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Sean Corrigan's Letter To All The "Idiots" Who Believe The Japanese Calamity Will "Prove Positive For GDP"
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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N225 capped...
on wires now: smoke coming from reactor 4
Honest to Christ, they'll just jack the fucking shit out of the market even more.
fuck it...between that and a massive credit downgrade, oil/energy spikes. Market will correct on the downside + nuclear dust floating around = strip that the 6% gained now.
Livermore on the San Francisco earthquake and fire:
On the following day, when fuller reports came in, the market began to slide off, but
even then not as violently as it should. Knowing that nothing under the sun could stave
off a substantial break I doubled up and sold five thousand shares. Oh, by that time it
was plain to most people, and my brokers were willing enough. It wasn't reckless of
them or of me, not the way I sized up the market. On the day following, the market
began to go for fair. There was the dickens to pay. Of course I pushed my luck for all it
was worth. I doubled up again and sold ten thousand shares more. It was the only play
possible.
I wasn't thinking of anything except that I was right 100 per cent right and that this was
a heaven-sent opportunity. It was up to me to take advantage of it. I sold more. Did I
think that with such a big line of shorts out, it wouldn't take much of a rally to wipe out
my paper profits and possibly my principal? I don't know whether I thought of that or
not, but if I did it didn't carry much weight with me. I wasn't plunging recklessly. I was
really playing conservatively. There was nothing that anybody could do to undo the
earthquake, was there? They couldn't restore the crumpled buildings overnight, free,
gratis, for nothing, could they? All the money in the world couldn't help much in the
next few hours, could it?
I was not betting blindly. I wasn't a crazy bear. I wasn't drunk with success or thinking
that because Frisco was pretty well wiped off the map the entire country was headed for
the scrap heap. No, indeed! I didn't look for a panic. Well, the next day I cleaned up. I
made two hundred and fifty thousand dollars. It was my biggest winnings up to that
time. It was all made in a few days. The Street paid no attention to the earthquake the
first day or two. They'll tell you that it was because the first despatches were not so
alarming, but I think it was because it took so long to change the point of view of the
public toward the securities markets. Even the professional traders for the most part
were slow and shortsighted.
http://www.stockvision.org/books/Edwin_Lefevre-Reminiscences_of_a_Stock_...
http://www.youtube.com/user/BrotherJohnF?feature=mhum
A.P. Giannini became a legend after the great San Francisco earthquake of 1906 when he was one of the only bankers to start lending again – he is of the men who made America versus the men who now are destroying her.
Bank of Italy
As a young man, Giannini succeeded in the wholesale produce business, but grew bored. Angered by the era's typical banking practices -- making loans to and servicing only wealthy clients -- he founded the Bank of Italy in San Francisco in October 1904 as an institution for the "little fellows" -- the hardworking immigrants other banks would not serve. He offered those ignored customers savings accounts and loans, judging them not by how much money they already had, but by their characters. Within a year, deposits were soaring above $700,000 ($13.5 million in 2002 dollars).
Confidence
After a disastrous earthquake and subsequent fires leveled much of the city in 1906, Giannini created new confidence. He set up a temporary bank immediately, collecting deposits, making loans, and proclaiming to all that San Francisco would rise from the ashes. He based his business on openness and trust, making his reputation by helping the city rebuild. Then he expanded the Bank of Italy across California, breaking with an American tradition of independent local banks by providing his egalitarian banking services to the "little fellows" in the Yugolsavian, Russian, Mexican, Portuguese, Chinese, Greek, and other immigrant communities. By the mid-1920s, he owned the third largest bank in the nation.
Big Banker
In 1928, Giannini put his banks into a giant holding company he called Transamerica Corporation, reflecting his new ambition. In 1930, he formed the Bank of America, which would eventually become the largest in the United States. As a measure of its success, it withstood theGreat Depression, funding large industrial and agricultural interests as well as California's burgeoning movie industry and even the Golden Gate Bridge. When Giannini died on June 3, 1949, at age 79, hundreds of ordinary people showed up for his funeral. Little interested in personal wealth, Giannini's own estate was modest at the time of his death. ...
The Bank of Italy grew by a branch banking strategy to become the Bank of America, the world's largest commercial bank with 493 branches in California and assets of $5 billion in 1945. When Giannini retired, the bank tried to give him a $1.5 million bonus, but he refused it.
(excerpted from various sources)
That's an interesting story. My paternal grandfather borrowed $ from a cat like that to start his tavern just after the depression.
Last year, BP oil disaster. This year, Japanese earthquake. Is it possible that some evil Bond villain is going around the globe in a submarine causing these disasters for financial gain?
Have this one eliminated #4.
tomorrow US equity gaps up and go, ready to buy dip.
On wires now:
Possible death at nuclear plant - goggle it
CDS spreads widen refer:
CDS spreads on Tokyo Electric Power (9501.TO) could widen to as high as 1000 bps if conditions on the Fukushima Daiichi nuclear power plant are reported "with a more tragic tone," says BNP Paribas chief credit analyst Mana Nakazora; the firm's credit protection hit a new wide of 415 bps overnight compared to 380 bps in Tuesday's Tokyo trade.
None of these jackals on the biz channels are talking about the food chain.
The north was a big part of fishing and rice cultivation. 500,000 displaced with no income or ability to generate income. Where are they going to put ALL OF THE DEBRIS?
The farm land is totally ruined, how is that replenished. What if radiation gets in the food chain both land and sea. So that much more rice has to be bought by japan who used to grow all their own....so that will affect rice in China and all over Asia and possibly Indian subcontenent since Pakistan was flooded last year.
Inflation bernank
All these fuckers can talk about is flash drives
The fuckers have floppys, we have the flash drive
You're totally right, Shadow. I can't imagine who would junk such an obivous truth. Even if the radiation doesn'tleak out in a big way, the PERCEPTION that there had been a problem will seriously depress rice and vegetable prices in the Tohoku region for years, regardless of the quality they may be able to evenutally turn out. Bangladesh is going to be the ones with their rice bowls empty over this one. :(
Emperor Benjamin Bernanke will decide who lives or dies in the casino (formerly called a stock market). Obey Emperor Ben or perish!
I'll take the Under on that trade. Bernanke is just about done
"Listen all! This is the truth of it. Fighting leads to killing, and killing gets to warring. And that was damn near the death of us all. Look at us now! Busted up, and everyone talking about hard rain! But we've learned, by the dust of them all... Bartertown learned. Now, when men get to fighting, it happens here! And it finishes here! Two men enter; one man leaves." -- Dr. Dealgood
And Nero fiddles as Rome burns.
You guys whine away all day listen to Mugabe Bernake today:
WASHINGTON (AP) -- The Federal Reserve offered its most optimistic view of the U.S. economy since the recession ended, even as Japan's nuclear crisis stoked new worries around the globe.
The economic recovery is on "firmer footing" and the jobs market is "improving gradually," the Fed declared in its statement released at the conclusion of its meeting Tuesday.
That's a more upbeat tone from its previous meeting on Jan. 26, when Fed policymakers said the rate of economic activity was "insufficient" to bring about "significant improvement" in the job market.
You see? move along its all OK You are free to do as we tell you now shut up
"Good job Brownie", "Mission accomplished", & "Change you can believe in", Hell, why don't we just make 'em the 51st State and start sending FEMA and boatloads of fresh FRN's over to em to get the GDP in tip top shape again?
AND, are we gonna have to start testing for radioactivity on ANY, AND ALL IMPORTS FROM JAPAN NOW? You heard it here first............
Actually, If one defines "GDP" as "Geiger Detectability Percentage", the premise might actually be accurate . . .
""We cannot abstain from expressing our utter contempt for the many idiots who have already begun parroting the standard Keynesian nonsense ...."
amen, amen, and amen!!!!!!!!!!
And amen again.
I disagre with this article. South Florida boomed during the Hurricane Andrew re-build and the re-building spending contributed greatly to it. That this happened is not disputable.
But what was the opportunity cost of that boom? How many factories went unbuilt, processes went unresearched, and educations got delayed? In the end, all the more that happened was consumption on a grand scale.
I saw that idjit Insana espouse this. I was yelling you f------ pos at the tv.
It says a lot about how useless gdp is, and why it is awlful. a way for the american sheep to think they are getting a good thing.
As mentioned by other commenters, the author makes a very fine case for the error in thinking and logic called "the broken window fallacy". Paul Krugman is one who falls for this egregious error time and again, deluding himself to think that government redistribution of resources is "stimulus", when in reality it is diminutive of resources because it only shifts them from one area of the economy to another, government-dictated area, at the expense of those unseen uses that those resources would have been used for otherwise. It ignores that those resources would have otherwise been used for other productive uses instead.
http://www.youtube.com/watch?v=gG3AKoL0vEs
Note Krugman in the above video that explains that broken window fallacy. It is amazing to me that a man so clearly intelligent, and a Nobel Prize Laureate, would make such a logical error not only so mindlessly, but frequently. He is an arrogant academic and an educated imbecile.
If it were so genuinely stimulative, then it would only make sense that we would bulldoze every American city every five years, just to keep the economy "stimulated" and GDP growing always. But it ignores that it would, in reality, destroy prosperity because it ignores that all the energy redirected to destroying (bulldozing) and rebuilding every building in the nation would rob and even eliminate entire industries that benefit from people living long-term in their homes. Industries like furniture and furnishings, decor, home restoration and remodeling, etc. would vanish.
This is also the fallacy that suggests that war is good for an economy; it isn't. It doesn't build on top of existing assets and wealth. It destroys because it rebuilds from a zero sum. Economics is not a zero sum game in which we benefit from destroying everything and then rebuilding from scratch. It is additive in nature. This author has made that case very well. Thank you!
Great post! sbenard.
Dwight D. Eisenhower stated in his Military-Industrial Complex Speech, 1961:
We face a hostile ideology -- global in scope, atheistic in character, ruthless in purpose, and insidious in method. Unhappily the danger is poses promises to be of indefinite duration…
We annually spend on military security more than the net income of all United States corporations…
This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence -- economic, political, even spiritual -- is felt in every city, every State house, every office of the Federal government…
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist…
http://www.h-net.org/~hst306/documents/indust.html
Lew Rockwell states:
The U.S. central bank, called the Federal Reserve, was created in 1913. No one promoted this institution with the slogan that it would make wars more likely and guarantee that nearly half a million Americans would die in battle in foreign lands, along with millions of foreign soldiers and civilians. No one pointed out that this institution would permit Americans to fund, without taxes, the destruction of cities abroad and overthrow governments at will. No one said that the central bank would make it possible for the U.S. to be at large-scale war in one of every four years for a full century….
And yet it is true: the Fed is the institution that has created the money to fund the wars… The state has no wealth of its own… it must take from society in a zero-sum game. That usually means taxes, but taxes annoy people. They can destabilize the state and threaten its legitimacy…
It comes down to this. If you hate war, oppose the Fed. If you hate violations of your liberties, oppose the Fed. If you want to restrain despotism, restrain the Fed. If you want to secure freedom for yourself and your descendants, abolish the Fed.
http://www.lewrockwell.com/rockwell/war-and-inflation.html
Shit. Now you tell me. After I went outside and threw a rock through my windshield.
Cash for clunkers! Even if they've been set adrift.
Empirical testing of the Broken Window Fallacy, it's not just pushing the envelope of human ignorance, it's a paper cut on the boogered lip of reason.
You can't go wrong shorting common sense.
Catch-22: Milo Mindbender
Calling in B-29s on our own bases. Chocollate covered cotton.
Where is Ernie Kovacs when we need him? Oh, gone. Too bad.