Cover of MoneyWeek magazine issue no 613

Beware inflation

2 November 2012 / Issue 613

It's the spectre at the feast, says James Ferguson


  • Is Britain really recovering?
  • Three scams you should avoid
  • Richard Burton's obsession with money


Japanese horror stories

We are constantly told we need to look to Japan to learn the lessons of crisis mismanagement. Japan can teach us what happens when you don’t allow immigration; what happens when you allow deflation to take hold; what happens when you allow companies to ignore shareholders; and what happens to your exporters if you don’t constantly work to keep your currency down. But there is one lesson no one in a position of authority seems to much want us to learn – the impossibility of pulling back from massive monetary stimulus.

In their latest market commentary, Chris Andrew and Mustafa Zaidi of Clarmond Advisors remind us of the Japan of the 1930s. The finance minister at the time was Korekiyo Takahashi, a man who it seems is something of a hero to Ben Bernanke – in 2003, Bernanke referred to him as having “brilliantly rescued Japan from the Great Depression through reflationary policies in the early 1930s”.

You’ll be wondering how he did this – given how tricky rescuing economies from deflationary pressures appears to be these days. Simple really, say the Clarmond lot. He took Japan off the gold standard (allowing the yen to float freely), outlawed the conversion of paper currency to gold, slashed interest rates to the bone, enacted massive government spending and made it legally possible for the Bank of Japan to buy and hang on to government bonds (hello QE). It worked.

• Read the full editor’s letter here: Japanese horror stories.

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