Japan has fallen victim to the Keynesian scam
- Thread starter Tsing Tao
- Start date
Japanese Trade Deficit Streak Hits Record 44 Months, Yen & Stocks Decoupling
While hopes of the J-Curve recovery in the deficit are long forgotten in the annals of Goldman Sachs history, silver-lining-seekers will proclaim the very modest beat in tonight's Japanese trade deficit a moral victory for a nation whose economic data has been nothing but abysmal for months. However, the near $1 trillion Yen deficit is the 44th month in a row as exports to US and Europe rose modestly in Yen terms but dropped to China and US in volume terms. USDJPY continues its march higher (now 118.25) but, unfoirtunately for Abe's approval ratings, Japanese stocks continue to languish an implied 1000 points behind - unable to break back above pre-GDP levels... as faith in Kuroda's omnipotence falters.
44th month in a row...
And the currency and stocks are rapidly diverging...
Charts: bloomberg
While hopes of the J-Curve recovery in the deficit are long forgotten in the annals of Goldman Sachs history, silver-lining-seekers will proclaim the very modest beat in tonight's Japanese trade deficit a moral victory for a nation whose economic data has been nothing but abysmal for months. However, the near $1 trillion Yen deficit is the 44th month in a row as exports to US and Europe rose modestly in Yen terms but dropped to China and US in volume terms. USDJPY continues its march higher (now 118.25) but, unfoirtunately for Abe's approval ratings, Japanese stocks continue to languish an implied 1000 points behind - unable to break back above pre-GDP levels... as faith in Kuroda's omnipotence falters.
44th month in a row...
And the currency and stocks are rapidly diverging...
Charts: bloomberg
The above is the only part of your response that I cannot let go without responding. If you will take a moment to go back to what I actually suggested, you will note that I specifically did not suggest we lower taxes on the poor and raise them on the rich. I can't fault you for reading my post in that way; most people would. Here, again, is exactly what wrote:
"... referring ... to my suggestion that the U.S. should significantly lower the tax rate in the lower brackets and pay for it, at least partially, with an increase in the two highest brackets, after creating an additional upper bracket."
I understand how easy it is to iinterpret my remark as a raising of taxes on the wealthy and lowering it on the poor, and that is precisely the interpretation you will get from anyone opposed to altering the income tax brackets to increase progressiveness. The ultimate version of non-progressiveness is the "Steve Forbes flat tax", where there is zero progressiveness. In reality, what I proposed was lowering taxes for EVERYONE on the same dollar earned. Whether dead flat, or almost, as we had for a while in the 1980s, or steeply progressive as we had in the 1950s, the wealthy always pay the most tax in nominal terms. But here is the critical point I hope will sink in with you:
Regardless of the where the brackets fall and whether the tax is progressive or non- ,i.e., flat, everyone pays exactly the same rate on each dollar earned depending on the numerical order in which that dollar is earned. So if we were to do as I suggested and significantly lower the marginal rates on the bottom two brackets, we would be lowering the tax rate on those same dollars for BOTH the the middle class and the wealthiest among us. The wealthy would pay the lower rate on those dollars as well. This is the feature that makes a progressive tax structure fair. The trick of course is to find the right degree of progressiveness so that government gets paid for and disposable income that can be used for investment does not accumulate at one end or the other of the income distribution.
If you want a healthy economy, than you would want those in the lower middle class to have opportunity to move up the economic ladder. One of the best ways to provide that opportunity is to assure through adjustment of the progressive tax brackets that some, not insignificant, investment money ends up with the lower middle class.
Last edited:
Alright, that's clarified. Now back to the point of the thread, whether what is going on in Japan will be good, or bad, for the Japanese.
That must be a rhetorical question, right? How can any of this be good? Here a list of all the bad
* Consumers are already squeezed (household savings as % of gdp are dropping for years already, Japan the nation of large household savings is a thing of the past). Consumers do not only pay more via increased sales tax but through more expensive imports as well
* The notion that a cheaper currency will revive exporters is anecdotal at best, because exporters have by 2014 diversified their production bases globally that the effect of a lower currency only benefits them by a fraction compared to years ago.
