World central banks may follow Japan move

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By George Kerevan
 
I have been in Asia this week ­talking to business leaders. I turned down golf with one chief executive, who was very proud that his personal course had wild leopards in the grounds.
 
He was complementary about the Old Course at St Andrews, where the animal life is less likely to put you off your stroke.

The big business story out here is the decision of the Japanese central bank to literally double the money stock, in a bid to replace 15 years of growth-sapping deflation with 2 per cent annual inflation.

Even the nuclear tantrums of North Korea take second billing to this news. While it has been clear for nearly a year that Japan was determined to turn on the monetary taps, this bold move far outstrips anything anyone expected.

The immediate repercussions are easy to see.

First, Japanese stock prices will shoot up on the back of rising expectations for growth, exports and profits. This wealth effect should diminish the debt burden and persuade reluctant Japanese consumers to spend. How­ever, the wall of cash being pumped into the economy won’t find an immediate domestic home, so expect the yen to sink as money flows abroad.

That should stimulate stock markets and investment in the US, Europe and the rest of Asia (though there will be off-setting currency appreciations).

It’s what happens a few years down the line that is more interesting. The Japanese move could be the starting shot for similar moves by other ­central banks. The US Federal Reserve is already committed to printing enough money to force down American unemployment.

Mark Carney, the new Canadian Governor of the Bank of England, is thought to be more aggressive in using monetary stimulation (though the Bank sat on its hands this week). What happens if there is significant monetary expansion on a global basis?

The potential upside is a return to growth. The downside is that serious inflation will come back to haunt us – though with much of Europe facing youth unemployment of more than 20 per cent, the next generation may not feel so worried by that as pensioners with savings in the bank.

Here in Asia, where high personal savings are a religion, rampant ­inflation could provoke serious social unrest. One way or the other, the decision by the Japanese central bank is a watershed.

Bank trio should suffer for their stupidity

SHOULD Andy Hornby, Sir James Crosby and Lord Stevenson be barred from ever again working in the City? Even here in Asia, the proposal by the banking standards commission to defrock the former HBOS bosses has made (minor) headlines. Certainly, the trio took excessive risks in proprietary trading.

The daftest thing the bank did was to acquire stakes in big London property developments that it was already bankrolling through loans to individuals – something I warned against at the time in this column. When the crash came in 2008, HBOS lost its own stake as well as incurring loan ­impairments.

But the HBOS board and shareholders knew what was going on and ­accepted the risk. If we start condemning business executives for risk-taking (as opposed to law-breaking, which is a different matter altogether) then we are on a very slippery slope.

The penalty for stupid decision-making in capitalism is a cash loss, not after-the-fact judgments by politically motivated “regulators”.

Courtesy of George Kerevan and the Scotsman newspaper