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Tuesday, August 20, 2013

Asia’s Economic Engine is Breaking Down…

Asia has become the most important issue for the markets today. The Central Bankers’ dream of endless QE has become a nightmare for Japan while China’s “growth miracle” is rapidly falling to pieces. Let’s start with Japan. Japan launched its “shock and awe” mega-QE policy in April 2013. Having already launched eight QE programs over the last 20 years (equal to 20% of Japan’s GDP), Japan has only experienced two years in which GDP growth has exceeded 3%. Despite this failure, Japan’s political leadership, lead by Shinzo Abe opted to increase its QE efforts, announcing a QE program equal to $1.4 trillion, roughly an additional 20%+ of Japan’s GDP. The hope was that this massive stimulus would result in an uptick in GDP and employment. Unfortunately, neither has picked up. Japan’s June industrial production fell 3.3% month over month in June.



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