How to deal with the possibility of sudden
inflation
Why isn't inflation happening while issuing so much JGB in Japan? The reason is that deflation continued due to a decrease in demand and an increase in supply, but once inflation starts, it will be sharp if you look at post-war inflation in Japan and the rapid inflation that occurred in Hungary, Argentina, Venezuela, etc.
I understand, according to the definition of hyperinflation, the price
level rises more than 1.5 times a month and continues for several years.
If the price was 1 in January, it will increase 1.5 times in February,
and- - - in December, it will be 86.497 times a year. After two years,
it will be 11,222.74 times, and if it continues, it will become an astronomical
number.
In our sense, hyperinflation is a sharp increase of more than tens of percent
in a year, and even if interest rates rise by 5% a month (more than 70%
a year), prices will triple in two years.
For this reason, people who argue that hyperinflation will not come up
again say that sudden inflation that is about three times in two years
may come.
Reference: Japan's post-war inflation due to the increase in munitions
costs was about 220 times higher by 1949 and 70 times higher by 1945 on
a wholesale price basis. (BOJ Financial Research Institute)
If the interest rate rises 5% a month even if the hyperinflation doesn't rise 50% a month, in the past, the Great Hanshin-Awaji Earthquake, the Great East Japan Earthquake, the flood damages of Nos. 15 and 19, the cost of living for corona, and financial expenditures have been repeated.
Also, the government will have to repay with one-third of the value of
money, and it will be easier to repay the fiscal expenditure accumulated
in the past. However, people's savings and life insurance will be depreciated
by a third, and the savings of 20 million yen will fall below 6.66 million
yen when retiring, and will not be able to cover life after retirement.
Considering this, we must consider switching from cash to goods and deposits to debt within the current decent economic management. Even if it is said that the price of gold is soaring, if it is about 20% from 1,500 dollars to 1,800 dollars, it may be necessary to ignore it and buy it. (December 2019 gold price of 1500 dollars, 1800 dollars at the end of June 2020)
How and why sharp inflation can
occur:
1. Japanese government debt
Reference: According to the Ministry
of Finance, the government debt including government bonds, debts, and
government short-term securities, so-called gnational debt,h was \1,114,540
billion at the end of March, a record high. By the way, Japan's national budget
is about 100 trillion yen in general account (101.5 trillion yen in 2019),
about 200 trillion yen in special account, about 300 trillion yen in total,
about 55% of revenue is stamp and tax revenue 40% will be public debt.
The Japanese government has set a policy goal of mild inflation of around 2% per year, but the current situation is that it has not reached 2%. However, as Japan's government bond issuance volume increases, it may be true that Japanese government wants to relatively cancel out debt due to inflation that is more than 2% a year.
2. GPIF and BOJ ETF buying
The ETF purchase amount of GPIF, which manages the national pension assets,
is 38.650 trillion yen (market value) at the end of March 2019, and the
BOJ's ETF purchase amount is 28.9 trillion yen. GPIF is the largest shareholder
of a listed company on the TSE First Section. The Bank of Japan is second.
The government, which has been promoting the purchase of shares as a stimulus
measure in the past, is further promoting the purchase of shares due to
Corona, and is supporting the purchase of stock prices far from the actual
situation of companies. When the stock market falls to a level that reflects
the actual situation, the government's deficit expands, so Japanese government
have no choice but to continue to support stock purchases.
3. Corona measures increase fiscal spending worldwide
The central bank is basically a ban on buying government bonds and ETFs, but what global finance officials are paying attention to is whether Japan's inflation betting policy will succeed.
Governments that are forced to spend too much as a measure against corona
think that they need to temporarily forget their balanced finances, just
as they do in Japan, but they can't dare to buy huge ETFs from the central
bank.
Rapid inflation and countermeasures ,given the possibility of rapid inflation,
we have to think about how to deal with it, but for the moment we need
to keep in mind the following items.
1. Sale of government bonds, corporate bonds, stop life insurance
2. Decrease cash on hand
3. Real estate purchase
4. Gold purchase
5. Proactive use of long-term fixed interest rate debt
6. Switch to long term fixed interest rate from short term interest rate
as long as possible
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