* Energy policies: Horrible at best: Expensive imports (God must truly have felt mercy by letting oil prices drop to 70 levels. Actually Japan pays the same price as at the beginning of the year when factoring in payments in US dollar for oil imports (still mostly the case). Japan will be unable to keep its nuclear reactors idle over time but problems and safety concerns at Tepco and Co are all but resolved.
* Aging society and lack of low skilled workers. Where is Abe's third arrow. Japan is in dire need for nurses, care takers, workers at the lower end of the rope but Japan is still in denial and hates the idea to let a larger number of Filipinas and Co immigrate. Of course Japan can do the same as Hong Kong and treat its foreign workers like 3rd class citizens and like-animals by granting those with white skins immigration and long-term residency rights but deny them to its South Asian foreign workers (I am not in support of this idea at all). Furthermore, where are the incentives for young couples to plan offspring? There are none. People are scared, people have no positive vision of the future. Japan Inc is getting squeezed by China and Japanese households in turn by Japan Inc. (how that works see below point). Further, the pension system is a joke and there is nobody who would touch this hot potato (I worked for more than a decade in Japan and not that I am dependant on some future pension but I wrote it off from the start anyway because the defined contribution scheme guarantees close to zero payout, future inflation adjusted).
* Japan's business elite (Japan Inc), I mean large corporations, are left to do whatever they want. There are no caps as to how many of its workforce are allowed to toil on part time or limited contracts. In fact any Japanese company is allowed to hire 100% of its workforce on part-time contracts. This is pure hypocrisy by politicians to allow such. One one side they want women to be "baby machines" (literal statement by an ousted politician), on the other hand they do nothing to secure future planning by young families. Result -> nobody in their right mind will bear children and take on such grand responsibilities if the bread winner in the family works on a part-time contract that can be revoked at any time with little to no health or pension benefits. Japan Inc taking care of its workers? This is not 1970 or 1980, things have drastically changed. If any industrialized economy in the world has completely missed out on globalizations and been unable to adapt then it is Japan. Female top managers at Japanese corporations? Are you kidding me? Impossible thought still today for most Japanese men. Sufficient child care places so that families can actually plan their careers and future with children in mind? Let's not kid ourselves. Additionally, Japan lacks a huge dose of innovative spirit, more investments in research and development. That is unfortunately not something I expect can be changed because it is ingrained in Japanese culture to follow rather than lead.
* Japanese have given up on a political discourse. Nobody cares nor gets involved. Nobody goes on the streets to voice their disagreement with the political elite that sleeps and lacks a complete understanding of what to do to change things. It was telling when Abe mentioned this week "I nor anyone know what to do, I invite anyone to come forward to provide ideas and suggestions". In my country or in the US such statement by the top politician would spell the end of your political career and an admission of total and utter failure. Not so in Japan. In Japan you just call a snap election whose purpose nobody understands.
=> The only way Japan can turn things around is another leader ala Koizumi. Someone who dares to put the finger into the wound and clean it out even if it is painful. Someone who is not afraid to rattle other party members, someone who can wake up the sleepy town of Kasumigaseki. I have lived in Japan for a decade, I am married to my Japanese spouse, I speak Japanese. I do believe I have a pretty firm understanding of what is going on in Japan. What Japan needs is a spirit to be more aggressive, to start taking risk again, to fight again (in the same way than the post-war generation). The problem today is that young people have zero vision of the future which is why everyone escapes into manga, porn, video games, AKB48, and other crap that numbs temporarily but does not solve problems.
