Sean Corrigan's Letter To All The "Idiots" Who Believe The Japanese Calamity Will "Prove Positive For GDP"

Tyler Durden's picture

All the sophist idiots (Corrigan's word not ours) in the media and the bleeding edge of financial lemmingdom who believe there could be no greater boon to global economy than the death and suffering of hundreds of thousands (you know who you are) are kindly requested to read the following missive from Diapason's Sean Corrigan who cleanly and clinically blows out this latest moronic piece of uber-false groupthink out of the water.

Fraom Sean Corrigan of Diapason Securities

Rather than pretending to a level of insight into the scale of Japan's problems which neither we nor anyone else truly possesses at this stage of the disaster, we think it might be worth while instead to run through some general considerations of what ramifications might be felt in its aftermath.

Before we do, however, we cannot abstain from expressing our utter contempt for the many idiots who have already begun parroting the standard Keynesian nonsense that this calamity will ultimately 'prove positive for GDP', or that the rebuilding efforts can only redound to the nation's well-being to the extent that they shake it out of its ongoing 'deflation'.

As is their wont, such imbecile Cargo Culters are once again making a fetish of a coarse-grained statistic which is supposed—however imperfectly—to offer a rough measure of material progress being made in the real economy and not the converse, leading them to lose all focus on what is actually happening to people's living standards and wealth accumulation.

Japan has been stricken with a huge loss of productive capital—as well as an appalling toll of human suffering—and this cannot do anything other than to leave the nation discernibly poorer and, by extension, to curtail its ability to make people across the world better off than they otherwise would be by offering them valuable goods and services as part of that beneficent mutual enrichment which is the international division of labour, conducted under conditions of free(ish) exchange.

Contrary to popular belief, the Japanese have not, in fact, been trapped in a deflationary slough of stagnation these past two decades as both the real and nominal supply of money have risen throughout his period (with the exception of the worst months of the GFC itself), while real per capita  national income has also increased modestly, especially on a PPP, or TWI-adjusted basis. Granted, the consumer price basket has trended lower at a rate of less than 1% a year, but this is something which is presumably no more than a reflection of ongoing productivity gains—ones delivered, to boot, in a country formerly marvelled at for the extreme levels of its domestic pricing.

But, even were we to subscribe to this myth of secular slump, the idea that to eradicate a large quantum of people's possessions or to evaporate a sizeable fraction of their nest-eggs would be to contribute to their prosperity is to reckon that in futilely striving to heft his rock up the hill for all eternity, Sisyphus was the most tireless 'engine of growth' for Hades at large.

If you go to the trouble of cooking yourself a dinner, only for the dog to snatch it from the sill where you placed it to cool, do you congratulate yourself on your own good fortune as you troop back to the larder to begin again? If a sudden hailstorm strips bare the groaning ears of your wheat crop the day before you were due to harvest it, do you cheerily go about preparing the field for replanting, content in the knowledge that your doubled labour is being duly recorded in the plus column by a mindless government data-gatherer?

After all, if the awful spectacle of vast swathes of land littered with shattered buildings and crumpled vehicles—or the concern that they suffer the invisible hazards of radioactive contamination—offers such grand opportunities for advancement, why stop there?

Why wait for the vagaries of the climate, or the tortured creaking of continental plates to bring about such a 'stimulus' to growth? Why not declare war on ourselves and unleash our titanic arsenals of destruction on our own towns and cities, and rain down hellfire upon our own farms and gardens, razing the first to the ground and sowing the last with salt, until we make a self-inflicted Carthage of them, one in whose midst we can hope to become rapidly richer than our neighbours as, shivering and starving, we pick our way among the debris of our former civilisation to the nearest construction site?

This is all such arrant nonsense that you should banish from your consideration, henceforth and forever, all of the jejune scribblings of the fool whom you once catch propounding it!

But enough of this! The real crux of the matter is to look at the two sides of Japan, Inc.—both as a user (and end-consumer) of certain goods and as a provider of often highly-valued and not easily replicated material inputs to the world economy in exchange.

All else being equal, the country will be consuming some goods (e.g., lumber, steel, copper wire, concrete, fossil fuel) far more directly in the near future and, moreover, consuming them with little onward production of value from their use.
The first order effect of this would be expected to push up preferentially the prices of both the materials they will be absorbing and those whose production by them is temporarily being reduced.

