Ben described the huge amount of Japanese Government Bonds (JGBs) that were owned by Japanese citizens and pension funds, perhaps amounting to up to $10 trillion. At the time, the gold price was around $1300, so this sum would have represented 253,000 tonnes of gold, more in fact than has ever been mined (which has been estimated at 140,000 – 160,000 tonnes). Only 10% of this sum put into gold would require 25,000 tonnes of gold at that price, which is about ¾ of all stated central bank reserves in the world. Obviously, a large upward gold price adjustment would be necessary to satisfy such huge demand if it came.
Ben’s piece made a case for Japan to have an outbreak of inflation due to excessive monetary easing that was likely to come into place as an aggressive step to solve Japan’s debt trap. The poor demographics in Japan with ageing population who may be likely to sell some of their savings in JGBs would necessitate the Bank of Japan to do more and more Quantitative Easing (QE) to buy these bonds. If inflation took hold in Japan, a flight out of these bonds is possible and could result in massive QE in Japan and the potential flight into gold as a hedge asset to hedge against this. He postulated that there was a likelihood of hyperinflation in Japan due to the government debt level of 200+% of their GDP, the highest in the developed world by far.
In fact, Ben Davies was two years ahead of his time because, as he discussed in later interviews on 8 December 2012 and 12 Jan 2013, the election of Mr Abe in Japan has given their government a mandate to pressure their Central Bank, the Bank of Japan (BoJ), to move forward with much more radical monetary easing (QE) than previously.
To quote Ben Davies, “Monetary policy has been annexed by government” in the Japan and the UK (with the latter appointing Mark Carney as the new Governor of the Bank of England, effectively on the say-so of Chancellor George Osborne). The new policy would be presented as ‘nominal GDP targeting’ to boost employment, etc.
Japan has recently announced that the BoJ will be targeting inflation of +2%, far higher than they have had in most of the last 20 years! Ben Bernanke at the Federal Reserve has also adopted similar ideas with his targeting of unemployment, saying that he will be buying bonds out of the market in QE3/QE4 until unemployment falls below some arbitrary level (6.5%). Ben described these policies as “the last desperate acts of a socialist system.”
The upshot of this is that Japan and the UK could be on the path to hyperinflation and the USA could also have surprisingly high inflation quite soon.
The interviews are rather brilliant I would say - and are well worth a listen in their entirety. The interview pages on KWN are here (just click on the mp3 link on each page to listen):
Saturday 12 January 2013
Or look up his name on the KWN broadcast archive here, which is a useful link: