The World Is Turning Japanese

Tyler Durden's picture

Nearly a year ago, Bank of Japan governor Haruhiko Kuroda described the unlikely inspiration behind Japan’s unprecedented monetary stimulus: Peter Pan.

I trust that many of you are familiar with the story of Peter Pan, in which it says, ‘the moment you doubt whether you can fly, you cease forever to be able to do it’. Yes, what we need is a positive attitude and conviction. Indeed, each time central banks have been confronted with a wide range of problems, they have overcome the problems by conceiving new solutions.

As VisualCapitalist's Jeff Desjardins notes, Kuroda’s optimism is desperately needed in a country that has now been officially “leapfrogged” by the four Asian Tigers in terms of Real GDP per capita (PPP). With over a decade of experimentation in extreme monetary policy under their belts, Japan has very little to show for it.

It would be fine if this story of economic malaise could be confined as a global outlier. However, recent circumstances have prodded the world’s central bankers to finally buy into the tale of Peter Pan.

The world is turning Japanese.

 

Courtesy of: Visual Capitalist

 

So Much Negativity

Negative interest rates were an economic pipe dream many decades ago, but the idea of “charging” interest to hold money is now becoming mainstream. Conventional wisdom was that depositors would just hoard cash rather than depositing at a cost, but now the people running central banks are beginning to believe that this fear is misplaced. Especially as society becomes more cashless, the inconvenience of withdrawing money to save a few bucks isn’t worth it.

Central banks in Switzerland, Sweden, Denmark, and Japan now all have negative interest rates. The ECB has also held their Deposit Facility Rate for overnight deposits in the negative since June 2014.

In recent weeks, the interest in this economic experiment has risen significantly. Sweden cut their rates deeper into negative territory, signalling to the rest of the world that there is nothing to fear. Meanwhile, both the Federal Reserve and the Bank of Canada have openly pondered the possibility of NIRP in their respective jurisdictions.

Misplaced Conviction?

Not everyone agrees with the central bankers in seeing the Peter Pan analogy to be a fitting representation.

We’d liken it more to a squad of musketeers running out of gunpowder, and turning desperately to their bayonets to win a decision. It doesn’t matter how much conviction and optimism the crew has in their bayonet skills – at the end of the day, it’s only going to add a few extra minutes of life into the inevitable battle against a much more powerful deflationary force.

In other words, “hope” isn’t a strategy that central bankers can use to any efficacy, and wishful thinking can only go so far. The market seems to agree, and it’s part of the reason that stocks have sold off this year. Even the “safe haven” gold trade is back, after being absent for much of the previous year.

Many critique assets such as gold, which is up 15% year-to-date, because it does not pay a dividend or interest.

This may be true, but at least gold does not “charge” interest, as bankers across the world are beginning to ponder.

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scuttlebutt's picture

Full faith and credit. In gold we trust.

Soul Glow's picture

Funny how the main knock on gold was that it doesn't earn interest.  Now at least it doesn't lose it.

philipat's picture

And after years of ZIRP with declining real income, people are scared for their future and STILL will not spend but will same every possible cent. Especially recognising that SS and probably pensions are not going to be there. The Central Planners are totally disconnected from the reality of the ordinary people, understanding them only through their "Models" which are clearly broken. So what next, do the CB's continue this madness until they have NIRP'ed away everything?

NoPension's picture

Maybe I'm late to it. But, I clicked on a YouTube link provided here, by a commentator, and watched Sir James Goldsmith. Why have I not known of this man?
His interview by Charlie Rose in 1994 is absolutely phenomenal. Beyond words. His prophecy, of how Nafta and GATT would affect the word is unbelievable.
He called it. Spot on. It was if he went 25 years into the future, spent six months traveling the world, and went back to report.

I'm sorry I don't have the tech savvy to give a link. I'll work on it. It's easy to find.

Tinky's picture

Yes, you're late, but it doesn't matter. That interview was brilliant (well, his responses, not Rose).

