This page has been archived and commenting is disabled.

Japan’s Last Stand - Portent Of Keynesian Collapse

Tyler Durden's picture




 

Abenomics 'hope' and 'reality' explained by Diapason Commodities' Sean Corrigan - do you believe in miracles? After last night's Japanese GDP print, hope is all that is left (dripping with sarcasm)

So, if the BOJ can just move prices up for long enough, people will start to demand higher wages while companies will gladly accede, since they will be able to count on the Bank printing enough new money for them to meet the extra expense. As such higher wages are spent, this will mean that both the employers’ sales and, miraculously, their profits will increase to the extent that they will soon be jostling to hire more of these nominally costlier workers.

 

Somehow or other, in one of those Deep Purple, ‘I want everything louder than everything else’ moments, wages will outstrip prices (so avoiding a disastrous fall in real incomes) yet payrolls will rise alongside wages since profits will outpace the gain in the outlay on labour.

 

Moreover – and here we get to the crux of the issue - though all this new cash is being generated by monetizing vast, ongoing government deficits, the debt stock will rise more slowly than prices, so postponing, if not indeed averting, the nation’s long feared budgetary implosion as it is painlessly inflated away.

 

Oh - and there will be no first-user Cantillon inequities, no unintended consequences, no spill over to other countries, no undue enrichment or undeserved immiseration of any member of the domestic populace along the way.

Truly Kuroda-san is a mage of the highest order!

As Corrigan continues...

Sadly, however, the government’s own figures show that real wages have been falling ever since the start of 2012 and now lie more than 7% below the pre-Crash level and 12% beneath the mid-90s peak.

 

Hours worked, too, are struggling to stabilize at levels less than 1% above the Crisis lows, 4% below the previous high and fully one sixth below their Bubble best.

As for profits, well the Tokyo Shoko Research institute revealed that the rise in costs principally associated with the weaker yen had led to a 140% jump in recorded bankruptcies of SMEs, 40% of those being (unsurprisingly) in the transportation industry, and around 20% in each of manufacturing and wholesale.

Meanwhile, the Nikkei news reported that, among their bigger brethren, life was not entirely a bed of roses, either.

While overall group profits were up 10% yoy (if only in depreciated yen terms) for the 1,106 listed companies that had filed reports for the fiscal first half. However, closer inspection shows that just one of these – Softbank, luxuriating in its participation in the gangbuster Alibaba IPO – was alone responsible for more than a quarter of the Y1.34 trillion increment, while the next nine most profitable – mostly the giant export concerns, of course, accounted for another 55% of the improvement. That left a paltry Y240 billion uptick to be shared out among 1,096 others for an average gain of Y219 million or $1.9 million at current exchange rates.

 

Is it any wonder there is no real improvement in well being or that Kuroda came within a whisker of being the only governor in BOJ history to lose such a vote last month when he bounced his colleagues with his intention to double down?

One could be cynical here. It may well be that the regime has a bare plurality of arrows – and Abe may even stop one of those (the one which carries the sales tax hike) in mid-flight - but it is also clear that it has decidedly only one string to its bow. Thus, the suspiciously-timed complement to this exhibition of monetary monomania came in the form of the long-awaited shake up of the giant GPIF pension allocation.

Conveniently, this redistribution will both ensure a ready supply of JGBs for the Bank to rake in and temporarily enrich local shareholders and ESOP executives as the equity market receives the proceeds, all the while keeping downward pressure on the Yen .

...

As our good friend Jim Walker asked, just when did Central Bankers become world media superstars and when - here we paraphrase – when do we get to put them back in their box? We could not agree more. Strutting the world stage, flitting from press conference to rubber chicken dinner, dispensing what passes for wisdom and prognosis as if the court astrologers have toppled the mighty Nebuchadnezzar and now rule in his place. Whatever happened to discreetly overseeing the balance of payments and facelessly staunching the worst panics only when absolutely necessary? The Committee that Saved the World, indeed!

Partly one could argue that their emergence into the limelight is a reflection of Generation Twitter's carefully cultivated hunger for comic-book plots and spandex-clad superheroes to protect us poor sheep from terrors beyond our limited ken - though I am doing the writers of much of the genre a disservice by comparing their often multilayered work to the crude, Statist narratives peddled mindlessly by the mainstream Western press.

Partly, too, it's symptomatic of the general drift to reliance on one-eyed, one-size-fits-all policy making, replete with gross unconstitutionality and Full Spectrum Führerprinzip of which our friend in the Kremlin so rightly accuses his American adversaries. Think QE instead of the cluster bomb as the weapon of choice.

*  *  *
But we leave it to Michael Pento (author of the book "The Coming Bond Market Collapse") via Pento Portfolio Securities to explain why Japan's Last Stand is the portent for Keynesian Collapse...

There is a popular American military term called a “last stand”, which is meant to describe a situation where a combat force attempts to hold a defensive position in the face of overwhelming odds. The defensive force usually sustains very heavy casualties or is completely destroyed, as happened at Custer’s Last Stand. General Custer, misreading his enemy’s size and ability, fought his final and fatal battle of Little Bighorn; leading to complete annihilation of both himself and his troops.

 

The Japanese government is now partaking in a truly incredulous measure to expand its QE program in a desperate attempt to de-value its currency and re-inflate asset bubbles around the world.  In other words, Japan is constructing its own version of a “last stand”.

 

In a final attempt to grow the economy and increase inflation, Japan announced a plan to escalate its QE pace to $700 billion per year. In addition to this, Japan’s state pension fund (the GPIF), intends to dump massive amounts of Japanese government bonds (JCB’s) and to double its investment in domestic and international stocks. All this in a foolish attempt to increase inflation, which Japan mistakenly believes will spur on economic growth. But these failed policies have now caused Japan to enter into an official recession once again, as GDP fell 1.6% in Q3 after falling 7.1% in the previous quarter.

 

Japan is now guaranteed to be successful in the total destruction of its currency, the complete destruction of its economy and the collapse of the markets it is attempting to manipulate around the world. To fully understand its misguided reasoning, we have to explore how Japan got here in the first place.

 

Coming out of WW II, Japan enjoyed a three-decade period referred to as its “Economic Miracle”.  This “miracle” was instigated by a booming post-war export economy helped by prudent fiscal policies, which was meant to encourage household savings. Japan’s standard of living soared among the highest in the world.  Japan sailed into the 1980’s on the wave of robust economic growth.

 

However, if we have learned one thing after all these years, it’s Government’s insatiable need to meddle with the free market, even when they don’t need to.  Accordingly, the 1985 Plaza Accord was sought to weaken the U.S. dollar and German Deutsche Mark against the yen.

 

The Bank of Japan, in an attempt to offset the rising yen, drastically reduced interest rates. The BOJ’s loose monetary policy in the mid-to-late 1980s led to aggressive speculation in domestic stocks and real estate, pushing the prices of these assets to astonishing levels. From 1985 to 1989, Japan’s Nikkei stock index tripled to 39,000 and accounted for more than one third of the world’s stock market capitalization.

 

By the late 1980s, Japan had transitioned from a “miracle” economy to its infamous bubble economy, in which stock and real estate prices soared to stratospheric heights driven by a speculative mania. Japan’s Nikkei stock market hit an all-time high in 1989, then crashed, leading to a severe financial crisis and long period of economic stagnation that Japan is still entrenched in. It has now become known as Japan’s “Lost Decades.”

 

Shortly after the bubble burst, Japan embarked on a series of stimulus packages totaling more than $100 trillion yen–leaving an economy that was once built on savings to eventually be saddled with a debt to GDP ratio that now exceeds 240%–the highest in the industrialized world.

 

Making matters worse, the BOJ has more recently engaged in an enormous campaign to completely vanquish deflation, despite the fact that the money supply has been in a steady uptrend for decades. At the end of 2012, we were introduced to Abenomics, which is Premier Shinzo Abe’s plan to put government spending and central-bank money printing on steroids. His strategy is crushing real household incomes (down 6%) and caused GDP to contract 7.1% in Q2.

 

With the rumored delay of its sales tax, Japan is clearly making no legitimate attempt to pay down its onerous debt levels. Therefore, one has to assume this huge addition to their QE is an attempt to reduce debt through devaluation and achieve growth by creating asset bubbles larger than the ones previously responsible for Japan’s multiple lost decades. This will not return Japan back to the days of its “economic miracle”, where the economy grew on a foundation of savings, investment and production.

*  *  *

As Pento concludes,

The sad reality is that Japan is quickly surpassing the bubble economy achieved during the late 1980’s. Its equity and bond markets have become more disconnected from reality than at any other time in its history. The nation now faces a complete collapse of the yen and all assets denominated in that currency.

 

This is clearly Japan’s last stand and there is no real exit strategy except to explicitly default on its debt. But an economic collapse and a sovereign debt default on the world’s third largest economy will contain massive economic ramifications on a global scale. Japan should be the first nation to face such a collapse. Unfortunately; China, Europe and the U.S. will also soon face the consequences that arise when a nation’s insolvent condition is coupled with the complete abrogation of free markets by government intervention.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Tue, 11/18/2014 - 13:17 | 5461588 Notsobadwlad
Notsobadwlad's picture

They are not media stars. Nobody cares about them.

They are known by less people than know that the 9/11 was an inside job.

Tue, 11/18/2014 - 13:25 | 5461602 Divided States ...
Divided States of America's picture

The japs wont need to get salary raises IF they keep getting free gift cards that goes up in yen-value....of course, every year, the nominal yen amount of the gift card must go up by an extra 0 or two at the end of it.

Tue, 11/18/2014 - 13:48 | 5461741 MeMadMax
MeMadMax's picture

The jap gov'ment should just commit harakiri and get it over with lol

Tue, 11/18/2014 - 15:29 | 5462067 mjcOH1
mjcOH1's picture

"This is clearly Japan’s last stand and there is no real exit strategy except to explicitly default on its debt. But an economic collapse and a sovereign debt default on the world’s third largest economy will contain massive economic ramifications on a global scale."

Won't happen.   They'll go full Weimar/retard.   Trillion yen sugar water machines are on the horizon.

Tue, 11/18/2014 - 13:27 | 5461642 chubbar
chubbar's picture

I doubt anyone this close to the printing press eats rubbery chicken dinners.

Tue, 11/18/2014 - 16:46 | 5462326 mjcOH1
mjcOH1's picture

Baby Pâté, baby!

Tue, 11/18/2014 - 13:19 | 5461599 IronShield
IronShield's picture

Most of these lightweights, and they permeate many positions of 'power', don't stand a chance on their own.

The weeding shall commence shortly.

Tue, 11/18/2014 - 13:21 | 5461608 KnuckleDragger-X
KnuckleDragger-X's picture

Japan is doing an excellent imitation of General Custer riding to the Little Bighorn and with about the same end result....

Tue, 11/18/2014 - 13:22 | 5461611 NoWayJose
NoWayJose's picture

While Japan surrendered at the end of WWII due to the effects of the atomic bombs, it is clear that the followers of Keynes will be far more destructive than the atomic bombs!

Tue, 11/18/2014 - 14:21 | 5461871 headhunt
headhunt's picture

Communism is the most destructive force in the world followed closely by socialism, a Keynesian foundation.

Tue, 11/18/2014 - 13:23 | 5461618 youngman
youngman's picture

Pretty soon 80% of the people will be working for the Government..and the other 20% trying to figure out how to....its good to work for the one who prints the money....you dont have to make a payroll or a pension..you just print it...and if your solar panel electric generating plant is a bust...you just print more money to keep it going...no failures..just free money

Tue, 11/18/2014 - 13:23 | 5461619 ebworthen
ebworthen's picture

Those Samurai swords will soon have a more useful purpose than hanging on a wall or a pedestal.

Take the guillotines out of storage, and set aside some good timber for the construction of gallows.

Tue, 11/18/2014 - 16:50 | 5462344 mjcOH1
mjcOH1's picture

"Those Samurai swords will soon have a more useful purpose than hanging on a wall or a pedestal."

 

Those tentacle porn-comics and Hello Kitty hats will soon have a more useful purpose than....well....yeah....what they're now and will be used for.....

Tue, 11/18/2014 - 13:25 | 5461622 NoWayJose
NoWayJose's picture

Bless Japan - by going full speed over the Keynesian Cliff, it may happen fast enough for the US to - if not stop - then at least put on the brakes and delay a similar fate.

Tue, 11/18/2014 - 13:34 | 5461675 i_call_you_my_base
i_call_you_my_base's picture

No, what will happen is that the US will go fuller-retard in response to it.

Tue, 11/18/2014 - 13:25 | 5461625 chubbar
chubbar's picture

So, it's all good! Right?

Tue, 11/18/2014 - 13:27 | 5461630 Squid Viscous
Squid Viscous's picture

who cares about Japan, Apple is up another 7 billion -  at this rate, in a few months they can buy Japan

Tue, 11/18/2014 - 13:45 | 5461728 Kprime
Kprime's picture

I thot google bought japan last year.  is it for sale again?

It's a beautiful glow in the dark island.

Tue, 11/18/2014 - 13:27 | 5461636 BandGap
BandGap's picture

Yowza.

Kyle Bass, thank you.

First part of the train that went over the cliff years ago is about to decellerate very rapidly.

Tue, 11/18/2014 - 13:33 | 5461651 F0ster
F0ster's picture

HERE'S A GENIUS KEYNESIAN IDEA to help ABE and Kuroda generate inflation. They should go full helicopter and mandate NEGATIVE MORTGAGE RATES. In other words pay down the interest of everyone's mortgages.

Yellen should do this too in the US :)

Jesus, I should be a Central Banker!!

Tue, 11/18/2014 - 13:42 | 5461718 Kprime
Kprime's picture

excellent ideas.  Are you black?  You could be a shoo in.  do you live in detroit and is your water still on?  you may be the next president.

Tue, 11/18/2014 - 14:19 | 5461865 Bryan
Bryan's picture

+1 for spelling it "shoo".

Tue, 11/18/2014 - 17:58 | 5462642 mjcOH1
mjcOH1's picture

"do you live in detroit and is your water still on?  you may be the next president."

 

".....you'se may be the nex' pres'dent'   Yo ma bitchez!"

 

http://en.wikipedia.org/wiki/Jive_filter

"Jive, also known as the Jive Filter, is a novelty computer program that converts plain English to a comic dialect known as "jive", a parody of African American Vernacular English. Some versions of the filter were adapted to parody other forms of English speech, such as valspeak, cockney, geordie, Pig Latin, and even the Swedish Chef. The latter form is sometimes known as the "Encheferator" or "Encheferizer". This family of programs became quite popular in the late 1980s....."

Tue, 11/18/2014 - 13:28 | 5461656 Bell's 2 hearted
Bell's 2 hearted's picture

 people will start to demand higher wages while companies will gladly accede, since they will be able to count on the Bank printing enough new money for them to meet the extra expense. 

 

who wrote this dreck?

 

this is nothing but some textbook gobblygook.

 

 Firms protect their bottom line with a vengeance.  Before "acceding" they'll automate/outsource/offshore

Tue, 11/18/2014 - 13:33 | 5461667 Sudden Debt
Sudden Debt's picture

The same guy that wrote: OBAMA WILL PAY YOUR BILLS!!

How did that turn out...

Oh! AND ANOTHER GOOD ONE!
Debtforgiveness for all the commoners who don't contribute millions to the presidents cookie jar...

BWAHAHAHAHAAAHAHAHAHAHA!!

I bet it's those guys from south park!

Tue, 11/18/2014 - 14:16 | 5461856 headhunt
headhunt's picture

Keynesian wrote that

Tue, 11/18/2014 - 13:29 | 5461660 Sudden Debt
Sudden Debt's picture

I HAVE A IDEA!!!

Why doesn't the fed buy japanese debt and let in return the japanese print money to buy more american debt!!

AND TATA!!!

The world is saved again!