I find the discussion here and elsewhere about whether QE works or not, whether a lower yen will benefit exporters and by how much, whether it will turn around terms of trade, whether citizens would pick up JGBs if being asked by the political leadership, I find all those issues secondary and actually unimportant. Short term, sure they make an impact. But China does not plan for the short-term, and so should Japan not. What Japan needs is STRUCTURAL REFORM, not some lectures by self-declared economists who argue whether Keynesian approaches work or not. You guys seem to have completely lost the understanding of what drives businesses, why people on the street either save and dig in or become more risk taking and plan families. What Japan DOES NOT NEED is more stimulus. What Japan DOES NOT NEED is artificial demand. So ALL THE ECONOMIC BULLSHIT means nothing and does not solve Japan's problem. What Japan needs is STRUCTURAL REFORMS, Japan has to do away with some (not all of course) of its cultural inheritance LIKE ALL OTHER INDUSTRIALIZED COUNTRIES, what Japan needs is to rid itself of the fear of the foreign and foreigners, Japan needs to embrace change, a concept that is entirely foreign to Japanese culture for most part. Only then women can imagine to work and bear children at the same time, only then couples feel confident that they will be able to feed their infants down the road, only then people will take risk and become more entrepreneurial, only then will companies develop and create products that the world needs and wants, only then will companies expand machinery and human resources, only then will employment improve, only then will tax receipts improve, only then will Japan be able to even start servicing its debt, only then will Japan eventually be able to start paying down debt. Forget about fiscal or monetary stimulus, forget about government inflated demand. It does not work without structural reforms. Why? Because you can see what continued structural reform and change has done to Germany and you can see what QE and an artificial injection of supply or demand has done to Spain/Portugal/Greece.
* Consumers are already squeezed (household savings as % of gdp are dropping for years already, Japan the nation of large household savings is a thing of the past). Consumers do not only pay more via increased sales tax but through more expensive imports as well
* The notion that a cheaper currency will revive exporters is anecdotal at best, because exporters have by 2014 diversified their production bases globally that the effect of a lower currency only benefits them by a fraction compared to years ago.
* Energy policies: Horrible at best: Expensive imports (God must truly have felt mercy by letting oil prices drop to 70 levels. Actually Japan pays the same price as at the beginning of the year when factoring in payments in US dollar for oil imports (still mostly the case). Japan will be unable to keep its nuclear reactors idle over time but problems and safety concerns at Tepco and Co are all but resolved.
* Aging society and lack of low skilled workers. Where is Abe's third arrow. Japan is in dire need for nurses, care takers, workers at the lower end of the rope but Japan is still in denial and hates the idea to let a larger number of Filipinas and Co immigrate. Of course Japan can do the same as Hong Kong and treat its foreign workers like 3rd class citizens and like-animals by granting those with white skins immigration and long-term residency rights but deny them to its South Asian foreign workers (I am not in support of this idea at all). Furthermore, where are the incentives for young couples to plan offspring? There are none. People are scared, people have no positive vision of the future. Japan Inc is getting squeezed by China and Japanese households in turn by Japan Inc. (how that works see below point). Further, the pension system is a joke and there is nobody who would touch this hot potato (I worked for more than a decade in Japan and not that I am dependant on some future pension but I wrote it off from the start anyway because the defined contribution scheme guarantees close to zero payout, future inflation adjusted).
* Japan's business elite (Japan Inc), I mean large corporations, are left to do whatever they want. There are no caps as to how many of its workforce are allowed to toil on part time or limited contracts. In fact any Japanese company is allowed to hire 100% of its workforce on part-time contracts. This is pure hypocrisy by politicians to allow such. One one side they want women to be "baby machines" (literal statement by an ousted politician), on the other hand they do nothing to secure future planning by young families. Result -> nobody in their right mind will bear children and take on such grand responsibilities if the bread winner in the family works on a part-time contract that can be revoked at any time with little to no health or pension benefits. Japan Inc taking care of its workers? This is not 1970 or 1980, things have drastically changed. If any industrialized economy in the world has completely missed out on globalizations and been unable to adapt then it is Japan. Female top managers at Japanese corporations? Are you kidding me? Impossible thought still today for most Japanese men. Sufficient child care places so that families can actually plan their careers and future with children in mind? Let's not kid ourselves. Additionally, Japan lacks a huge dose of innovative spirit, more investments in research and development. That is unfortunately not something I expect can be changed because it is ingrained in Japanese culture to follow rather than lead.