I wish I could find a full transcript, as there is a two minute strtech towards the end of the first part that should be repeated again and again and again. And the clarity with which he made his points was exceptional.

Here is a good portion:

"You go and you create a corporation in China. And you build a factory in China. And what do you want to sell, mugs? You sell mugs in China. And you conquer part of the Chinese market by competing fair and square in China. That’s life. That’s adding to the activity of China. You’re a corporate citizen over there, you’re working over there.

But if you move a factory from the States and take that to China, not so as to conquer the Chinese market but so as to re-import the goods into the States, so as to get cheap labor, what are you doing? What you are doing is you are saying to your employees here, ‘You’re too expensive, folks. You want money. You want protection. You want unions. You want holidays. Forget it! We can employ 47 people over there (for each one of you) who want nothing.'

So, don’t confuse 2 issues. One is going out to participate in their growing economies by building there and conquering part of the market. The other is merely killing off employment in your own country, getting rid of your own labor force – transferring it over there and importing it back – purely so as to increase your profit margins.

Now, the average company has about 25% of it’s costs in labor costs, including the social costs, the welfare costs around it, 25%. When you move – 25% of volume, that is – you, all of a sudden, can save over 20%, so your profits go leaping up. But you’re destroying – totally destroying – not only the number of people who’ve got jobs but also their salaries.

Now, you realize that salaries in the States – earnings, weekly earnings, hourly earnings over the last 20 years – have already dropped about 19% in real dollars. It’s already been a massive decline and that is why the so called recovery – which is a recovery of economic indexes – hasn’t got the feel good factor because people’s salaries have gone down. They’re gonna go down much more. It’s only beginning and the reason is very straightforward.

When you manufacture something, anything – this table – you have a value added. The value added is when you take the raw materials and you manufacture a product. Value you add is known as value added. And that is shared between capital and labor. And the whole division – the sharing of that – has been the subject of massive debates for generations. How much should go to capital? How much should go to labor? You’ve had strikes, you’ve had lockouts, you’ve had political debates.

All of a sudden, by creating a global marketplace for labor, by creating circumstances where people are making the same product with the same technology for the same capital and the only variant is cost of labor, you are shattering that – shattering the way you share the value added and that means that you are destroying the basis on which we’ve been able to create an equilibrium and have a stable society."

[Rose asks another question]

"I am entirely for free enterprise. I am for free markets. I’m not for the destruction of one’s society.

The economy is there to serve the fundamental needs of society, which are prosperity, which are stability, and which are contentment. That is the basis of my thinking. And what I’m saying at this stage is that if, purely for an economic doctrine, you have a situation whereby the economy grows but you create poverty, unemployment, and you destabilize the society, you’re in trouble.

Look what’s happened in the last 50 years. You see, people are not willing to look at fundamentals. When I was a boy we were taught that irreversibly we were moving towards progress. That material wealth, material prosperity would solve our problems, would improve our way of life, and improve our civilization. We were taught that. And we achieved the creation of material prosperity in a way which we would never have dreamt of. We made the economy grow 400%. Incredible! And what have we done? We destabilized our society. We’ve increased unemployment massively. We’ve totally destabilized our cities. We’ve uprooted our countryside. We’ve increased crime. Every single viable criteria for a stable society has become negative. Therefore, something must be wrong. And what has become wrong is that instead of the economy being there to serve us, we are there adoring, serving economic indices.”

 

Also, here's a transcript of his testimony at a Senate hearing soon before (1994):

http://www.alanwattsentientsentinel.eu/english/transcripts/Alan_Watt_Blu...

philipat's picture

Yes, very prescient. And, in many ways, he was not a nice man (An "Asset Stripper" as it was called in those days, now more euphamistically referred to as a "Private Equity Investor"). But this was before the days that "Group think" took control and the corruption set in. He had the intelligence to recognise that by outsourcing all those jobs, not only are you destroying society but you are also, ultimately, destroying your own best and most secure market. But, of course, the prevailing view now is that "In the longer-term we are all dead". So maximise the profits and bonuses now because it's someone else's problem tomorrow and I will be long gone. Very sad. And Goldsmith was DEFINIETELY a long way from being a "Socialist".

new game's picture

and this, my friend, is the one and only reason i could be pryed off this chair to vote trumty dump.

thanks for that...

philipat's picture

Trumpty dump or Humpty Dumpty. Great choice eh? Only in America.....

thestarl's picture

Right on,you don't even have to be a market person to understand the end game here as when you've decimated the western middle class growth is gone.

theprofromdover's picture

Sir James Goldsmith was a very interesting man, and very wealthy, almost all self-made.

