1972 to 87 Israel and what may happen in Japan

"From 1972 to 1987 [Israel's] inflation averaged nearly 85%.

As its CPI rose nearly 10,000 times, its stock market rose by a factor of 6,500 …

Stock market went up less, 
so Yen investments in the market net lost value
even though the market took off, 
which is what's currently happening in Japan
as the market rises and Yen falls in value relative to the US dollar.

Problematic 1970s inflation in the developed economies was controlled before it became too problematic...

Japan is an advanced economy, a developed democracy and certainly no Zimbabwe. But Israel was all of those things too. It simply found itself politically committed to a level of expenditure – military and social – which it couldn’t fund. Instead of taking the politically unpalatable course of cutting that expenditure, it resorted to the tried-and-tested tactic of buying time with printed money.

Between 1972 and 1987 Israel’s CPI rose by a factor of nearly 10,000. Inflation averaged around 84% and peaked at an annualized 500% in early 1985.

In real terms equity prices fell (chart above), failing to keep pace with the rise in the CPI. But in nominal terms they exploded rising by a factor of around 6,500 over the period, in keeping with experiences of nominal share indices in Argentina, Brazil or Weimar Germany during their inflationary crises...

The truth is we can’t know when this will happen. We suspect only that the writing is on the wall, and the further out we look, the bigger and bolder that writing becomes. But if Japan was to follow a similar trajectory to Israel’s, the Nikkei would trade at around 63,000,000 (63 million) by 2025.


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