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Stupid Stuff
I’m amazed that Japan has not yet hit an economic reef. At over 230+%, the country’s debt to GDP is so far out of whack that I keep thinking that something has to give. I’ve been wrong for years.
The trend lines for Japan are awful. A decline in total population coupled with a rapidly aging society is a recipe for slow or no growth. Japan is the world leader in these critical statistics. I don’t think there is anything that Japan can do to reverse its social/economic future. Projections on the critical variables for at least the next ten-years continue to head south.
It's not as if the Japanese are unaware that they are headed for a debt train wreck. They have just passed new tax legislation that could make a meaningful contribution towards stabilizing Japan’s debt to GDP problem. But the new law is a sham. The new taxes will never get paid.
Japan has a consumption tax today of 5%. The new laws will raise the tax to 8% in 2014 and 10% in 2015. Moody’s thought this was a great idea, and said this about the tax hikes: (Link)
"it is an essential component of Japan's fiscal consolidation goal, achievement of which we consider necessary to maintain market confidence in Japanese government bonds."
But here's the joke; in order to get the votes to pass this very controversial legislation, there is a critical stipulation that the new taxes will not come into effect unless the country is increasing GDP at a minimum rate of 2% a year (or nominal growth of 3%).
There is no chance in hell that Japan will achieve the triggers. The folks who passed the laws know that. I think Japan deserves the annual award for the most heinous “kick the can down” tactic. The following chart shows how Japan has limped along for the past 20 years. Note the GDP performance over the past decade. What are the odds that it breaks 2% anytime soon based on the prior track record?
How’s Japan doing today? Is it on it way to achieving the all important 2% GDP target for 2013 (the trigger for the 2014 tax increase)? Not a chance. From the FT this morning:
Moody’s warned about the possibility that the taxes would never be levied:
the gross domestic product growth targets contained in the new law remain an area of uncertainty
How hard do you have to stretch a rubber band before it breaks?
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On the Good Efforts by the SEC
The SEC made an important announcement this morning:
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The SEC is just now getting around to hiring some people who might have a clue what is going on in the capital markets. Mr. Berman, the head of the office Analytics and Research acknowledged that the SEC had no idea what was actually happening. From the interview with Tradersmagazine (Link):
the SEC learned it was unprepared to sift through the mountains of market data in the current high-speed, rapid-trading marketplace of today. That was evident when it had difficulty understanding what happened in the market on May 6, 2010-the day of the "flash crash."
So two plus years later they get to thinking that they need some “smarts” on board? The SEC gets the award for Rank Incompetence.
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No Inflation
Both the Fed and the Treasury have made comments on the tame inflation outlook as the basis for monetary/fiscal policies that potentially have inflationary implications. They have relied on a Cleveland Fed report that measures expectations for the future rate on inflation.
Not surprisingly, the folks in Cleveland are using a measuring stick that says the all-important “expectations” are very low, about 1.25%.
I look at the multi-trillion US Government bond market for a better measure of what those expectations are. The Tips/Coupons spread tells a different story than the nice folks in Cleveland. From Bloomberg – (Link)
The hockey stick higher starts on July 26. That was Draghi saying that he would print to the moon. The second leg higher was Bernanke saying that he was going to act in September.
Like I said, Bernanke ignores the market’s measure on expectations. But I’m absolutely certain that the Chairman, and all of the other Fed Governors, have the market measure of expectations somewhere on their screens. So they are well aware of the fact that the market is now forecasting inflation above the Fed’s target of 2%.
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A sovereign currency issuer (as Japan is) can hold their interest rates at zero forever if they wish. The total level of debt does not matter since any debt owed to a government's own central bank can be cancelled. Does Japan owe any money in foreign currency? No. The real mystery is why Japan's currency is so high? I guess the answer is that they are the best bunch in a bad neighborhood. US interest rates are at 0, EU interest rates are near zero. Japan still produces stuff, and makes cars better than anyone else. The only constraint on a Sovereign Currency Issuer is inflation, and does Japan have inflation? No they don't. So Japan is fine as long as the USA is fine. I don't know what happens when peak oil really hits hard., We might all be up shit creek simultaneously. But for now, that doesn't matter.......Until it does.
Whether you eat your seed corn or the guy you sold it to eats it doesn't matter. Without seed corn your dead aftr the next harvest.
The seed corn is pretty worthless if the rains forget to come.
so mercifully free of the ravages of intelligence ...
peak oil for every generation:
http://www.youtube.com/watch?v=AcWkN4ngR2Y
Never fear Japan have learned how to distract themselves...
AKB48
http://www.youtube.com/watch?v=lkHlnWFnA0c
I'd like to get knee deep in a pile of AKB48
any guy that is into Japanese chicks is a borderline pedophile
That would mean every guy in Japan (Taiwan, Thailand, China, HK) ..... else I don't know how girls band AKB48 raked in well over $200m in just CD sales last year.
bruce,
what event do you expect to occur that would define the so called 'end' or 'reef' of japan?
the stock market going down dramatically? income? employment? life expectancy?
perhaps the same story applies to japan as the united states---which is that the official story of how things are is much rosier thant the truth. the truth is that the average person who needs to work to make a living is in much worse shape the the television and news reports say. perhaps we have already hit the cliff in the u.s. and in japan, and everyone like yourself is just waiting to see something like an overnight devaluation or default of the currency to occur in order to save or dump the debt and stock market.
what is the event you are looking for?
The Western World is on to "the phucktards trying to run (ruin?) the world again." There is one step...it is a simple step...we're learning from the Greeks...hopefully we all will perfect it in short order: DON'T PAY YOUR FRIGGIN TAXES PEOPLE! http://www.youtube.com/watch?feature=player_detailpage&v=39Xf6XTgohA "you want me to pay for that you better charge me 10,000 for a fill up at the gas station." otherwise...i'm GETTIN' THE PHUCK OUT AT THE FIRST SIGN OF TROUBLE.
Japan's population pyramid has a large peak of people who will turn 65 in 2015. Once these guys retire, they change from buyers to sellers of JGBs. It will be very interesting to watch what happens there in the next 5 years.
The US population pyramid has a much broader peak of people who will turn 65 in 2022. (The peak year for boomer births was 1957). So whatever happens to Japan in 2015, we can expect something similar to hit the US in 2022. But the US boomer peak is broader than Japan's so the US may not be in quite so much trouble. It also depends on what the US debt/GDP ratio will be in 2022.
Look at their immigration policy! First thing you have to submit your CV, but in Japanese please!
Well? I don't know how old you are but Gen X beats out the boomers in numbers. So, if the country survives past the boomers, there's no way past Gen X, cause the Mil Gen (or Gen Y) is small. Gen Z (Zero) is still in progress and will need help. That's where my assets in my will are going.
... but Gen X beats out the boomers in numbers.
I am not sure how you calculate that. US births peaked at 4.3 million in 1957, stayed above 4 million until 1963, and then headed way lower to under 3.2 million in the 1970s. They didn't go back above 4 million until briefly in the late 80's/early 90s. And they didn't approach the 1957 peak until the mid 2000s.
http://www.calculatedriskblog.com/2010/04/us-births-per-year.html
How are you defining Gen X?
I use wikipedia. Although one can disagree on exact years, it looks like Gen X would be as many as 10 million more than the boomers. To me, the next generation begins when the beinning of a generation has children. The end of WWII kind of defines the beginning of the boomers. Boomers tended to have children at quite a young age back then.
The United States Census Bureau considers a baby boomer to be someone born during the demographic birth boom between 1946 and 1964.[9]
The generation can be segmented into two broadly defined cohorts. The Leading-Edge Baby Boomers are individuals born between 1946 and 1955, those who came of age during the Vietnam War era. This group represents slightly more than half of the generation, or roughly 38,002,000 people of all races. The other half of the generation was born between 1956 and 1964. Called Late Boomers, or Trailing-Edge Boomers, this second cohort includes about 37,818,000 individuals, according to Live Births by Age and Mother and Race, 1933-98, published by the Center for Disease Control's National Center for Health Statistics. [11]
http://en.wikipedia.org/wiki/Baby_boomer
In the US, Generation X was originally referred to as the "baby bust" generation because of the drop in the birth rate following the baby boom.[2] The drop in fertility rates in America began in the late 1950s. According to demographers Bill Strauss and Neil Howe, there are approximately 88.5 million Gen Xers in the U.S. today.
The exact date range that constitutes Generation X is the subject of diverging opinions. Part of the variance comes from slightly differing definitions of what exactly Generation X is. Geography can also influence date ranges. Another problem stems from the difficulty in exactly defining a generation by birth year, as Fran Kick explains, "please understand that there are no hard and fast lines that occur between December 31st of one year and January 1st of the next. More often than not, it's a shift that occurs over three to five years, maybe more depending on who you ask."[16] Some sources cite a start in the mid 1960s.[17] Some cite an end date before the end of the 1970s. Others cite an end in the early 1980s; the birth years of 1981 and 1982[18][19][20] are cited as common end dates, with either depending on geographics, researcher, or the determination of what year the first Millennial generation officially left grade school.[6]
http://en.wikipedia.org/wiki/Generation_X
del
The bigger problem is the boomers were the productive folks. Once productive folks retire, all bets are off.
Not sure what youmean by "productive", but, as a Generation X'r, finding work throughout all my entire adult life was tough. We were always chasing the tail end of a boom bust cycle. The boomers had all the great jobs, many of them created by their own design. I was for most of my career chasing intensive labor work that nobody wanted. And that was ok, I'm not complaining, but, if there was anyu generation that had it easy, it was the boomers. Hands down. There is also a huge difference in attitude between a Gen Xer and a boomer. Boomers piss everything away, including their children's future, whereas the Gen X'rs pinch pennies like crazy because they went through unbelievably difficult times of the 80's and 90's. Again, I'm not complaining, but, the boomers have had it easy relative to every other demographic. cheers.
if by productive you mean narcissistic self-servers you are spot on
All of those Japanese folks that thought they were saving for retirement with JGBs were really just paying a tax. Life's a bitch and then you marry one.
As i understand, the idea right now is to inflate the debt, all the while hoping that economy miraciously heals itself. Have no idea how, perhaps we will try the European austerity way, which will put us in a deeper hole. Right now what saves us are skilled immigrants and relative dominance of the currency monopoly US dollar has on energy markets. Naturally, the US dollar value is down but since the rest of the world supposedly in worse condition (or tries to keep the inflows down ie. Switzerland) US bonds (still) considered the most liquid.
The situation is basically slow boiling frogs. By the time majority wakes up, its too late.
I suppose there are people who slow boil frogs, but you have to gig them first...a rather sickening endeavor:
Kentucky Frog Gigging
http://www.youtube.com/watch?v=thM_WIlDNyE
What Austerity? Government spending as a function of GDP is at all time highs both in the US and the EU. And most government spending is nothing more than income redistribution coupled to graft and malinvestment. Get back to me on so-called austerity when the government contribution to GDP is less than 18% (that's what the revenues are).
Starve the beast-its as obese as a substantial fraction of its population.
They're best slow boiled -- the meat just falls off the bone.
Loved this one. Thanks, Bruce.
I think Japan has been able to kick the can for so long because their situation doesn't look so bad compared to ours. If you tried to calculate the fair value of every currency you would arrive at a circular reference problem because all of them are worthless. So IMHO, currencies and debt will retain their current relative values until something gives (euro default/breakup/etc, china political implosion, USA political implosion, nuking iran, etc.). Its now all monopoly money anyway, just digital transactions in the cloud.
God, you're good Bruce. Keep it up!
Hey Bruce, do you get to pick your headline(s)? 'cuz, this is eclectic, but not stupid. And:
Actually, we've had secret screen shots of their screens, courtesy of WB7, back a bit. Maybe we need him to do his super-sleuthie thing again. I remember ... eeew ... but not that.
Please continue (the not-stupid material, and, well, stupid at your discretion),
- Ned
I've reading this site waay too long. I read the chart porn as "Ignore this at your peril, Bitch."
Japan has had the luxury of playing mercantilist to our open bordersism. Without that this ultra-sham would have been over long ago. One reason for kicking the can down the road is the hope that at some point the economy in the USA will recover and their trade picture will improve enough to change the math.
Japan _could_ lehman - what happens when nation-states can't get a bailout and the doors shut?
Probably 90% of the shit in your house wouldn't be there without this "sham".
You are correct. Ditto China. Japan was able to fine tune their machine to do this optimally. For awhile they were a "miracle". Today we can see the cost of this finely tuned machine on Japan's own people. Are the Japanese people better off today? Some of us aren't sure about that and thats why we say "sham".
Are Japanese better off? Looks to me like they're the ones who can afford to stay at the five star hotels around the world these days.
a) the lights go out,
b) someone has already chained the exits shut (cf. "The Station" fire, West Warwick, RI, Coconut Grove fire in Boston, et al.)
c) HELL ensues.
- Ned
The economy is a very short term problem in Japan. Why? Because Fukushima is eventually going to destroy it. It is so unbelievable how the western world is co-operating in keeping this censored. Here is just one of the websites I have been following.
http://enenews.com/
This is scary shit. The whole world will be affected for a very long time. Right now, Don't eat fish or be on a cruise ship in the Pacific. Many countries have banned fish and grains because of contamination. Russia is testing all car imports (and holding some contaminated cars and auto parts in port since May). The U.S.? No problem, we'll take it all. we need to get the population down and feed the Pharm's money for cancer drugs. Watch where you're tuna, rice, tea, etc comes from.
Remember, hiroshima and nagasaki bombs didn't destroy Japan and the radiation released in a real bomb is many orders of magnatude larger than any nuclear reactor, even Chernoyble is capable of releasing. Nuclear power has the best safety record of any power source.
still scary.
Bullsheet, it's a Faustian bargain. If you look honestly at the tradeoffs/inputs.
+1 and soon India will have the first Thorium Reactors online
Hillary would never stop a Lexus from entering America.
Loved this post... especially that last picture.
Bruce,
Krugman and his ilk have repeatedly told us all that more spending is the only cure to our spending addiction. It is akin to a drunk drinking themselves sober, which while it may be impossible scientifically to prove, the drunk does sometimes drink so much for so long (on a binge say) that he 'feels' sober again. This is the basis of those assertions, if .gov can just spend more faster, we will 'feel' like we have cured our spending problem. Clearly Japan's problem is they are not spending enough fast enough. Obama is on board, Chuck Shumer's has given Ben his orders, now where is the feast the FED promised us?
BTW, Romney and Ryan are obviously wet blankets with this whole fiscal responsiblity mantra. That whole moving toward a balanced budget is a bunch a hooey. The next generation can fend for themselves we need moar powerchairs (at no cost to us) by god. /S
Just call The Scooter Store now and they will deal directly with Medicare or Medicaid to get you your power chair today.
The Japanese have a closed society. Currently, they have an aging population and a declining birth rate. Japan does not have a large percentage of uneducated moochers whose primary contribution to society is filling up its prisons. The time will arise when the people of this island nation decide to start procreating again. The problems we face in this cesspool USA are another story entirely.
Come to think of it, I have never seen a U-Tube vid of a mob of Japanese people trampling each other to death in order to get their grubby little hands on a Cabbage Patch Doll for little Shungwen (Susie in Japanese) just in time for the Holidays........
Shungwen?
More like Sachiko or some such. A typo, I'm sure.
Procreating? Japan relies on a number of imports, including a lot of foodstuff and energy. I don't see them wanting to reduce their living standards even more, especially with the radiation cleanup still going on.
But you are correct, educated population, polite kind hard working. The best part is they owe most of their debt to themselves. The U.S. owes it's debt to a private banking cartel.
But we have the marvelous Hip-Hop culture in the U.S. It is filled with kind, considerate, intelligent, hard working people. Their children are exceptional and their conscience does not allow them to take from others what they have not earned.
Obama / Biden 2012