Remember... Nobody... And I say nbody may or can default.
It's like the mob, nobody gets out of the club alive

Tue, 11/18/2014 - 13:30 | 5461661 basho
basho's picture

kuroda or fukushima

not much of a choice.

hari kari

tick-tock

Tue, 11/18/2014 - 13:33 | 5461669 Bell's 2 hearted
Bell's 2 hearted's picture

"Japan is now guaranteed to be successful in the total destruction of its currency"

maybe

 

i fully expect some/all of asian tigers to respond (devalue their currency) ... and will kuroda be able to counter respond ... when vote last time 5 - 4??

Tue, 11/18/2014 - 13:36 | 5461692 Kamath
Kamath's picture

Well, they still use oil, don't they...?

Tue, 11/18/2014 - 13:36 | 5461689 madcows
madcows's picture

couldn't all this be avoided by just making the yen the same as the yuan, or the rupee or whatever.  Really.  This is just a decades long decent from way overpriced currency to where it is balanced against the currencies of the producers.  It's where the dollar is headed, too.

Tue, 11/18/2014 - 13:50 | 5461753 Kprime
Kprime's picture

power up the exponential factor machine, drop in some plutonium and it's back to the future XII

Tue, 11/18/2014 - 13:56 | 5461771 exartizo
exartizo's picture

Japan is so far down the rabbit hole they've cut themselves off from any sense of economic reality.

Japan is The Economic Domino that will topple the whole Central Banking House Of Cards.

Tue, 11/18/2014 - 19:14 | 5462893 Bogdog
Bogdog's picture

Wait, I thought that was supposed to be Cyprus....

uh Italy.....

uh Spain....

I give up.

Tue, 11/18/2014 - 13:56 | 5461786 overmedicatedun...
overmedicatedundersexed's picture

the end was always a jubilee (debt is forgiven)..holders of real assets will survive, banks and holders of debt not so much. here in usa the FED will be filled to the gills with debt bonds of all types, then they go BK and there will be no confiscation of assets, cause nobody can pay the debt - what the world looks like after is where we on ZH should be looking..hemmm tylers. there is but one solution.default.

Tue, 11/18/2014 - 13:56 | 5461787 Jack Burton
Jack Burton's picture

Japan's role as number 3 world economy mean that if it folds in a fiscal collapse, it would by nature of it's size and basis for so much carry trade, collapse many international banks, and investment houses. It truely would be epic. Who would be left standing after a Japan collapse. I think I know one nation who might sit by and laugh as trading postions across the globe unwind in a day and centrl banks are forces to rescue any number of major money center banks and Investment Houses. Russia. They migh be a big winner, as the West takes a huge hit in the neck. They are not immune, but do have a very stong immune system to western banker collapses.

Tue, 11/18/2014 - 14:15 | 5461851 headhunt
headhunt's picture

China would laugh harder.

Russia would not survive the collapse of Japan.

Tue, 11/18/2014 - 14:42 | 5461947 highly debtful
highly debtful's picture

"Who would be left standing after a Japan collapse."

Well, I guess it'll be a bit like Nancy Pelosi's take on Obamacare (and I'll paraphrase a bit here): "we'll have to pass it to see what happens." One thing's for sure: it won't be too pleasant for most of us.

Not sure about Russia though. I wouldn't go as far as assuming they would come out as a big winner. My money would be on very local, very basic economic structures. Or really tiny islands in the middle of the Pacific.

 

Tue, 11/18/2014 - 20:37 | 5463132 Tompooz
Tompooz's picture

They are not immune, but do have a very stong immune system to western banker collapses."

Same goes for Iran. The benefit of years of sanctions.

 

Tue, 11/18/2014 - 13:58 | 5461791 yogibear
yogibear's picture

The Federal Reserve's grand QE, printfest is failing. When the US Fed's grand QEn fails the collapse will be spectacular. 

QE9 for Japan.

QE 4 for the US.

Current US deficit is $17.934 trillion.

US deficit soon $18 trillion and climbing. Hitting $18 trillion by years end?

Acceleration to $25 trillion.

