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After Abenomics Failed In Japan, It Is About To Be Tried In Europe

Tyler Durden's picture




 

After two years of Abenomics, Japan officially admitted it has entered a triple-dip recession. While people with a modicum of common sense warned this would happen long ago, it actually came as a surprise to traditionally trained economists: after all, a country whose economy collapsed under piecemeal episodes of "Abenomics" over the past three decades was supposed to, if only for those trained in the Keynesian school, promptly recover (even though its fundamental problem is not economic but demographic) when that which had failed for so long was applied in one shock episode.

It didn't work.

So now that Abenomics has officially failed in Japan (but will remain in place until Abe is ouster, either voluntarily as the local population has had enough of Japan's record inflation imports) what comes next? It is about to be tried in Europe of course, that other place where 5 years of unconventional monetary policy has masked the complete fiscal collapse and lack of reform of its member states, and as a result, nothing has improved except for a transitory bounce in stock prices, which recently hit record highs benefiting the 1% if only for a short period, with the hangover now is settling in and Germany's DAX back to a 1 year low.

Here is the WSJ's take on the double down "shift" taking place in Europe:

Some commentators, such as New York University’s Nouriel Roubini, have likened Mr. Draghi’s plan to Japan’s Abenomics—named for Japanese Prime Minister Shinzo Abe. This 2012 plan to spark inflation and drag Japan out of a long economic malaise had three “arrows”: a big monetary stimulus, fiscal “flexibility” and supply-side reforms.

 

Some officials in Brussels say there is a bargain along these lines being developed that will take shape after a new European Commission executive takes office in November.

 

It would combine four elements: a deeper commitment to supply-side reforms from France and Italy, the eurozone’s current problem children; more public investment from Germany, both at home and in Europe; and a public-investment plan whose outline has been described by commission president-elect Jean-Claude Juncker.

 

According to these officials, the more governments deliver on this deal, the further Mr. Draghi will be willing to go to support the economy by expanding the ECB’s balance sheet.

One can hardly wait for Draghi to intone in his Italian accent: "the three arrows will hit their target, whatever it takes." B

But there is a problem: Abenomics has failed in Japan.

Yet, if there is one thing that unites past initiatives to spur European growth it is that they have all underwhelmed. Is there any reason to think a version of Abenomics can work here?

 

Russell Jones of Llewellyn Consulting, a London-based consultancy, said there are indeed some parallels between Mr. Draghi’s outlined plan and Abenomics. “The problem is that Abenomics isn’t working very well,” he said.

 

While there has been some evidence of fiscal flexibility in Japan, there has been little progress in promised structural reform, he said.

There is another problem: "The Bank of Japan is taking on roughly $2 billion every working day in new assets to keep the plan afloat." As is well-known by now, in Europe there is an epic scarcity of unencumbered assets, something covered here back in 2012.

It is the inability of the ECB to freely inject reserves into the system in exchange for purchasing some asset, that has been the biggest stumbling block for the ECB ever since Mario came to power, and why Europe's primary and largely only form of intervention to date has been a verbal one.

Still, despite the structural limitations of a European QE, it may still be tried regardless:

The eurozone program would start, by contrast, after a period of contraction in the ECB’s balance sheet since 2012—suggesting monetary policy may have constrained growth in the last two years. Economists like Mr. Jones predict that the ECB will have difficulty expanding its balance sheet even to the levels that prevailed in 2012.

 

On fiscal policy, most budget cuts have already been made. But there isn’t that much scope for more fiscal flexibility in the eurozone. Many senior officials in the Brussels-based commission, along with quite a few eurozone governments, are unsympathetic to French and Italian requests to further relax budget rules.

 

Many observers are skeptical that any German boost to public investment will amount to much, while most of the Juncker plan remains unelaborated.

 

Officials say they are exploring a number of innovations to galvanize EU investment, including using more guarantees in the EU’s own budget, increasing the capital governments pay in to the European Investment Bank and even using the eurozone bailout fund, the European Stability Mechanism.

 

The latter is a long shot. But even if all of these ideas come together and overcome inevitable political opposition, it would be lucky to reach the more than €300 billion ($380 billion), to be invested over several years, that’s being talked of.

 

Abenomics, European-style, thus faces different obstacles to its Japanese counterpart.

Of course, the most important issue that is not being discussed by the WSJ, or economists anywhere for that matter, is that Abenomics, whether in Japan or Europe, is merely applying more of the same policies that resulted in a worldwide financial crisis in the first palce.

What should happen, is what we have advocated from the start: a fresh start liquidation of the massive debt overhang. That, however, will not happen in the current system as a global debt restructuring would also wipe out the equity tranche, those trillions of the legacy "uber-wealth" class.

Which means there are just two options for the world's (central) bankers: hyperinflation, i.e. helicopter money, and war. Both are getting closer with every passing day.

 

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Fri, 10/10/2014 - 10:28 | 5313987 Chupacabra-322
Chupacabra-322's picture

What business model. Explode everything.

Fri, 10/10/2014 - 10:43 | 5314064 SheepDog-One
SheepDog-One's picture

What's the difference between money printing and 'Abenomics'? All the same shit and everyone has been doing it all-out for years now.

Fri, 10/10/2014 - 11:24 | 5314260 HardlyZero
HardlyZero's picture

Doctors of Economics doing childish origami.   But folding fiat does not increase its value !

They should teach the doctors about the monetary triangle: Unit of Account (U), Store of Wealth (W), medium of exchange (M).

http://foolishperspective.blogspot.com/2012_01_01_archive.html

Get physical (backed) currency.

Fri, 10/10/2014 - 10:29 | 5313989 unrulian
unrulian's picture

If at first you succeed..buy buy again

Fri, 10/10/2014 - 10:30 | 5313990 huggy_in_london
huggy_in_london's picture

Yeah apparently art cashin knows more about the german economy than germans do.  

Just because the US wanted to trash itsself with QE doesnt make it right for others.  

Fri, 10/10/2014 - 13:03 | 5314769 KnuckleDragger-X
KnuckleDragger-X's picture

Well if anything will drive the German's out of the Euro this will be it though they'll likely have to shitcan Merkel to do it.

Fri, 10/10/2014 - 10:30 | 5313993 ekm1
ekm1's picture

There will NOT be abenomics in Europe

Japan is one solid country.

 

EU is one boiling soup with different ethnicities

 

NOT GONNA HAPPEN

Fri, 10/10/2014 - 10:36 | 5314025 centerline
centerline's picture

There is no common debt.  I simply dont see how this would be done in the EU.

Rather, EU will go belly up first.  What happens after that is the question.

Fri, 10/10/2014 - 10:46 | 5314080 LULZBank
LULZBank's picture

Just maybe that it is all not so innocent ignorance and hubris that they knowingly follow such failed policies...

... but for a more sinister reason to steal from the plebs and force them into servitude, poverty and debt on purpose.

... while paying the media and analysts to keep making up strawmen arguments, false dichotomy and goalseeked analysis to keep the sheeple confused and distracted?

I mean... just maybe...

Fri, 10/10/2014 - 11:25 | 5314269 HardlyZero
HardlyZero's picture

Balkanization, and re-arrangment of sugar daddy's and children countries.

Fri, 10/10/2014 - 10:45 | 5314070 localizer
localizer's picture

Exacctly! BUT some countries will suffer more than the others. If Germany enters into "abenomics" mode then EU is fcuked indeed.. 

Fri, 10/10/2014 - 10:55 | 5314117 SheepDog-One
SheepDog-One's picture

One thing that would completely floor me in all this is Germany announcing they're onboard the money printing express....in fact, I recall reading just last week how Germany said that is 1 option that's right off the table due to the history involved? This is all just jawboning.

Fri, 10/10/2014 - 11:42 | 5314330 TheSecondLaw
TheSecondLaw's picture

Yep. Europe prefers war.

Fri, 10/10/2014 - 13:05 | 5314777 KnuckleDragger-X
KnuckleDragger-X's picture

But they prefer it someplace else.....

Fri, 10/10/2014 - 10:33 | 5314000 ebworthen
ebworthen's picture

Draghi: 

"We can't let failure and common sense get in the way of robbing the public treasury!"

Fri, 10/10/2014 - 10:33 | 5314002 clade7
clade7's picture

Boy Corn sure flatlined on the Marketwatch futures!  They are giving the shit away!

Fri, 10/10/2014 - 10:33 | 5314009 q99x2
q99x2's picture

I like the idea of mailing me money.

Fri, 10/10/2014 - 10:40 | 5314051 Bell's 2 hearted
Bell's 2 hearted's picture

"I like the idea of mailing me money."

 

that would be considered a "helicopter drop"

 

but what EVERYONE fails to realize - that "drop" comes from legislatures ... not central banks.

 

Central Banks have no mechanism to "helicopter drop"

Fri, 10/10/2014 - 10:58 | 5314128 Stormtrooper
Stormtrooper's picture

Forget the funny money. Just send me gold bars.

Fri, 10/10/2014 - 11:53 | 5314406 rccalhoun
rccalhoun's picture

send me a side of beef

Fri, 10/10/2014 - 10:36 | 5314023 Bell's 2 hearted
Bell's 2 hearted's picture

a deeper commitment to supply-side reforms from France and Italy, the eurozone’s current problem children; 

 


haha

 

there will be no reforms ... just promises

 

get germany on board to "print" NOW ... then back out of promises later ... cat out of the bag

Fri, 10/10/2014 - 10:38 | 5314040 centerline
centerline's picture

Dont know about that.  But I would say that Germany is walking on a razor's edge.  If something big is going to happen, Germany will be at the epicenter.

Fri, 10/10/2014 - 10:45 | 5314071 Bell's 2 hearted
Bell's 2 hearted's picture

yep, Germany KEY to everything

 

i assume they have run simulations on worst case what happens with euro breakup or "print"

 

imo, either way Germany screwed big time ... just have to decide which brings less pain

Fri, 10/10/2014 - 10:55 | 5314110 ThirdWorldDude
ThirdWorldDude's picture

I think the pesky Germans have already made their decision. Remember this one:

http://www.zerohedge.com/contributed/germany-already-printing-money%E2%80%A6-deutsche-marks

Fri, 10/10/2014 - 11:11 | 5314201 centerline
centerline's picture

The need an "out."  Engineered if necessary. 

Fri, 10/10/2014 - 10:38 | 5314031 Bell's 2 hearted
Bell's 2 hearted's picture

more importing of DEFLATION for US

Fri, 10/10/2014 - 11:55 | 5314416 rccalhoun
rccalhoun's picture

lol.  i went from steak to roast.  then roast to hamburger.  now i cant afford meat.  deflation?  lol

Fri, 10/10/2014 - 13:08 | 5314798 KnuckleDragger-X
Fri, 10/10/2014 - 10:38 | 5314039 SheepDog-One
SheepDog-One's picture

The 'elites', actually asshats, are just trying to figure out some way to save their phony baloney power positions and keep their heads out of a noose.

Fri, 10/10/2014 - 12:50 | 5314705 livefreediefree
livefreediefree's picture

Let's hope they fail as miserably here as everyplace else.

Fri, 10/10/2014 - 10:42 | 5314046 yogibear
yogibear's picture

Hey Janet Yellen, William Dudley and Charles Evans,

You'll see Benanke's grand Keynesian printing experiment blow up in the Fed's face. Enjoy.

 

Fri, 10/10/2014 - 10:41 | 5314052 Pumpkin
Pumpkin's picture

Failed?  I don't think so.  What it is actually intended to do, it does quite well.

Fri, 10/10/2014 - 10:42 | 5314054 localizer
localizer's picture

Fcuk the EU!

Fri, 10/10/2014 - 10:44 | 5314060 22winmag
22winmag's picture

Traditionally-trained economists?

Trained to be professional liars like "climate experts" and just about anybody of note on Capitol Hill or in the Obola administration.

 

Fri, 10/10/2014 - 10:47 | 5314067 First There Is ...
First There Is A Mountain's picture

 

Some commentators, such as New York University’s Nouriel Roubini, have likened Mr. Draghi’s plan to Japan’s Abenomics—named for Japanese Prime Minister Shinzo Abe. This 2012 plan to spark inflation and drag Japan out of a long economic malaise had three “arrows”: a big monetary stimulus, fiscal “flexibility” and supply-side reforms.

 

Some officials in Brussels say there is a bargain along these lines being developed that will take shape after a new European Commission executive takes office in November.

 

It would combine four elements: a deeper commitment to supply-side reforms from France and Italy, the eurozone’s current problem children; more public investment from Germany, both at home and in Europe; and a public-investment plan whose outline has been described by commission president-elect Jean-Claude Juncker.

 

According to these officials, the more governments deliver on this deal, the further Mr. Draghi will be willing to go to support the economy by expanding the ECB’s balance sheet.

 

 

 

I.E. Print 1T Euros as I stated yesterday on several threads

Fri, 10/10/2014 - 10:49 | 5314084 SheepDog-One
SheepDog-One's picture

1 trillion euros? Pocket change to what's already flowed into the European banks from the Fed. Nothing's new or changed here at all.

Fri, 10/10/2014 - 10:51 | 5314076 SheepDog-One
SheepDog-One's picture

'Money printing' under various different names, there's nothing new here at all. Most of our FED QE 'Abenomics' flowed right to European banks already...same old shit, different names.

Fri, 10/10/2014 - 10:46 | 5314077 Spungo
Spungo's picture

This'll send gold to all time lows

Fri, 10/10/2014 - 10:51 | 5314093 Smegley Wanxalot
Smegley Wanxalot's picture

According to Krugman, aliens need to attack Japan and that will solve the economic problems.

Oh wait ... that already happened too.

Fri, 10/10/2014 - 11:16 | 5314225 centerline
centerline's picture

See, it solves numerous problems.  We can get off of this planet - solving the perpetual growth versus finite resources problem.  AND, we can get out there and piss off some aliens in order to have our perpetual war!

It's a win-win. 

Shit, ZH has already done the math on building a Death Star.  Outstanding economic benefits all around.  AND, AND the White House has already been warmed up to the idea.

(leaving the /S off because this actually makes more sense than anything else "terrestrial" being considered).

Fri, 10/10/2014 - 10:54 | 5314106 rsnoble
rsnoble's picture

Actually it does work.  It will keep the fucklords in power until there next solution.  Fucking parasites.

Fri, 10/10/2014 - 10:58 | 5314113 Spungo
Spungo's picture

Godzilla was a Keynesian creation.

 

also, this song is badass
https://www.youtube.com/watch?v=T65rW_SIzg0 

Fri, 10/10/2014 - 10:56 | 5314121 matinee55
matinee55's picture

obviously the bofj will have to buy every stock going & then buy / sell to itself to "make the market" - same shit that's going on here

Fri, 10/10/2014 - 11:03 | 5314154 sidiji
sidiji's picture

Nikkie stocks doubled under Abe's QE...does that mean Eurostoxx is up next?

Fri, 10/10/2014 - 11:07 | 5314175 SpanishGoop
SpanishGoop's picture

"...and a public-investment plan..."

Publics money cofiscation they mean.

 

Fri, 10/10/2014 - 11:25 | 5314267 BigStupid
BigStupid's picture

These people are nuts! In my day, whenever he ran into trouble, Mario would go get Yoshi and climb the bean-stock up to where all the gold is hiding. Isn't that a better plan than this farce?

Fri, 10/10/2014 - 11:29 | 5314283 bvrulez
bvrulez's picture

debt liquidation is not going to happen, because PEOPLE COMMENTING ON ZEROHEDGE dont want (their) wealth reduced. read your own comments.

Fri, 10/10/2014 - 11:38 | 5314306 Bunga Bunga
Bunga Bunga's picture

BoJ QE was too small, try bigger!

Fri, 10/10/2014 - 11:42 | 5314325 thunderchief
thunderchief's picture

These policies are not designed to help the Japanese or Europeans.

They are designed to destroy their currencies and support the dollar.

Fri, 10/10/2014 - 11:59 | 5314430 HamRove
HamRove's picture

Not to be an asshole or anything, but can we just fast forward all this.

Draghi tries and FAILS (as everyone in the world but Draghi knows will happen).....Then the people chase him down in the streets and leave him hanging by his balls in the middle of Belgium and then they post the pictures on FB.

I just don't think I have the stomach to wait out all this BS any more.  

Fri, 10/10/2014 - 14:29 | 5315218 Fuku Ben
Fuku Ben's picture

Abenomics has a greater mortality rate than Ebola

100% guaranteed

The IMF can bank on that

Fri, 10/10/2014 - 23:36 | 5317494 AdvancingTime
AdvancingTime's picture

 ECB President Mario Draghi's last move towards more QE is no more than stupidity on steroids, even words like misdirected and boneheaded do it a disservice. This is more proof that the Euro-zone is in big trouble, both the union and the flawed currency is again begging to crumble.

One is forced to wonder if Japan and the Yen will crash first considering how each day Japan slides closer to the economic abyss or whether the Euro will lead the way into the wastebasket. Draghi has helped the countries of Europe kick the can down the road but this only delays the failure on the Euro. More on how the Euro-zone has failed to make any real reforms in the article below.

http://brucewilds.blogspot.com/2014/09/euro-zone-and-draghi-both-mired-i...

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