* Japanese have given up on a political discourse. Nobody cares nor gets involved. Nobody goes on the streets to voice their disagreement with the political elite that sleeps and lacks a complete understanding of what to do to change things. It was telling when Abe mentioned this week "I nor anyone know what to do, I invite anyone to come forward to provide ideas and suggestions". In my country or in the US such statement by the top politician would spell the end of your political career and an admission of total and utter failure. Not so in Japan. In Japan you just call a snap election whose purpose nobody understands.
=> The only way Japan can turn things around is another leader ala Koizumi. Someone who dares to put the finger into the wound and clean it out even if it is painful. Someone who is not afraid to rattle other party members, someone who can wake up the sleepy town of Kasumigaseki. I have lived in Japan for a decade, I am married to my Japanese spouse, I speak Japanese. I do believe I have a pretty firm understanding of what is going on in Japan. What Japan needs is a spirit to be more aggressive, to start taking risk again, to fight again (in the same way than the post-war generation). The problem today is that young people have zero vision of the future which is why everyone escapes into manga, porn, video games, AKB48, and other crap that numbs temporarily but does not solve problems.
I find the discussion here and elsewhere about whether QE works or not, whether a lower yen will benefit exporters and by how much, whether it will turn around terms of trade, whether citizens would pick up JGBs if being asked by the political leadership, I find all those issues secondary and actually unimportant. Short term, sure they make an impact. But China does not plan for the short-term, and so should Japan not. What Japan needs is STRUCTURAL REFORM, not some lectures by self-declared economists who argue whether Keynesian approaches work or not. You guys seem to have completely lost the understanding of what drives businesses, why people on the street either save and dig in or become more risk taking and plan families. What Japan DOES NOT NEED is more stimulus. What Japan DOES NOT NEED is artificial demand. So ALL THE ECONOMIC BULLSHIT means nothing and does not solve Japan's problem. What Japan needs is STRUCTURAL REFORMS, Japan has to do away with some (not all of course) of its cultural inheritance LIKE ALL OTHER INDUSTRIALIZED COUNTRIES, what Japan needs is to rid itself of the fear of the foreign and foreigners, Japan needs to embrace change, a concept that is entirely foreign to Japanese culture for most part. Only then women can imagine to work and bear children at the same time, only then couples feel confident that they will be able to feed their infants down the road, only then people will take risk and become more entrepreneurial, only then will companies develop and create products that the world needs and wants, only then will companies expand machinery and human resources, only then will employment improve, only then will tax receipts improve, only then will Japan be able to even start servicing its debt, only then will Japan eventually be able to start paying down debt. Forget about fiscal or monetary stimulus, forget about government inflated demand. It does not work without structural reforms. Why? Because you can see what continued structural reform and change has done to Germany and you can see what QE and an artificial injection of supply or demand has done to Spain/Portugal/Greece.
Last edited:
I'm in agreement with you. But there have been plenty of voices on this thread (Martin, piezoe - not to mention all the silent supporters thanking them) that believe this is a great thing for Japan, and that Abenomics has been an "unmitigated success". Frankly, I'm stunned at how many truly have taken a deep gulp from the kool-aid.
I'm going to continue to use this thread to document Japan's ongoing experiment and the eventual catastrophic explosion/implosion of the country's economy and lifestyle under what will be looked at in the future as the most revolutionary two decades in Japan's existence since the Mejii Restoration.
Last edited:
Japan is a democracy. The private households elect their government, which to me means they are one and the same. If the government is living beyond its means, so are the citizens.
I don't know whether the money printing will be useful. My point is that, if you're doomed, you might as well try to do something (e.g. monumental expansion of the monetary base), even if that might turn out to be the wrong thing. You've got nothing to lose. That's my interpretation of what Guv'nor Kuroda and, more broadly, Abe are doing at the moment.
And yes, I agree with you. The thing that Japan really needs is structural reform. That's supposed to be the point of Abenomics, but it's much harder to implement, since it requires overcoming staggering amounts of vested interest. The snap elections Abe has called are all about his ability to push the reforms through, rather than the consumption tax.
