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Fed Chairs have a horrendous record of calling recessions and this time it’s no different.

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In this week’s edition, I cover Japan’s dire economic situation and discuss the global slowdown as we head into the thick of earnings season. Before that, allow me to share some thoughts on recent Fed appearances.

It’s seriously tiresome to keep writing about the Federal Reserve week after week. When mere statements move markets in one direction or another, what other confirmation do you need that markets are wrapped up in a drug-induced stupor.

Speaking on a panel that included former Fed chairmen Bernanke, Greenspan, and Volker, current chair Yellen made it clear, on Thursday evening, that the U.S. is “not a bubble economy” and that employment fundamentals show strength. To my knowledge, not a single tough question was posed and the evening ended up being a high-priced academic circle-jerk. Worst of all, the panel took place at my former graduate residence, the International House of New York — a place where I have fond memories of making new friends and expanding my thinking.

“Hey Ben, can you elaborate on the widening wealth gap created by your easy money policies and low interest rates?”:

“Hey Janet, if employment is so strong and the economy is doing so well, why do Atlanta Fed GDPNow estimates look like this?”:

On Wednesday, the Fed released minutes from its March meeting (linked if you want to gouge your eyes out), again highlighting global economic developments and financial market stress as reasons for lower-for-longer interest rates. Going forward, we can expect to hear the same dovish rhetoric coming out of Yellen while other Fed officials fire blanks.

On to Japan. It’s hard to know where to even begin. Economically speaking, they’ve engaged in monetary easing for nearly two decades without much to show for their misguided efforts. Nominal GDP growth has exceeded 2% only once and fixed capital investments (e.g. machinery, land, buildings, installations, vehicles, or technology) have fallen:

What about the Japanese stock market? Surely the conventional wisdom of investing in equities over the long-run results in handsome capital gains, right? Wrong. Since 1997, the Japanese benchmark index lost 25% while a “barbarous relic” like gold returned 231% in the same timeframe:

Most recently, foreign investors have been quick to pull out of Japanese equities — falling over 40% in just under a year:

Japan’s demographic problems are well-known so I won’t belabor the point. Suffice to say that a confluence of social and economic conditions are causing some disturbing trends. A recent Daily Mail post noted that “a typical Japanese senior with low savings is living off £4,800 each year”, “about 40 per cent of the elderly live alone” and, they see petty crime as a means to receiving care in prison. As Japan’s 65+ demographic is expected to swell to 40% of the total population by 2060, this trend is getting worse and will put greater strain on Japan’s prison system.

I don’t blame the Japanese people for not having enough babies — individuals react to incentives beyond their control. If that’s the case, then who deserves some blame for this inhumanity? Look no further than the Bank of Japan (BOJ). By systematically printing money in an effort to lower borrowing costs, spur spending, and debase the currency to boost exports, the BOJ has essentially robbed savers of their prudence. All the while atrophying their banking system with negative interest rates:

To expand further on Yen debasement and its effect on Japanese export competitiveness, the chart below illustrates the inverse relationship between the value of the Yen and the Nikkei. As the Yen weakened against the U.S. Dollar, investors saw this as a positive sign for Japanese companies, and hence the stock market rallied:

Again, here you can see the direct relationship between the BOJ’s outright government bond purchases and the corresponding 10-year government borrowing cost (which are currently at -0.1%):

And out of all the world’s major central banks, the BOJ is in way over their heads. The wall of debt will eventually turn into a tsunami of tears:

How the BOJ, or any of the central banks for that matter, plans to unwind their purchases is the $7 trillion question. In my opinion, this can’t happen without some massive, unevenly-distributed pain:

Now, let this thought weigh on your brain: given everything we know, you actually have to pay the Japanese government 0.1% interest to lend them money and the cost of insuring against their default has never been lower. This is also the world’s fourth largest economy:

In the end, all central banks are headed for the same end-point. It just so happens that the BOJ has been at it for longer and, therefore, will likely be the first major domino to fall.

That’s enough time spent on Japan. Moving along.