One central bank giveth and another central bank taketh away. The Bank of Japan, smarting from years of deflation, decided to unveil some “shock and awe.” The Bank of Japan stunned the markets by saying that it would boost asset purchases. Barron's brilliant editor, Randall Forsythe, put it this way:
This is truly a dazzling example of 21st century government finance. The government runs a deficit covered by IOUs, or bond borrowings. The Central Bank buys those bonds to fund the budget shortfall and also purchases bonds sold by the pension plan, all reserves it creates out of thin air. The pension fund uses the newly printed yen it receives from the BOJ for its bonds to buy claims against the future earnings of private industry -- that is, common stocks.
In other words, the central bank monetizes the debt with money created out of thin air. The old adage tells us, ... Log in or subscribe to continue reading.