 

Tue, 11/18/2014 - 14:07 | 5461826 skbull44
skbull44's picture

Bug, meet windshield.

http://olduvai.ca

Tue, 11/18/2014 - 14:18 | 5461860 Bam_Man
Bam_Man's picture

"Central Bankers as Media Superstars"

Politics is called "Show business for ugly people" for a reason.

Tue, 11/18/2014 - 14:19 | 5461864 limacon
Tue, 11/18/2014 - 14:31 | 5461868 tarabel
tarabel's picture

 

 

Okay, so what are the possibilities?

1) The Japanese are crazy. Their plan is not going to work and there will be nothing but penniless old people picking through the smoking rubble when they are finished. On the face of it, this appears to be a reasonable summation of their activity to date.

2) The Japanese are not crazy. They are aware that demographic trends, debt ratios, falling trade and a host of other factors point to their approaching ruin. Given that their planners support the hypothesis of imminent collapse assuming nothing changes, a bold stroke offers two potential benefits over the current trajectory of descent. The first benefit is that it might actually work-- not a high percentage option but one in a thousand is better than the zero option they are looking at. The second benefit is that the plan does not work but that it takes China, Korea, and everybody else down with the ship. This puts Japan back on an equal level with her rivals rather than putting herself in the toilet while everyone else stays in the penthouse and divvies up the lost Japanese share of world trade. In some respects, this can actually elevate Japan's relative position.

Given the options available, their decision to climb Mount Niitaka once again is not partcularly surprising. Just as Germany emerged from the Weimar collapse with no debts, so too can Japan inflict ruin on its rivals even as it plunders its old people's life savings and eliminates its unsustainable debt burden. Despite the human misery, the country could well emerge as a very strong and debt burden-free player on a national basis.

Tue, 11/18/2014 - 19:08 | 5462881 Bogdog
Bogdog's picture

So it's a race to the bottom and whomever gets there first, wins. Gonna be a helluva ride.

Just keep at least a leaky lid on Fukoshima while you're at it.

Tue, 11/18/2014 - 19:19 | 5462921 armageddon addahere
armageddon addahere's picture

Germany did not emerge from Weimar collapse with no debt. Much of their debt was owed to foreigners, and denominated in hard currency. Reparations were not affected, in fact reparations were in the form of commodities or gold, not Weimar paper.

Reparations causing inflation? Just how do you cause inflation by taking money OUT OF an economy?

Tue, 11/18/2014 - 14:25 | 5461881 MalteseFalcon
MalteseFalcon's picture

When Japan falters, the ECB takes over.  This game will be going for some time, yet. 

As for Japan, if Japan goes under, it will be denied.  If Fukushima can be denied, anything can.

Tue, 11/18/2014 - 14:39 | 5461929 eyesofpelosi
eyesofpelosi's picture

BONZAI!!!!!!

Tue, 11/18/2014 - 14:41 | 5461940 Fix-ItSilly
Fix-ItSilly's picture

The Custer analogy is presented wrong and is actually a better fit than explained.  Custer, as are Central Bankers, was on offense, not defense.  Blinded by hubris, Custer initiated the fight against an overwhelming opponent on their turf.

Tue, 11/18/2014 - 14:48 | 5461968 ShrNfr
ShrNfr's picture

This argument has always impressed me as saying that if I eat my arm, I will gain weight.

Tue, 11/18/2014 - 15:02 | 5462005 Nue
Nue's picture
I think this quote sums up all the problems with Central Banks across the globe "You Can avoid Reality, but you cannot avoid the consequences of avoiding reality." - Ayn Rand
Wed, 11/19/2014 - 00:49 | 5464064 Livermore Legend
Livermore Legend's picture

One of My Favorites......

Well Put...

Tue, 11/18/2014 - 16:14 | 5462214 cart00ner
cart00ner's picture

And yet at this moment they lead the charge on the stock exchange - WTF?

Wed, 11/19/2014 - 00:25 | 5463993 rex-lacrymarum
rex-lacrymarum's picture

Rising stock prices are not an indicator of economic health. If that were the case, Venezuela would have the strongest economy in the world.

Do NOT follow this link or you will be banned from the site!