Last edited:
government = households? Are you really pretending to be an economist? What you said is completely incorrect. Government spending/debt is never the same as household spending(consumer spending) and debt.
Not sure whether you were drunk when you wrote this but so far I highly respected your line of thought though I did not always agree with it. But why Japan is stuck in a debt spiral is because of government debt not household debt (in fact households in Japan are not in debt they have a pretty comfortable savings cushion).
And sure, when you are doomed you gotta try something. How about trying to stop listening to unproductive farmers, retired people (who already built a nice nest egg plus receive fat pensions all at the expense of the young generation that is bled to death in Japan), large corporations. How about the government will actually listen and cater to young entrepreneurs and companies that actually benefit Japan. You must have slept in Econ 101 if you try to explain to us that expanding the monetary base is having a positive effect if nobody believes in the future, most Japanese corporations are getting killed left and right and the last thing they have on their mind is to extensively invest. Nor do households have any inclination to borrow and take on debt because they do not feel assured that they will ever be able to repay. Martin, you apparently do not live nor have ever lived in Japan. You may lack a little of insight why Japan ticks the way it ticks. The problem is that most in their below 30s have lost faith, a willingness to work hard because they do not believe hard work pays off, and hope. They shut up and stopped caring to get politically involved. On the other hand you have retiree representatives shouting with all their might to have the government not dare to touch a single yen of pensions paid out to current and soon-to-be retirees. Add to that unproductive and lazy farmers who could never in life imagine to plant anything but rice that is in turn sold at artificially inflated prices because the government is shutting all other imports out. Those are very powerful lobby groups that any politician in Japan is inclined to listen to. Unless you come to terms with this reality I am afraid you will fail to understand what might or might not work in Japan. It is for sure not fiscal or monetary policy.
Have nothing to lose by ballooning the BOJ balance sheet? I hope you were kidding when you said that. Nothing to lose to do nothing more than trying to balance government budget by 2020 while interest payments are not even included and while those payment currently make a multiple of the government deficit. Thats what you mean with you have "nothing to lose"? I could not disagree more with you.
Abe cannot implement structural reform. Seriously, you obviously know nothing about Japan. How can someone who cannot even stay away from Yasukuni shrine to bow to lawmakers and right wing groups implement structural reforms. How can he do so when some of his MPs think of women as "baby breeding machines" that are supposed to stay at home rather than work. Look, females perform way better in all primary and secondary education than men (all standardized tests are testimony to that), yet they gain nothing from it. Only someone who is not afraid of structural changes will touch issues such as this because it would mean that guys cannot lazily hang out all day in sports clubs anymore while almost flunking high school and still hope to land a corporate white collar job just because they attended a name-plate high school and Keio/Waseda later on. Abe will never be able to implement structural reform because he is a whore to bureaucrats who in turn are in bed with large corps, farmers, and retired grand dads and mas. What this country needs is another Koizumi, someone who fearlessly implements true change because he believes that the electorate will recognize and reward him for his guta and foresight.
The reason for snap elections was not for anything, it will go into the history books as a huge question mark. He never needed it to push forward reforms. What reforms by the way? He cannot even sign trade deals with China or other countries, while China and Australia and the US make news with landmark trade deals during the APEC meeting. You are kidding yourself if you believe anything is coming from Abenomics.
Not sure whether you were drunk when you wrote this but so far I highly respected your line of thought though I did not always agree with it. But why Japan is stuck in a debt spiral is because of government debt not household debt (in fact households in Japan are not in debt they have a pretty comfortable savings cushion).