Conversely, the consumption patterns of the ordinary Japanese will also suffer a compositional shift away from the enjoyment of certain goods and services and, ceteris paribus, the prices of these should be less well supported as a consequence.

Where they no longer supply goods to the market—initially being completely unable to do so, perhaps, and, later, devoting selectively less resources to that production as they first tackle the problems of rebuilding—there is certainly scope for their competitors to prosper, but also significant dangers that the partial or total absence of such goods will disrupt production in factories and fab plants elsewhere, too. [Incidentally, the possible fall in the external surplus this comprises is one offset for the fabled yen 'repatriation' flows which the market so fears].

In short, where Japan's goods are competing for sales, others may benefit at her expense: where they are complementary to them, they will equally share in her ruin. In the counter-weighting of these two factors will be decided the first question of whether output suffers beyond her shores and of what impetus is given to what prices.

By confounding entrepreneurial planning, dislocating production schedules, hampering timely onward delivery, etc., the damage could be wide spread and should certainly belie Monday's initial market insouciance. Given that profitable production is the only true source of sustainable consumption and that business-to-business spending is normally a good multiple of what is captured in the blessed GDP numbers, the earthquake-induced fall in Japanese incomes could soon be reflected elsewhere, too.

Where business planning (and the structure of financial exposures which embody this) has been too casual in its concern for such upsets (however unforeseeable the particulars of this one were), such frictions can rapidly mount to the point where they strip the drive-train of all further functionality and the firm finds itself staring failure in the face.

In this context, we again must draw attention to the alarming upsurge in pestilential credit practices—such as cov-lite, loans, PIK notes, PE dividend-stripping, and buoyant junk financing in general—which so exacerbated the last bust and which have been allowed to re-infect the economic corpus with the active cheerleading of its central banks, especially the one housed in the Mariner Eccles building.

Furthermore, financial markets have entered this crisis having only grudgingly tempered their inordinate, Fed-fostered levels of bullishness (that, as a result of the Arab unrest) and with leverage, carry-trades, and crowding therefore all notably elevated.

A narrow replay of the kind of crash which followed the San Francisco earthquake and fire of 1907 are perhaps not to be looked for in the absence of a hard money kernel to the pyramid of credit, but that is not to say that 'contagion' and the forced liquidation concomitant with it cannot course through other financial channels instead, especially since people are all too aware of the continued fragility of the associated plumbing, even here, on the third anniversary of the Bear Stearns bail out.
One obvious fracture plane could be the finances of Japan itself, a legacy of two decades of failed New Deals whose eventual unravelling has been exciting the attention of the bears for some good while since. The usual defence is that Japan 'owes much of the debt to itself' - a macro-accounting identity which an Austrian is willing to concede while questioning its practical validity.

That some elements of Japanese society have debts greatly in excess of assets (principally, the state) while others (mainly in the private sector) are in the opposite condition is only a comfort inasmuch as it reduces the nation's exposure to the vicissitudes of the forex market or to the vagaries of offshore investor sentiment.

Thus, while it may provide a convenient smoke-screen under the cover of which today's hard-won savings are funnelled to Leviathan, there to plug the holes left by the squandering of yesterday's savings, as well as to disburse the doles from which a good percentage of tomorrow's savings are, in turn, generated, this quadrillion yen round-robin cannot permanently disguise the chronic nature and mind- stretching scale of the capital consumption it entails.

The circling financial vultures are therefore looking forward to the moment when domestic Japanese investment is no more sufficient to absorb all the government's issues, (without perhaps contemplating the drain on the other improvidents when the giant, state-owned—or state-cajoled—institutions sell their USTs and kangaroo bonds, and realise their Nasdaq holdings and Eurobank CoCos in the effort to plug this gap).

What they now anticipate is that the costs likely to arise in the course of rebuilding the nation cannot fail to have advanced the date of that long-awaited morrow when the piper must be paid and JGB yields start to soar in consequence (even though, were we consistent, the Keynesian theory of fruitful holocaust would suggest 'growth' could, meanwhile, repair the finances painlessly).

In this, they may even be right, yet their position-ing may well not survive to see the great denoue-ment, for the route to a complete breakdown in the Japanese fiscal position surely lies through the Nihonbashi and the unbridled monetization powers of the BOJ.

