Gold and the Japanese Saver

Keynesian economic theory makes the claim that savers are a burden on society because their money isn't participating in the economy. It's just sitting in bank accounts, doing nothing. The solution to this, according to the same theory, is to make sure the money loses purchasing power over time.

In reality, however, the money of savers doesn't sit dormant in bank accounts. The money is lent out to entrepreneurs who invest in the future. Savers are not a burden on anybody. They're an essential part of a healthy economy, making sure that investments are made for future productivity.

But this logic, however irrefutable, hasn't deterred modern economists from going after savers. Case in point being the Bank of Japan's decade long quest for price inflation. They've been creating mountains of currency, and they've kept interest rates at zero. Yet, Japanese savers have absorbed it all, and there's been virtually no price inflation. Newly created currency has always found its way into various bank accounts. But that has suddenly changed.

The Bank of Japan has finally managed to create price inflation. The Japanese Yen is going down, and it's going down fast. So, savers should by now be rushing out to buy stuff. But that's not happening. At least not in the way intended.

All that's been achieved is a growing unease among Japanese savers. They are as determined as ever to save for the future, so they don't want to spend their money on consumption. Instead, they look around for Yen alternatives, and they find this in gold which has gone up a whopping 20% relative to the Yen so far this year.

When we combine this with the fact that decades of monetary inflation by the bank of Japan has created some hundred billion dollars in bank deposits and many hundred billion dollars more in various cash alternatives, we see that there's the potential for a flood of Japanese currency coming after gold. If Japanese savers all get the idea that they should have at least some physical gold hidden away in a drawer somewhere, the demand might overwhelm the bullion banks, with a price reset as its consequence.

Sovereign

By Heritage Auctions for image, Mary Gillick for coin - Newman Numismatic Portal, Public Domain, Link