And sure, when you are doomed you gotta try something. How about trying to stop listening to unproductive farmers, retired people (who already built a nice nest egg plus receive fat pensions all at the expense of the young generation that is bled to death in Japan), large corporations. How about the government will actually listen and cater to young entrepreneurs and companies that actually benefit Japan. You must have slept in Econ 101 if you try to explain to us that expanding the monetary base is having a positive effect if nobody believes in the future, most Japanese corporations are getting killed left and right and the last thing they have on their mind is to extensively invest. Nor do households have any inclination to borrow and take on debt because they do not feel assured that they will ever be able to repay. Martin, you apparently do not live nor have ever lived in Japan. You may lack a little of insight why Japan ticks the way it ticks. The problem is that most in their below 30s have lost faith, a willingness to work hard because they do not believe hard work pays off, and hope. They shut up and stopped caring to get politically involved. On the other hand you have retiree representatives shouting with all their might to have the government not dare to touch a single yen of pensions paid out to current and soon-to-be retirees. Add to that unproductive and lazy farmers who could never in life imagine to plant anything but rice that is in turn sold at artificially inflated prices because the government is shutting all other imports out. Those are very powerful lobby groups that any politician in Japan is inclined to listen to. Unless you come to terms with this reality I am afraid you will fail to understand what might or might not work in Japan. It is for sure not fiscal or monetary policy.
Have nothing to lose by ballooning the BOJ balance sheet? I hope you were kidding when you said that. Nothing to lose to do nothing more than trying to balance government budget by 2020 while interest payments are not even included and while those payment currently make a multiple of the government deficit. Thats what you mean with you have "nothing to lose"? I could not disagree more with you.
Abe cannot implement structural reform. Seriously, you obviously know nothing about Japan. How can someone who cannot even stay away from Yasukuni shrine to bow to lawmakers and right wing groups implement structural reforms. How can he do so when some of his MPs think of women as "baby breeding machines" that are supposed to stay at home rather than work. Look, females perform way better in all primary and secondary education than men (all standardized tests are testimony to that), yet they gain nothing from it. Only someone who is not afraid of structural changes will touch issues such as this because it would mean that guys cannot lazily hang out all day in sports clubs anymore while almost flunking high school and still hope to land a corporate white collar job just because they attended a name-plate high school and Keio/Waseda later on. Abe will never be able to implement structural reform because he is a whore to bureaucrats who in turn are in bed with large corps, farmers, and retired grand dads and mas. What this country needs is another Koizumi, someone who fearlessly implements true change because he believes that the electorate will recognize and reward him for his guta and foresight.
The reason for snap elections was not for anything, it will go into the history books as a huge question mark. He never needed it to push forward reforms. What reforms by the way? He cannot even sign trade deals with China or other countries, while China and Australia and the US make news with landmark trade deals during the APEC meeting. You are kidding yourself if you believe anything is coming from Abenomics.
I am not pretending to be anything and you're missing the point. I have stated this numerous times before, but let me do it again. In a democracy, the population has to be held responsible for the decisions made by the elected government. if a succession of democratically elected governments got Japan into a mess which means that the standard of living of ordinary Japanese households is going to suffer, these households have nobody to blame other than themselves. As the famous dictum goes, "people get the government they deserve". That's why I said that households and the government are the same.
I am in agreement with you here, like I have said before. However, all these things you're talking about are very difficult, as demonstrated by the fate of previous reformers like Koizumi. You clearly fail to understand the complexities of genuine political reform. Moreover, you're missing my point again. I am not saying that monetary policy is or is not going to work. All I am trying to say is that it's an attempt to wake up the Japanese public and the vested interests and make them aware that the country is, in fact, circling the drain. That might make the crucial structural reforms actually possible.
Japan's net debt interest costs are 1.4% (as of 2013), due to the large cross-holdings of debt. The gross number that you probably refer to are rather misleading. And yes, payments are not included in the primary deficit, since that's the definition of the term. The reason for the use of the "primary deficit" as a target is simply that it's the first step towards a long-term goal of reducing the headline numbers.
We all know what happened with Koizumi, so, quite clearly, Japan doesn't need another Koizumi. What Abe can and cannot do and what I do and don't know about Japan remains to be seen. I think it's fairly obvious that we're going to have to agree to disagree on these points.
Labor market reform is the most important one in question, including the element of it that has to do with female participation. Again, what actually happens with Abenomics and whether the snap election helps remains to be seen. Forgive me for not being quite as certain about the future as you are.
Last edited: