Japan: A Financial Canary In The U.S. Coal Mine?

Japan could be the Canary in the Coal Mine for Future U.S. Inflation

It’s time to start paying attention again to the resurrection of Modern Monetary Theory (MMT) and particularly how this macroeconomic phenomenon is taking place currently in Japan. One must assume that if it is being peddled by the mainstream media that there are ulterior motives going on. The Biden administration is up to its neck in economic grief as we speak, with inflation, insane gas prices, and negative GDP all tightening the noose.

If you can’t fix the problem in the short term, as Biden has recently uttered, then look elsewhere for blame and begin the Newspeak about such. 

Everyone from politicians and economists to ill-informed college students will again be discussing the merits of (MMT). While the theory is nothing new, it has been adopted by those that are very new, the socialists among us. I don’t know about you, but I immediately get hot flashes when I see the likes of Bernie Sanders and Alexandria Ocasio-Cortez (AOC) trying to steamroll a policy against the American Bolsheviks.

MMT has been around for some time, having come out of the Chartalism school in the first half of the 1900s and was made into MMT in the early 90s by Warren Mosler.

To the casual observer, MMT may sound a lot like the standard “prime the pump” Keynesianism, the idea that the Government can and should run deficits to smooth out the business cycle. MMT, like Chartalism, states that money does not have intrinsic value, but is given value by the government. This is like manna from heaven for proponents of more government spending and larger fiscal deficits.

Not surprisingly, MMT has reared its head in Japan, where debt is denominated in yen, inflation is nowhere to be found, and the ratio of government debt to gross domestic product has gone to the moon. According to Steve H. Hanke, Professor of applied economics at Johns Hopkins University, “MMT advocates claim Japan provides proof for their theory, but nothing could be further from the truth.”

Unlike the U.S., Japan is a nation of savers, which has altered its economic landscape to a degree that defies comparison to our own and is not justified by MMT. This pattern of large private savings surpluses offset in part by large public deficits continues. The result has been a massive increase in the size and role of the Japanese public sector. Government debt has risen from 60% of GDP in 1990 to an astounding 235% today, and contrary to MMT, this fiscal extravagance has done nothing to boost the economy.

Despite Japan’s savings growth, its domestic economy is faced with both a contracting money supply, as measured by M2, and a velocity of money that has been negative since the 1950s. This has put Japan in a deflationary straitjacket that not only cannot be explained by MMT, but as long as M2 growth in Japan remains minimal, periods of low inflation, even deflation, will prevail.

As Milton Friedman counseled, “Inflation is always and everywhere a monetary phenomenon.” The same is true of deflation. Money dominates.



Considering such evidence one can only postulate that there can be no real comparison of like macroeconomics in Japan vis a vis the U.S., and certainly regarding MMT. Separate, but potent forces have given rise to two seemingly strange trends in the Japanese economy. Dramatic changes in the savings/​investment balances in the public and private sectors, and the failure of monetary policy. MMT doesn’t explain either one.

This is not to say that events will change that may put Japan at some point in a situation that could be analogous to the U.S. The current deflationary environment will mean revert at some point due to, among other things, supply constraints like those that handcuff the U.S. currently. If the Japanese government decides to engage in excessive deficit spending, once this supply-side event is triggered it could quickly spin out of control.

In addition to the empirical evidence discussed, my gut reaction to Japan and MMT is to instantly reject it based solely on the association of words such as “government,” “control,” “Bernie Sanders,” “Green Deal,” “yada-yada.” I’m also going to put this on the table for thought.

The European Union took the bold step toward a one-world currency with the advent of the euro. While MMT’ers will throw out the example of Japan as being good, we also know that the example of pre-WWII Germany is bad. Even the New York Times’s Paul Krugman says, “It would be quite likely that the money-financed deficit would lead to hyperinflation.

It becomes clear that any attempt to extract too much from seigniorage (profit made by a government by issuing currency, especially the difference between the face value of coins and their production costs) — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation.” 

In effect, the currency is destroyed. I will postulate that the quislings such as AOC are puppets of the likes of George Soros and other money changers, who once nearly broke the Bank of England, and work day and night to destroy the dollar. As the people of England suffered, so would the average American, at the expense of enriching the few like Soros, who ironically are the one percent hated by the left.

It’s heavy stuff, I know. Take an Advil and think about it.