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Japan’s Keynesian Demise: A Cautionary Tale For Our Times

Tyler Durden's picture




 

Submitted by David Stockman via Contra Corner blog,

I remember it well. That is, the fiscal rectitude of the old Japan.

During early 1981 as the Reagan White House prepared its radical fiscal plan—-what Senate Majority Leader Howard Baker famously called a “riverboat gamble”—-we were visited by a high ranking delegation from the Japanese finance ministry (MOF). It is no overstatement to say that they were absolutely shocked by the administration’s plan to enact a sweeping 30% income tax cut and double the defense budget—while expecting that it would all balance out as a result of surging economic growth immediately and large domestic spending cuts down the road.

The MOF men feared the worst—politely noting the possibility that there would be insufficient economic growth and spending cuts to pay for the Administration’s monumental tax reductions and defense build-up. Then the US would experience an outbreak of massive fiscal deficits—an unprecedented peacetime development that could roil the entire global financial system. In that apprehension the MOF men turned out to be dead right, and not because they were especially clairvoyant.

Back in those benighted times, fiscal rectitude was a widely shared commitment among government financial officials including Congressional Republicans and their conservative counterparts abroad and especially in Japan. Economic policy officials did not have to be hectored about deficits and the fact that there is no such thing as a fiscal free lunch. Indeed, notwithstanding a government led 30-year drive to rebuild their economy from the complete devastation of WWII, Japan’s public debt was only 50% of GDP as of 1980.

That was then. Today Japan’s public debt is 5X greater relative to the size of its economy and tips the scales at 250% of GDP. That is off-the-charts relative to all other large developed economies and has no parallel in previous history. In the interim, of course, Japan succumbed to the Keynesian stimulus disease, betting that after its thundering financial meltdown during the early 1990s it could borrow and print its way back to the prosperity it had known during the period of its post-war economic miracle.

The chart below is thus a cautionary tale of our times. In exactly one generation of leadership, Japan’s fiscal rectitude was lost entirely. As is made clear in what follows, its fiscal equation is now beyond rescue. It is tumbling inexorably into a financial abyss that would not have been remotely imaginable by the MOF men who came to the White House in February 1981 bearing discrete admonitions of fiscal prudence.

Japanese debt as % of GDP

The slippery slope leading to today’s Keynesian demise starts with the fact that Japan’s post-war boom wasn’t a miracle at all. From the smoldering industrial ruins left by the allies’ final assault, the Japanese economy had bounded upward for three decades owing to a massive spree of public and private investment and a sweeping mercantilist industrial development and export promotion policy. The former depended upon an extraordinarily high household savings rate and the latter was fueled by blatantly protectionist policies that kept imports out and the yen’s exchange rate far below its true economic value.

Needless to say, neither prong of Japan’s economic miracle was sustainable. By the mid-1980s the Japanese capital goods and export sectors were enormously over-built. This meant that the double-digit growth in fixed asset investment which had powered Japan’s post-war GDP growth was destined for a sharp fall. Likewise, sooner or later its exchange rate repression policies would trigger an explosion of counter-protectionism in Washington, meaning that the drastically undervalued yen feeding its towering export surpluses was heading for a sharp reversal.

That’s exactly what happened after mid-1985 when a new financial sheriff came to the US Treasury. James Baker had matriculated from the Texas School of “America first” economics and did not hesitate to lower the boom on Japan’s export driven prosperity by way of the Plaza Accords of September 1985. Under the pressure of Baker’s concerted global campaign of yen buying by the major central banks, Japan’s exchange rate soared from about 260 per dollar to 130 over the next several years.

Unfortunately, Japan did not use this rather brutal assault on its mercantilist economic model to rebalance and reform its economy. Instead, its government started down the slippery slope of Keynesian stimulus and financialization that has been corroding the foundations of its post-war prosperity for the last 30 years.

In the first round, the BOJ slashed interest rates in early 1986 in order to stimulate domestic expansion, but Japan’s problem was not that the cost of capital was too high or that it suffered from insufficient industrial capacity. In fact, it was already swamped with excess capacity in steel, autos, machinery, consumer electronics and much else.

So what Japan needed at the time was higher market clearing interest rates to thwart its now chronic over-investment in export capacity. Instead, the BOJ’s ultra easy money flowed into the financial sector, fueling a massive bubble in real estate and corporate stocks and bonds.

This initial round of financialization induced businesses to drastically expand their debt loads. Accordingly, non-financial debt in Japan nearly tripled from its early 1980s level. As is now well known, this surging tide of both straight and convertible debt went into what was called “zeitech” or financial engineering. What it really amounted to was rampant speculation in real estate and financial assets–especially the stock of other companies within the Keiretsu groups around which Japan’s state-led development model had been organized. As shown below, the Nikkei stock index went parabolic, rising by nearly 4X during the 50 months after the Plaza Accord.

The bubble was especially acute in the real estate sector. At one point the value of land in Tokyo was equal to the total for the US. In barely a decade, land prices in Japan’s largest city rose by 5X before the spectacular crash of the 1990s. And there is no doubt as to the cause: the BOJ unleashed a monumental speculative frenzy based on cheap debt and the perception that Japan was “different” because its central bank had everyone’s back.

 

Needless to say, the bubble burst in spectacular fashion. From top to bottom the Nikkei dropped by 80% and real estate values by even more.Yet the painful liquidation of the BOJ’s financial bubble during the early 1990s was only the prelude. What actually happened was that the real economy in Japan went through a drastic downshift in its growth capacity owing to a more realistic exchange rate and the unavoidable disappearance of the double digit growth rates of fixed assets which had accompanied the one-time expansion of its industrial plant during the boom era. Accordingly, its trend rate of real GDP growth fell from 4-8% rates during the boom years to just 1% on average during the 1990s.

This unwelcome slowdown reflected the laws of economics speaking out loud. Japan’s domestic economy was desperately inefficient and feather-bedded; its foreign markets were now crowded with fierce competition; and it was destined to experience a sustained period of sub-normal capital investment and real estate development owing to the vast overhang of capacity from the boom years.

Unfortunately, the mandarins who run Japan Inc did not understand that they had been booming on borrowed time during the post-war heydays. That meant that Japan’s now drastically imbalanced and debt saturated economy would remain stuck in the mud in the absence of a through-going dismantlement of its rigged domestic markets and protectionist trade policies.

Alas, here’s where the Keynesian disease insinuated itself, and it came naturally to a ruling party—the LDP—-that had presided over Japan’s state-driven development model of the post-war years. The machinery of Japan’s politics was all about distribution of construction, credit and corruption among the LDP’s constituencies.

In the halcyon times, this generated roads and bridges to export ports and thereby facilitated growth of production, jobs and foreign markets—even if inefficiently done. But after the post-Plaza bubble crash, it merely churned out roads and bridges to nowhere. Paving the archipelago with cement, Japan’s politicians and bureaucrats did Keynes one better. Instead of digging holes and merely re-filling them, they dug gravel and limestone and turned it into pavement.

The chart below shows the fiscal catastrophe which resulted. During the two decades after 1990, Japan’s government expenditures rose by 45%, while its general revenues fell by 15-20%. Accordingly, a massive permanent fiscal gap was opened that fueled the parabolic rise of its debt ratio, as shown above. And this wasn’t just garden variety fiscal profligacy. As shown below, during most of this century, Japan’s general revenues have not even covered 50% of its expenditures. The math is terminal.

copy_of_figure2.gif

To be sure, the Keynesians would complain that the above chart is not a picture of “runaway spending” as denounced by Republican orators from time immemorial. And no, it is not. Spending growth has averaged less than 3% per year since 1990.

However, that observation is irrelevant to Japan’s circumstances and fails to grapple with the real fiscal driver. Namely, after 40 years of boom and the final BOJ bubble, Japan had reached a condition of “peak debt”. Already by 1990, total credit market debt—public and private—-exceeded 350% of GDP, and by now it has soared to in excess of 500%.

This condition of credit saturation means that nominal GDP growth is stuck in the low single digits, and could be liberated from that plight only by a burst of supply side growth and entrepreneurial productivity that has no chance of emerging in the statist policy and political environs of Japan Inc. In fact, nominal GDP has grown by only 1% per year since 1990, reflecting Japan’s stagnant (and now shrinking) work force and tepid productivity growth.

Needless to say, 1% growth in money incomes did not leave any room at all for net tax reductions, and could not remotely accommodate the spasm of public spending that have characterized Japan’s post-1990 Keynesian debauch. Yet prodded by mainstream economists in the US government and international institutions, Japan had dismantled its tax base in one effort after another to stimulate short-term investment. Its nominal revenues consequently fell continuously for nearly two decades. There is nothing like it in developed world experience.

Stated differently, the LDP politicians took charge of building bridges and the Keynesian economists provided the rationalization for dismantling the tax base. No more lethal fiscal combination is imaginable.

Except…..except that Japan Inc. has found it, and heartily embraced it in the form of Abenomics and its prior variants of QE and open-ended monetary expansion. Based on the lamentable advice of Ben Bernanke and other visiting fireman of the modern school of Keynesian central banking, Japan embraced the “deflation” myth and the destructive notion that the central bank must run its printing presses until inflation is revived to the 2% or so range—–thereby reflating nominal GDP, aggregate demand and the wheels of production and jobs growth in the real economy.

To begin with, of course, Japan has not suffered from anything that remotely resembles honest deflation. In most recent months, Japan’s CPI index stood at about 100—–the exact place it posted 21 years ago in early 1993.

In fact, the only “deflation” that Japan has suffered has been financial sector deflation—–real estate and equity prices and private borrowing—-and exactly so. The heights reached during the 1980s bubble were utterly artificial, unstable and an enormous deformation of capital markets.

Nevertheless, Japan adopted “ZIRP” in 1999 and thereby piled Keynesian central banking on top of its already hemorrhaging fiscal equation. As a consequence, BOJ’s balance sheet has exploded, rising from about 10% of GDP to nearly 50% today. That’s what it took by way of massive monetization of existing financial assets to pin Japan’s money market rates at zero and to push its yield curve outward along the flat line.

This amounted to financial repression on steroids, but it has been to no avail. During the approximate 15 years since it originally adopted ZIRP, Japan’s real GDP has limped along at 0.9% per year. This figure is not significantly different than the 0.7% rate it experienced in the post-crash 1990s before it launched an all-out money printing campaign.

But ZIRP has had enormous and untoward collateral effects that taken together comprise the proximate cause of Japan’s impending fiscal demise. First, Japan’s vaunted household savings rate—-the feature that funded its post-war CapEx boom—has ended up in the dustbin of history. During the last two decades it has dropped from the high teens as a percent of disposable income to a US style 3-4%.Indeed, it has gone from the highest rate in the world in the early 1980s to the lowest at present.

This untimely collapse of the savings rate will prove especially destructive for the retirement colony that comprises Japan’s demographic future. Saddled with towering public debts and rapidly shrinking work force, Japan will swiftly consume its accumulated savings as its retirement rolls soar. A decade or two down the road it will become an international pauper.

If it gets that far. The other collateral effect of ZIRP has been a gigantic fiscal lie. Namely, the delusion that Japan’s massive government debts can be financed at close to zero nominal carry cost for the indefinite future. After all, the 10-year bond now carries a yield of 0.51%—–a rate which is close enough to free for government work. Yet even then, Japan’s interest carry cost has been consuming upwards of one-third of its current revenues.

That’s why the prospect of interest rate “normalization” is such a fiscal nightmare. Were Japan somehow able to stop the inexorable growth of its public debt, the annual revenue take shown above would be consumed entirely by interest payments under a scenario of normalized interest rates.

And that brings us to the folly of Abenomics and the BOJ’s latest round of QE—-a madcap rate of balance sheet expansion that would be equivalent to $250 billion per month at the scale of the US economy. At this rate, the BOJ is absorbing almost all of the available government bond supply and on some days has actually left the private market bidless. Indeed, it is monetizing assets at such a frenzied rate that it has now become a major buyer of ETFs and other equities. In effect, the central bank in Japan no longer merely runs the casino; it has become the casino.

Still, it has only accomplished one thing: In the early run of Abenomics the world’s fast money traders went all-in with the BOJ and drove its stock index from 8,000 to 16,000 in a matter of months. But the excitement is now all over, and the actual results are pitiful—even if you believe that printing money can actually create sustainable output growth and real wealth gains.

The fact is, after the most recent quarter’s GDP wipeout, Japan’s real GDP is only 0.8% larger than it was five quarters ago when Abenomics was installed at the BOJ. And therein lies the frightful future.

Were the BOJ to actually achieve and sustain its 2% inflation target the Japanese government bond market would either collapse, or need to drastically reprice. The former case amounts to disaster now; the latter would entail fiscal collapse very soon as Japan’s revenues would be soon devoured by a surging carry cost on its towering debt.

And that gets to the ragged Keynesian excuse that all will be well once the jump in the consumption tax from 5% to 8% is fully digested. But here’s the problem: this is just the beginning of an endless march upwards of Japan’s tax burden to close the yawning fiscal gap left after the current round of tax increases, and to finance its growing retirement colony.

So there is no possibility that Abenomics will result in “escape velocity” Japan style and that Japan can grow its way out of it enormous fiscal trap. Instead, nominal and real growth will remain pinned to the flatline owing to peak debt, soaring retirements, a shrinking tax base and a tax burden which will rise as far as the eye can see.

Call that a Keynesian dystopia. It is a cautionary tale for our times. And Japan, unfortunately, is just patient zero.

 

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Sat, 08/16/2014 - 15:29 | 5102752 kaiserhoff
kaiserhoff's picture

Generally a good summary, but how can you talk about Japan and ignore Fukushima?

They don't even have a crazy ice wall plan any more.

Sat, 08/16/2014 - 15:31 | 5102764 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Japan will fail ahead of the US and EU as the author mentions. What will be the catalyst? This being said the US and EU are joined at the hip with Japan and all will pay the price for Abenomics when Japan finds the cliff.

Sat, 08/16/2014 - 16:13 | 5102849 remain calm
remain calm's picture

Why the Japanese people are not buying gold is a mystery to me. The Yen becomes toilet paper first then the Euro then the dollar. Our central bankers should be the first to receive a bullet to the head. It was easy all they had to do was tell the truth. They chose deceit and lying. Death shall be their punishment.

Sat, 08/16/2014 - 16:41 | 5102908 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Why the Japanese people are not buying gold is a mystery to me. 

My guess is the average Japanese is too poor to afford gold.

Sat, 08/16/2014 - 17:03 | 5102949 knukles
knukles's picture

Japan:  Irradiated Liquidity Trap responding naught as expected to stimulative monetary and fiscal largesse embraced by a demographic nightmare.

Sat, 08/16/2014 - 17:47 | 5103049 max2205
max2205's picture

Japan is a giant shit hole

Sat, 08/16/2014 - 20:23 | 5103440 gtb
gtb's picture

The list of shit holes is long...and growing daily.

Sun, 08/17/2014 - 04:01 | 5104391 tvdog
tvdog's picture

Japan is a beautiful country with friendly people and practically no crime. Unemployment is much lower than in the U.S. It's a nice place to live, for now.

Sun, 08/17/2014 - 04:44 | 5104413 GuyJeans
GuyJeans's picture

Japan is a beautiful country and practically no crime I'll give you that, but friendly.....maybe supreficially but not truly out of their good hearts are they friendly. 

Sun, 08/17/2014 - 06:29 | 5104474 kareninca
kareninca's picture

The crime rate in Japan is much higher than the official statistics show.  Many of the "suicides" that take place in Japan, are not in fact suicides (they are mob hits for insurance money), but the police are, shall we say, not "motivated" to dig deep into these cases.  The taboo against reporting being raped is powerful.  I'm not saying that it's really Detroit, but it isn't at all like what one is told.  The Japanese people I have known are the most frightened people I have known.  But outsiders don't see what is frightening them, so they don't see the fear.

Sat, 08/16/2014 - 21:05 | 5103529 TVP
TVP's picture

Death is way too good for these parasites.

Let them be stranded on a shitty island (Japan?) until they either succumb to starvation, dehydration, or suicide.  

Sat, 08/16/2014 - 22:10 | 5103645 WakeUpPeeeeeople
WakeUpPeeeeeople's picture

Japan is a giant geriatric ward. This sort of demographics must be a factor with respect to an economy. Some time back Japanese started buying more adult diapers than baby diapers. Believe it was the finance minister that made the comment that "the old people need to hurry up and die". Here in the US 10k boomers retire every single day. Wonder if Japan is just a decade or two ahead of us.

Also, I see alot of cat food on the grocery shelves in Japan but I never see any cats running around. What's with that?

Sun, 08/17/2014 - 05:08 | 5104423 Tinky
Tinky's picture

You need to pay closer attention; the Japanese are cat crazy, and they're all over the place.

Sat, 08/16/2014 - 15:42 | 5102790 Bloppy
Bloppy's picture

None of this will stop Nikkei from surging higher at every opportunity. Same demented fake economy we have in America.

Elsewhere:

Backlash could propel Rick Perry into presidency http://tinyurl.com/l4ysq4m



Sat, 08/16/2014 - 16:13 | 5102848 A Man without Q...
A Man without Qualities's picture

BOJ policy for ETF buying means they step in after every 1% fall.  Liquidity is so thin, the market drops a percent and then gaps higher (usually in the second session) as the big dump BOJ arrives with its free money.  

Sat, 08/16/2014 - 18:48 | 5103229 Burticus
Burticus's picture

Maybe Fukishima IS the plan...for solving their "retirement colony" problem (of "useless eaters")

Sat, 08/16/2014 - 19:01 | 5103267 Fuku Ben
Fuku Ben's picture

They want everyone to focus on something else other than the extinction event as it continues. They aren't even acting like they're doing anything now. It's not just Fukushima. This progression to destruction is global just look around you. Fukushima is the current 800lb gorilla ignored on the planet at this moment.

People like me may likely go at an early age due to the proximity and dose of exposure. But you'll all get it too, or something else, coming your way soon enough. Nothing in the current organized structure (ie. government, religion etc.) can save us in the end. They are all knowingly or unknowingly in league with evil. Just like the other layers of control here on Planet X. They, and we, are complicit in the allowing Satan's spawn to be in a position to overrun this planet and create a hell on earth for our children. It will be up to us to reverse it.

Sat, 08/16/2014 - 21:12 | 5103540 TVP
TVP's picture

Severe droughts all over the place, food supplies being slaughtered (e.g., pig disease, notice the price of bacon lately?), currencies being depreciated as everything with any currency velocity soars to all-time record highs (e.g., electricity prices, food prices, airfare, and soon other forms of energy like gasoline).  Not to mention pandemics like Ebola, along with an "experimental vaccine", that will likely kill and maim more than the actual disease itself, like Gardasil (Thanks, Merck!)

Yes, the stage is being set for mass slaughter, in ways we cannot even imagine, and on a magnitude that one ought not to comprehend more than necessary... 

Sun, 08/17/2014 - 02:45 | 5104298 mkkby
mkkby's picture

Of course, but this is nothing to freak out about.  World population has been growing exponentially for 150 years.  When you reach 40 years of age you will have lived to see population DOUBLE!  At 80 you'll have seen it QUADRUPLE. 

After growth like that, it's obvious quality of life will suffer.  If it continues there will be a point where humans are drowning in their own sewage.  A mass extinction event follows.

Japan is batting first.  With so many elderly nips, soon their population will fall.  If the economy contracts, that is just RIGHT SIZING.  Get over it.  This is what will be happening on earth for the next 100 years.

Sun, 08/17/2014 - 06:58 | 5104505 BrosephStiglitz
BrosephStiglitz's picture

The population curve won't go much higher.  I doubt I'll ever see 40, and that is a couple decades away.  A major disease event, or war would most likely see 99% of 55+ year olds getting wiped off the face of the earth.

And a good few younger people too.

Sat, 08/16/2014 - 19:54 | 5103386 doctor10
doctor10's picture

"Keynesian"  is Ivy League /Globalist-speak for "too big too fail" -also sometimes translated as "whaddya gona doabouddit?"

Sat, 08/16/2014 - 15:28 | 5102758 AdvancingTime
AdvancingTime's picture

Before the "Bernanke has all the answers" era, many of us criticized Japan for failing to own its problems. Many people thought Japan should face up to the mess it had created and do the right thing. Broadly accepted was the concept that only by letting its zombie banks and industries fail could Japan clean out the system and move forward. 

While they claim otherwise, in many ways Bernanke and the Fed have put America on a path that mirrors the same unsuccessful path taken by Japan. A path that avoids real reform and bails out the very people that caused many of our problems.  As we measure the results of the Bernanke policy it seems they may not be much different than those achieved by Japan over the last few decades. 

Bernanke endorsed and encouraged Japan to step on the gas and print more money until they lower the value of the yen and force inflation to set them on a path forward. More on the path we are going down in the article below.

http://brucewilds.blogspot.com/2013/11/we-are-on-path-to-lost-decades.ht...

Sat, 08/16/2014 - 15:31 | 5102761 yogibear
yogibear's picture

"Fed have put America on a path that mirrors the same unsuccessful path taken by Japan."

Exactly! 

Sat, 08/16/2014 - 16:36 | 5102900 Herd Redirectio...
Herd Redirection Committee's picture

Zombie banks, thats all one needs to know, to know the situations are exactly the same, only differing slightly in timing and magnitude.

Sun, 08/17/2014 - 04:16 | 5104399 piliage
piliage's picture

I remember reading all kinds of articles in the 90s by the MSM saying Japan's curse was allowing all of these bad debts and loans to crowd out good investment. Funny, now that the idiots at the NYT drink the kool-aid of St. Krugman we now don't hear that talk anymore.

Sat, 08/16/2014 - 15:54 | 5102759 yogibear
yogibear's picture

Yellen, Bullard, Dudley, Rosegren, Evans, Williams, Fisher and the rest of the Keynesian bansters your Federal Reserve Ponzi scheme is going down the same way as Japan.

With Japan you get to see your grand printing scheme implode.

Sun, 08/17/2014 - 07:07 | 5104510 BrosephStiglitz
BrosephStiglitz's picture

The issue with so the called Keynesian (more like neo-Keynesian) policies, is that they do not anything about the underlying crisis of confidence.

The central bankers/politicians must be shitting a brick right now because their 2 dimensional economic "solutions", ie:, "inflate the fuck out of it and let the peasants figure it out 2 years from now", has not worked at all.

With Japan and Europe hanging on by a thread.. literally, I suspect that we will see a techtonic shift in the global macroeconomic situation within 18 months of this post.

Sat, 08/16/2014 - 15:31 | 5102765 Keltner Channel Surf
Keltner Channel Surf's picture

"Keynesian Dystopia":  good name for a new Ben & Jerry's ice cream -- looks like Mint Chocolate Cookie, tastes like vanilla

Sat, 08/16/2014 - 15:39 | 5102783 Joebloinvestor
Joebloinvestor's picture

Radiation has a "clearing of the board" effect.

Sat, 08/16/2014 - 17:06 | 5102950 knukles
knukles's picture

a "cleaning" effect as well.... living shit all dies or mutates...
Die Nachtmare
Oppps!  That's German... that's right, the Japs fought the Battle of Britain and at Normandy....

Sat, 08/16/2014 - 15:41 | 5102786 patb
patb's picture

Japan has several issues,  the large operating deficit

some 40% of the  budget is borrowed,  and that almost matches the

percentage of budget used to finance the debt.

 

The fact japan no longer runs a current account surplus.

 

The aging demographics.  

 

The low birth rate  

 

Fukushima.

 

The system for them is awash in debt, even with free money they can't originate organic growth

That's because the girls don't want to have babies  and now with fukushima, the influx of cash is ended

for the near future and the damages will be measured in the trillions.

 

If they scratched hard for 10 years, they could do something instead they are kicking the can down the road.

 

 

Sat, 08/16/2014 - 15:48 | 5102796 Leraconteur
Leraconteur's picture

The system for them is awash in debt

 

 

Not so much awash in debt as consuming all surplus cash. The debt is issued by the JCB and nearly all of the savings and retirement of everyone in Japan is dutifully recycled into the JCB bond market. All they are doing is consuming every last Yen to keep the ponzi elevated, but time's up and the decline in living standards will gain speed from here forward as the nation moves into a net consumer/retiree mode.

Sat, 08/16/2014 - 16:23 | 5102870 ShrNfr
ShrNfr's picture

Just wait till that happens in China. Right now, they have calls on a lot of time and effort from other folks like the US. When the one child policy starts to bite, they will need to get that capital returned. Not likely to happen because the rest of the world ex Africa, India, and a couple more places are totally broke with shrinking populations unable to repay their debt.

Sat, 08/16/2014 - 23:35 | 5103889 TeethVillage88s
TeethVillage88s's picture

Hey Larry Kudlow;

The problem with you Political Shills is you hide political history or US History and the Influence of Money & Foreign Countries.

Larry, to you it is just Left & Right, but you are a Veil on the USA. You hide our history in all your work of which you are no doubt making big profits.

Do you actually think one Politician or Lawyer is any different from another? Sure maybe you can name 6-10 you think are honest. You suck. How many Congressmen do we have?

Money has bought the USA. Lobbying is the base of Corruption and actually the driving force in US Legislation, Tax Abatements, Corporate Subsidies, and the Inflation of the US Federal Budget Each Year as all established entities need more money to justify their higher executive compensation each year.

Dip Shit.

Inflation is rampant in the Federal Budget. It is Exponential. What you don't think exponential private executive salary increase is Inflation? Don't think Ball Player compensation increasing exponentially is Inflation?

Are you an Idiot?

If you look for increased spending anywhere it is there. Federal salaries, Federal Contracts, Federal Contract prices, Welfare, Medical Costs, Medicare, Medicaid, Social Security... Food Stamps.

Pull your head out of your Ideological Butt!

What $17.6 Trillion is the fault of a new president? Idiot.
What $1 Trillion a year in DoD and Security Funding is normal?
What $1 Trillion in MEDICARE/MEDICAID is affordable and sustainable and normal?

Larry, just shut down your show. You obviously are an Ideologue and out of Touch with your anus as well as your own navel.

Sat, 08/16/2014 - 15:40 | 5102787 patb
patb's picture

Japan has several issues,  the large operating deficit

some 40% of the  budget is borrowed,  and that almost matches the

percentage of budget used to finance the debt.

 

The fact japan no longer runs a current account surplus.

 

The aging demographics.  

 

The low birth rate  

 

Fukushima.

 

The system for them is awash in debt, even with free money they can't originate organic growth

That's because the girls don't want to have babies  and now with fukushima, the influx of cash is ended

for the near future and the damages will be measured in the trillions.

 

If they scratched hard for 10 years, they could do something instead they are kicking the can down the road.

 

 

Sun, 08/17/2014 - 04:18 | 5104401 tvdog
tvdog's picture

If the deficit is equal to annual debt service, then couldn't Japan write off its debt, theoretically, and have a balanced budget?

Sat, 08/16/2014 - 15:43 | 5102791 Jack of All Trades
Jack of All Trades's picture

Mr. Yellen is going to be Time Magazine's Man of the Year just like Bernank was . . .

While we are doing exact same things Japan did I'm sure it will turn out differently here. . .

 

Sat, 08/16/2014 - 15:56 | 5102800 diogeneslaertius
diogeneslaertius's picture

the slow burn of lost decades and humans grown to love their servitude and receive their consciousness through a tube: IS THE WEAPON SYSTEM

negative birth-rate is the target of Keynesian distortionism  #Eugenics

Sat, 08/16/2014 - 15:54 | 5102810 diogeneslaertius
diogeneslaertius's picture

Ag, Au, and Pb

LONG LIVE THE REPUBLIC

This ancient war may yet be winnable, even now as the sky darkens and the post-human borg beehive knocking on the door with a $4Q derivatives deathstar and an army of drones. We could run the gauntlet and try to get a photon torpedo down the small thermal exhaust port just below the main port, but the HFT ion cannon arrays have too much Vol.

The Rebel Alliance is thankfully nearing completion on an organic computing artilect which is based on several D-Wave nodes and seed algorithms derived from the analects of Andrew Jackson. We got this bitch, All In.

Sat, 08/16/2014 - 16:00 | 5102821 besnook
besnook's picture

there are several key issues missing from this article but it is essentially right. japan embarked upon this keynesian acid trip at the behest of the usa to enable the usa to drop a coupla hits of microdot itself.

the quadrillion yen coin is being designed as we speak. DO NOT MAKE THE MISTAKE OF THINKING JAPAN WILL COMMIT SEPPUKU FOR THE USA! china is the key to their economy now. japan is just seeking an appropriate passive aggressive japanezy way of dumping the usa. the independent military is the first step. the yuan/yen exchange agreement and other regional currency swaps is another.

 

as far as demographics, the japanese are fucked for a time but if they can get through the next 30 years they will be a very, very wealthy country on a per capita basis. they will be the first mature post industrial economy effectively living off the dividends overseas assets.

 

and another thing. jfk pioneered supply side economics with his reformation of the income tax structure in 1961.

Sat, 08/16/2014 - 16:25 | 5102875 buzzsaw99
buzzsaw99's picture

japan quit the mercantilist thing, now they are doing the financialization thing. their future does not rise and fall with the value of the yen or even the amount of yen-debt the gubbermint issues, but rather with their ability to accumulate foreign currency and assets through market manipulation. They, like so many others, will see their fortunes rise and fall with the value of the usd and usd denominated assets. the japanese maggots couldn't give a shit less about the yen imo.

Sat, 08/16/2014 - 16:34 | 5102898 Seasmoke
Seasmoke's picture

Abe will eventually fall on his sword.

Sat, 08/16/2014 - 16:39 | 5102906 kowalli
kowalli's picture

No one care about Abe, Japan go down with Him

Sun, 08/17/2014 - 02:03 | 5104242 doctorZH
doctorZH's picture

Japan won't go quietly. There will be a war with China.

 

Does anyone really think that Japan has NOT been led by our FED down this primrosed path of QE/ZIRP spend, spend, spend?  We've been teaching them; and we've been following them.

Sat, 08/16/2014 - 17:38 | 5103025 goldhedge
goldhedge's picture

Calling a Mr. Harry Keery

 

Sat, 08/16/2014 - 17:47 | 5103052 Eyeroller
Eyeroller's picture

Japan needs a dose of ebola to get rid of those retirees.

Sat, 08/16/2014 - 17:52 | 5103063 GreatUncle
GreatUncle's picture

Just a fleeting thought ...

If so many other nations are slowly falling into the same pit why not use Japan as a test bed to see what happens? I mean if it goes bust is anybody going to care?

Sat, 08/16/2014 - 17:58 | 5103080 q99x2
q99x2's picture

Jump banker jump. Come on you can do it.

Sat, 08/16/2014 - 18:03 | 5103093 JohnFrodo
JohnFrodo's picture

Economists today fill a similar role that the high priest did for the Incas.

Sun, 08/17/2014 - 01:29 | 5104188 Bemused Observer
Bemused Observer's picture

Incas or Aztecs? Because I'm feeling like their economy wants to rip my heart out and toss me down the temple steps.

Not cool, economists!

Sat, 08/16/2014 - 18:08 | 5103106 JohnFrodo
JohnFrodo's picture

Smart kids in Kindergaten would recognize Japan is a backed up sewer. Economic problems aside.  Fukushima abides.  The masters of reality can create a reality distortion field that last decades and even the hardest bumps do not fracture it. However, ongoing Nulear meltdowns take a daily toll on the sheilds, and when the sheild fail, boom boom boom out go the lights.

Sat, 08/16/2014 - 18:09 | 5103110 slightlyskeptical
slightlyskeptical's picture

Through it all and the yen is still stronger relative to the US Dollar than it was in 1989.

Sun, 08/17/2014 - 01:21 | 5104164 ACasey
ACasey's picture

The US dollar is a bankrupt, debt based monetary system that is dragging down all foreign economies that still trade in the useless US debt currency.  A strong Yen depends on breaking away from the US dollar otherwise comparison becomes two bankrupt currencies racing for last place.

Sun, 08/17/2014 - 11:39 | 5104978 RaceToTheBottom
RaceToTheBottom's picture

In a race to the bottom, you have to admit that all currencies are on the same plane and the plane is going down in flames. First class and economy: they all die.

Sat, 08/16/2014 - 18:13 | 5103123 NoWayJose
NoWayJose's picture

Japan has the same problem that the US has - and fortunately Japan seems to be running just ahead of us. Like the US its economy grew rapidly decades ago based on building things 'Made in Japan'. These things competed well against the US and other countries on either price or quality. In the boom times asset prices rose and promises flowed from politicians. Then the global economy arrived and Japanese companies could borrow cheaply at home and build factories outside of Japan. Great profits for Japanese companies but fewer jobs in Japan. Now Japan has to issue more and more debt to try to maintain the status quo - whereas the only hope they had for recovery was to deflate assets and promises to a globally competitive level - and to AVOID more debt. Now the choice is not 'if' Japan collapses - but 'when'.

Sat, 08/16/2014 - 18:48 | 5103228 D-Fens
D-Fens's picture

Have any of you even been to Japan, or looked at it on a map?  Japan consists of a small string of islands, and the habitable land is a smaller percentage of that.

That has forced them to build upwards and that process has reached a limit.  People in Japan are well off but most of them live in crowded conditions.

Japan has grown as far as it can go.  Now with Fukushima they probably can't have kids even if they wanted to, which they don't.

Some sort of default or hyperinflation is inevitable and you are mistaken if you think this won't spill over.

Sat, 08/16/2014 - 18:55 | 5103253 goldhedge
goldhedge's picture

SOLUTION IS WAR!

 

Sat, 08/16/2014 - 22:03 | 5103643 Izznogood
Izznogood's picture

It is a huge weakness to use charts that have different start and end dates ... No decent analyst works like that

1980 - 2018

1982 - 1989

1986 - 1989

1981- 1992

1980 - 1990

1976 - 2006

1985 - 2011

1980 - 2012

Sun, 08/17/2014 - 01:15 | 5104152 ACasey
ACasey's picture

Several posts reference Fukushima.  The lack of a 100 year plan for Fukushima leaves economic expectations and plans gone with the wind; a dream; a Yume.

 Japan needs to get real and begin making economic decisions by Japanese for Japan and not bend to the will of allied western nations otherwise Japan's future will be just a Yume.

Sun, 08/17/2014 - 04:26 | 5104402 Pretorian
Pretorian's picture

This text gets 5 star and the author clearly demonstrate total misunderstanding how debt in local currency is created and why.

 

Sun, 08/17/2014 - 04:25 | 5104405 tvdog
tvdog's picture

The solution in Japan is the same as globally - jubilee.

Sun, 08/17/2014 - 13:08 | 5105255 hooligan2009
hooligan2009's picture

developed economies have yet to enact the last stage of the "great experiment".

that step is...an exchange of letters between the central bank and the treasury/exchequer/ministry of finance that says

"let's cancel your assets and my debts"

the central bank monetary experiment can be boiled down to "will we get away with issuing zero coupon perpetual bank notes rather than coupon paying and maturing government bonds".

the answer is "it makes no difference which form of promissory note you issue, the market will engineer the note to what it wants and the experiment is a control test and not actually an experiment at all"

just saying

Sun, 08/17/2014 - 16:13 | 5105912 NaiLib
NaiLib's picture

And .... Lagarde almost peed in her pants of joy when she listened to ABE at Davos.......

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