Indeed, the additional threat posed to the economy—not just of Japan, but on those of all of its foreign trading partners—is not so much that the government runs out of cash, but that the whole country comes to drown in the stuff.

Indeed, while recognising the short-term, emergency need to reassure people that they willcon-tinue to have access to a medium of exchange and a functioning payments system, it is more than a little worrisome that the Bank has doubled its long-term QE programme, citing a desire to 'pre-empt a deterioration in business sentiment... from adversely affecting economic activity' and to '...make contributions...' in order to '...overcome deflation...'
As we wrote of a New Zealand whose own afflic-tion has been swiftly forgotten in this larger trag-edy, no good can come of a policy which can only serve to add to the confusion and bewilderment already occasioned by the violence of the tectonic shift in trying to suppress—by means of a crude resort to the printing press—the all-too evident fact that Japan is less well endowed with capital than it was and thus, that interest rates should naturally rise to reflect this inescapable verity.

It is not Yen that Japan now finds itself short of, but potable water, medical supplies, bridging materials, constructional steel, and electric power. The BOJ cannot help deliver these more readily or more efficiently by debauching the currency via its attempt to divorce financial asset prices from the diminished earning potential they incorporate.

Similarly perilous is the incitement this will give to the pump-primers elsewhere in maintaining- or even extending—their own easing programmes. Nor will they be consistent in this for, if they conveniently ignore the rise in food and energy prices, they will just as conveniently point to any liquidation-induced falls in these groupings to confirm the accuracy of their interpretation. On top of this, the many extant doves will be only too happy to protract their tenure as supposed saviours of the universe by enacting extra easing measures should Japan's woes conspire to slow the upward momentum in the local recovery

Do not write-off QE-III just yet.

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SilverRhino's picture

I just had a totally badass idea.  

35 million fucking people are about to become homeless inTokyo when all hell breaks loose.   We have 7-8 million homes in foreclosure (back of the envelope calculations from last year's memory so correct me if I'm wrong).

USA cuts a deal with Japan.   COMPLETE forgiveness of all UST's in exchange (+ every ounce of gold you got) for the houses and settlement priviliges for all Japanese refugees.  

Japan takes care of their people. USA wipes out debt.  Everyone wins. (Except for the predatory speculators)

Hacked Economy's picture

Interesting...The vacant homes get filled, the homeless get roof over their heads.  Sounds good at first glance.

Wait a minute!  Didn't we offer the Japanese "accommodations" here during WWII as well?  They didn't like it back then...

financeguru500's picture

You mean the camps we put them into. Yeah, no one is a big fan of being forced into a camp no matter which way you phrase it lol.

Fish Gone Bad's picture

But what if we painted all the buildings with Hello Kitty's on them?  Hello Kitty is quite popular in Japan.  There is Hello Kitty motor oil, Hello Kitty sex toys, Hello Kitty theme parks, and now there could be a Hello Kitty camp.  Don't think of it as an interment camp, think of it as Hello Kitty Housing.

Problem Is's picture

Hello Kitty core melt down nuclear reactors...

Hello Kitty glow in the dark radio active rice...

Hello Kitty three-eyed sashimi...

strannick's picture

And when they're all at school, think how bad our kids will feel about themselves when they realize how bad they are at math

Judge Judy Scheinlok's picture

We'll need black business suits. Lots and lots of black business suits.

Harlequin001's picture

This idiocy needs to stop. If interest rates continue to rise and borrowing costs become excessive there is no guarantee that any of this will ever be rebuilt. The only reason to say this is if you INTEND to manipulate markets higher and you need an excuse

If a scale 9 earthquake and the biggest tsunami in a hundred years is such a great opportunity, let's nuke em.

But would anybody who thinks this is such a great opportunity do us all the favour of visiting the place just before we do it...

dark pools of soros's picture

but they have "such small penis" which is the only math Americans care about


"so small"


strannick's picture

They make standard look like metric. 2 + 2 = 6"

Jaw Knee Cash's picture

The persistent broken window fallacy that Bastiat covered in 1850 or so. Did the atomic bombs in 1945 also "prove + for the Japanese GDP"?

XPolemic's picture

Did the atomic bombs in 1945 also "prove + for the Japanese GDP"?

Oddly enough, yes, but only because it brought an end to the idiotic war, and gave them a constitution that prevented more idiotic wars.

Unfortunately, it didn't prevent the development of idiotic politicians. But that is a problem the world over. If this crisis has shown anything, it is that indisputably, wherever you are in the world, Baby Boomers are incompetent morons.

robobbob's picture

Yeah, but this time many of them will be McMansions

some never even lived in

friends again?

DosZap's picture

They would think they had died and gone to heaven.

Their houses compraed to the ones we have vacant, are about 25%+/- less in size, with ZERO yards.

Yeas, they were interred,by the Nazi bstd FDR.

He also wanted to do rthe same to the German Americans, except they made up a HUGE portion of the population,( way to big to handle)and were off fighting the Germans.

financeguru500's picture

Maybe you were thinking China, not Japan. Because Japan owns very little of treasuries (around 300 billion if I recall). Japan has been trying to get over their own economic depression that has been on going for 20+ years. They don't have any sort of finances that would even come close to paying off the United States debt.

btw. that wasn't me who junked you silver. I don't agree with junking unless someone says something completely ridiculous. I don't consider your idea bad at all. Just wish it was possible to fix our debt problems.

SilverRhino's picture

WRONG:  Japan owns 882 Billion in UST's  as of the last major chart published at ZH.

[Edit: that sounded a little too harsh and your not Chumba or one of the stockboys so I'll be reasonably polite ;-) ]

Not too worried about getting junked.  To me this just seemed like a nice idea for humantiarian aid (sell at a slight discount)

Tortfeasor's picture

Doesn't that value each home at something like $20,000-$30,000 each?

SilverRhino's picture

Officially they have 765 tonnes of Gold Reserves.  Piddling but it's something.  There is also the question of Yamashita's gold and they could bargain with other items for purchasing rights. 

Would you rather be broke, penniless and starting over or wealthy and irridated and probably die of cancer?

Be prepared to lose everything, TWICE in your life.


Jaw Knee Cash's picture

In my experience, it would be at least 3 times.

DaBernank's picture

Irradiated gold moved to Fort Knox... Wasn't there a Bond film...?

johnnynaps's picture

Oh, just enough to pay 5 cents for every dollar we have spent! And, when they get the homes that our wonderful, patriotic banks forced families out of......I'm sure that will boil over without one burn!  

reader2010's picture

That would be too fucking terrific for the banks. 

Count Laszlo's picture

It'd make for a great movie concept. 

ZerOhead's picture

Great idea! Plus the Japanese make great stuff which we will have to begin making again once the yuan gets depegged. (They buy lousy reactors though...:)

For anyone interested in following the weather systems by satellite here is northern Pacific Ocean infrared spectrum. Shows heat and atmospheric moisture well. 

Select the dot for 111 images... and hit "play".

Japan is in the upper left hand corner and just visible in the gray area.

This is a two day run so if the radioactive elements are around 10,000 feet or so they are already two thirds of the way or more across.

Seattle to all Alaska... that's the North American 'landing zone' right now for the stuff that doesn't get rained out over the ocean.

sun tzu's picture

The reason they have such lousy reactors is because they bought American

ZerOhead's picture

I guess one has to start somewhere when designing big civilian reactors from scratch. 40 years is a long life for a reactor so perhaps I shouldn't shit on old GE technology other than the absence of multiple shutdown redundancies and the anticipation that an earthquake could be followed by a giant diesel engine choking tsunami.

But they had 40 years to recognize and correct that problem.

This is quickly becoming a living nightmare for tens of millions and a probable death sentence for the brave souls working closest to the reactors.

Fuck. Just fuck.

Zer0head's picture

Ditto for Boeing and those flying deathtrap 747s, to think these pigs (who can fly) have been overhead for nigh unto 41 years.

duo's picture

The conventional wisdom was until 2004 that subduction-thrust-fault deep-water 9.0M earthquakes only happened in Chile or Alaska, therefore giant tsunamis weren't considered a threat.

Some precautions and backup systems could have been prepared after the 2004 quake, but TEPCO was in the middle of a scandal involving radiation leaks, deferred maintenance, etc., and nothing happened (a big-ass seawall would have done nicely).

Now it's believed that a 30-foot tsunami could hit any part of the Pacific or Indian oceans.

citta vritti's picture

Totally agree on fuck. Double fuck even. I have a friend there and like a hopeful, wannabe helpful moron, sent him the non-MIT, MIT-branded "Why I am not worried" article. Shit. 

Check out interesting article in NYT on 1970s' contemporaneous criticism of GE's BWR design (link below), indicating (if I remember correctly) pressures on regulators to approve less robust than desired design to satisfy cost cutting concerns (i.e., profits). 

I guess with things nuclear, a 40-year time horizon is not enough. Sure seemed long enough back then. Yikes.


DosZap's picture

Gee, I guess that old diddy, GE brings good things to life, doesn't apply here.

It was sub par NEW, and they knew it was.

GE, used to be a great American company, now its a wag dog for Immelt, kissing Owammmys ass, like a poodle.

Jaw Knee Cash's picture

GE to be specific. They "bring good things to" death.

Paul Bogdanich's picture

Brilliant.  Maybe you should work for the Federal Reserve or run for federal office.

johnQpublic's picture

even better....we can hire our own people to dismantle the houses, and then ship them to japan for quick reassembly


biwinning the future bitches

High Plains Drifter's picture

Is this called Californication?   (  Red Hot Chili Peppers)



10kby2k's picture

Where they going to work?   35 million more on full entitlements

Fantastic should declare your candicacy

Now if we could trade our 35 million in jail....................

SilverRhino's picture

Pretty sure they would displace illegal aliens in a heartbeat.   Would you rather have polite and hardworking Japanese neighbors with a penchant for gardening and a mania for order?  Or would you prefer illegal aliens that work their a$$ off, live 20 to a rental house and then drink an ungodly percentage of wages away and play mariachi music at fucking 3 AM for neighbors?  

JW n FL's picture

Sushi, gyo'za and / or any other food... dont forget they can bar-b-que..


I say open the Country to all of Japan, we could do a lot worse and they have been good friends.. after the dust settled..

chump666's picture

what is probably going to happen is Japan will repatriate all it's holdings on everything and draw money back into the country.

So, they won't fund Indonesia, Vietnam...and of course Europe and the US debt.  Should eventually send EZ and US into a fiscal hellstorm...and they'll just print, inflation overkill doomsday etc etc

Japan will just shut their doors and try and rebuild. 

Some historian was dropping that lowdown...not some dumb arse economist.

pamriallc's picture

Japan's GDP will gain in YEN terms from an adjustment of probably 5-6% negative from where it is today.  That's assured.  What's also true is that the country was unwittingly bombed into submission in WW2 much the same way Germany was  during the same timeframe.  Interestingly enough.....using Nazi Germany as an GDP numbers shortly after the end of WW2.

History is well on the side of GDP actually benefitting from the rebuilding and all of the ancillary business that comes from reconstruction, modernization, and efficiencies gained from the new Japan for many years to come.

Will they take GDP hits in the next two quarters?  Of course they will.  Does Japan's economy begin taking off in fits and starts as the rebuilding process brgins and China and intra-Asia trade begin to accelerate through a moderate global recovery in the next 4-5 years on top of that?  Of course.  More people equates to more GDP production.

Consider that the vast history which is written will far outweigh the current negativism which permeates Japan (from the outside) today.

Shawn A. Mesaros, Pamria, LLC

traderjoe's picture

Worship at the alter of GDP much? Maybe not everyone judges happiness and well-being through units of GDP.

And what will their debt look like after this magical reconstruction and recovery?

And maybe you could wait until after this all ends to give investment advice?

h3m1ngw4y's picture

This idea is great even without a jubilee.

If only China and Japan would be best friends. Lots of empty cities to dwell in.

Or perhaps the Chinese  have better foresight. Are Ghost cities built for a disaster like this?


mynhair's picture

How does this affect the Cowboy Poetry Festival?

Long-John-Silver's picture

We could bring over all the homeless Japanese Cowboys and let them kabuki for food and shelter.

Racer's picture

Yes, just like employing an army of window breakers to create employment for glaziers..

hmmm I thought that was called breaking and entering with intent to rob...


Stranded Observer's picture

At first I was going to smash out my own windows to stimulate the economy.  Instead I had a better idea and smashed out my neighbors windows instead.  He didn't see things quite the way I did.