What happens when you want to do more quantitative easing (QE) but there isn’t anything left to buy with your newly printed money? That, say some, is soon to be a problem in Japan.
There, the Bank of Japan is buying bonds as fast as the government can issue them, and is already the second largest holder of Japanese equities. That means that it has come to the end of the QE road. If you can’t buy, you can’t print.
Not so, says Albert Edwards of Société Générale. Think back, if you can, to 2002 and Ben Bernanke’s famous “helicopter money” speech. In it, he pointed out that running out of domestic assets to buy should present no problem at all to the dedicated money printer, because central banks can just use their new money to buy foreign assets instead.
After all, if the core point of QE is to drive down your currency so that you gain a competitive edge over your competitors (which it is, by the way) then why not just drive it down directly? Why not print your own currency and then sell it to buy foreign government bonds, for example?
Look at the example of Japan next to the recommendations Bernanke made all those years ago, says Edwards, and it is perfectly obvious what the next stage in the global currency war will be: “direct currency intervention.” We suspect he is right. We also suspect that it won’t be the last innovation in this round of monetary excitement.
Russell Napier has been saying for some time that we should expect to see everything from people’s QE (explicitly printing money to finance state spending) to the cancellation of student loans in the US. Belief in the idea that you can’t print money just because the assets you usually buy have run out is to seriously underestimate the creativity of global central bankers.