk-free return but a return-free risk.

Indeed, if central banks ever succeed in their avowed goal of generating inflation, then their massive bond holdings are likely to incur significant real losses. Investors would get their money back, but its purchasing power would be less. In such circumstances, the BoJ’s equity holdings could provide a useful buffer, since equities have done well, historically, in times of sub-5% inflation.

The BoJ’s explicit rationale for its ETF purchase program is to reduce the perceived riskiness of equities and thus push the equilibrium level of the stock market higher than it would otherwise be. None of the other major central banks have launched similar programs, but higher asset prices have long been a policy goal in many countries.

In the U.K., a number of government initiatives have subsidized home buyers, with the inevitable effect of jacking up house prices and enriching existing owners. In the U.S., the Federal Reserve has a history of slashing interest rates whenever the stock market runs into trouble, a phenomenon once known as the “Greenspan put,” meaning that that former Fed Chairman Alan Greenspan would effectively protect investors from downside risk.

More recently, the Fed has been buying packages of corporate bonds, included debt issued by Apple to finance the purchase of its own shares. The BoJ has simply been more honest about its intentions. By taking equities onto its own balance sheet, it has cut out the middlemen.

If the BoJ carries on with its current approach, it will eventually end up owning enough of the Japanese economy to gladden the heart of Karl Marx. So there has to be an exit strategy – especially as the goal of reducing the perceived riskiness of the stock market has surely now been met.

Bonds will eventually run off central bank balance sheets as they mature, but equities, having no fixed term, last forever. What to do?  The BoJ could sell its holdings, but ETFs have limited liquidity. Winding down such an enormous portfolio might cast a pall on investor sentiment for years to come. Alternatively, it could hold on to them and remain the Moby Dick of the Tokyo market — sending the uncomfortable signal that emergency financial measures can never be removed.

A neater and potentially highly popular solution would be to put the assets directly into the hands of the public at a significant discount to their market value, on condition that they must be held for several years. That would probably necessitate a recapitalization of the BoJ, but such technical matters could be easily handled, given the political will.

If done well, this could be a major financial event, to rank with the privatizations of the 1980s. In line with the government’s promotion of a shift from bank savings to securities investment, it would give a major boost to the development of an individual investor-oriented equity culture.  And it would extricate the BoJ from a trap of its own devising.