ARBOR WEALTH: Abenomics, Reagonomics, and Buck Owens

Margaret McDowell

“My transistor radio comes from far away …

And when it’s night over here over there it’s a breakin’ day.” from “Made in Japan” as performed by Buck Owens

If your first two cards total 11 when playing blackjack, do you double down? Well, I’ve never participated in a card game for money. But I know an auspicious bet when I see one. 

Quantitative easing has not ended. It has just moved east — as in Far East.

The Bank of Japan shocked global markets recently by announcing that they are expanding their bond buying program.  Essentially, they are “doubling down” on the policy known as “Abenomics,” named for Prime Minister Shinzo Abe. Just as the U.S. is phasing out our Q.E. program, Japan is injecting a staggering amount of money into its own economy. 

Think we have serious economic challenges here in the U.S.? Consider a few of Japan’s financial issues. Japan’s public debt-to-GDP is the highest of any nation, greater even than the financially troubled nations of Zimbabwe and Greece. Japan’s economic growth has flat lined for 20 years. Fewer Japanese are tying the matrimonial knot and birth rates are falling. The corollary? Social services are strained to provide for an aging population, and less money is being injected into the Japanese economy by younger spenders.  

While we here in the U.S. worry about the return of inflation, Japan is attempting to create it. That seems counterintuitive, but deflation can harm a domestic economy worse than inflation. 

Prime Minister Abe presides over a domestic economy reeling from a large sales tax increase set in motion prior to his election. Another secondary tax hike is scheduled for this spring.  It may indeed build up the country’s coffers, but Japan has experienced a very difficult second half this year. This tax increase represents the antithesis of Reaganomics (tax policies espoused under President Reagan from 1981-1989), a policy associated with widespread tax cuts. Theoretically, you tax folks less, and they’ll spend and thus circulate more dollars. Tax corporations less, and they’ll hire more workers, who will in turn stimulate the economy by spending their paychecks. 

What’s it all mean to investors? No one knows for sure. But here’s a possible scenario. The anticipated market swoon that was to have occurred with the dissolution of the U.S. bond-buying program may be offset by Japan’s new QE policy. And our domestic markets, which are of course impacted by Japan’s accelerated QE Program, may continue to thrive, even with the slowdown in China and Europe. With Japan’s recent pledge, global central bank liquidity injection (pushing new money into markets) could actually be bigger in 2015 than it was in 2014, even without the United States’ notably large contributions.

Margaret R. McDowell, ChFC, AIF, a syndicated economic columnist, is the founder of Arbor Wealth Management, LLC, (850-608-6121 — www.arborwealth.net), a “fee-only” registered investment advisory firm located near Sandestin. This column should not be considered personalized investment advice and provides no assurance that any specific strategy or investment will be suitable or profitable for an investor.