He was half French and half English. He was never Establishment.

They called him an asset-stripper, but he was actually old-school 'throw out the dead wood' from sleepy companies type of guy.

Predicted the 1987 crash and sold all his business assets, giving him a yuge cash pile to re-enter the market at the right time.

He saw even more major trouble coming down the road and built a self-sustaining ecological estate on Mexico's Pacific coast to drop out if teowaki happened.

He became a European MP, and formed a new party to fight EU central, unelected domination. He was fighting for a federated europe of sovereign states, not a single, bureaucratic, super-state.

He then stood for UK Parliament before he got cancer, trying to wake up the 'insouciant' Brits and get a referendum on what the people wanted.

The Press and Media tried to humiliate him and push him off the stage, but in a few short months, they managed to syphon off nearly a million votes off the old parties in UK general election.

He died at 64 from pancreatic cancer in 1997, one of his sons is currently standing for the post of Mayor of London.

 

Buckaroo Banzai's picture

I'm pretty sure the Vapors didn't have this in mind when they wrote the song.

https://www.youtube.com/watch?v=mgekmOqCFTU

insanelysane's picture

Not that there is anything wrong with that.

ebworthen's picture

Someone had to do it.  Thanks for manning the Mizzenmast B.B.

Love the old Nikkormat in that video; ahh film...when you had to think before clicking the shutter.

Kprime's picture

now it earns back negative interest, which is a positive.  a negative multiplied by a negative is a positive. two wrongs do make a right.

Pool Shark's picture

 

 

C'mon everybody! Clap!!!... Clap!!!... Clap!!!

We have to save NIRP!!!

 

[WE are ALL Japan now. Cash, Bonds, Gold...]

 

Soul Glow's picture

Gold bears like to point at how gold vs the dollar has dropped over the last few years but fail to realize for the other 6 billion people in the world not living inside the US it has increased steadily as all other currences in the world have dropped.

BigDuke6's picture

Correct

My stack valued in AUD has been steady in the last 5 years - while my tiny holding of shares did similiar.

Since the USD rise my gold has climbed steadily and is now almost at an aussie record.

Its of little matter - when you see it AS A STORE OF VALUE - it is for keeping.

new game's picture

true dat-went to my bank and put a loan on a paid for late model car(2012 camry le) and bought 10 oz of gold. i didn't have extra jing laying around if you can relate. now i make a payment for the 10 oz of gold at 1.99 percent fiat. so now i feel as though my car is going up in value. am i nucky futs or what? responses welcome...

Soul Glow's picture

A lot of comments on ZH say how the economy will continue to muddle along because it happened to Japan.  Well I have news for you, Japan didn't hold the reserve currency.  In fact it had the carry trade which made their stock market vulnerable to swings.  

Also, Japanese equity is down more than 50% from its high.  So if you think the US is going down the path then get read for at least DJ 9k.  At least.

Mr. Universe's picture

Japan has far bigger problems on the horizon.

45% of Japanese women aged 16-24 are ‘not interested in or despise sexual contact’. More than a quarter of men feel the same way. Japan's under-40s appear to be losing interest in conventional relationships. Millions aren't even dating, and increasing numbers can't be bothered with sex. For their government, "celibacy syndrome" is part of a looming national catastrophe. Japan already has one of the world's lowest birth rates. Its population of 126 million, which has been shrinking for the past decade, is projected to plunge a further one-third by 2060.

Japan just might sieze up altogether every man hooked up to his cyber porn. Lenore says they should try a "real woman" like her.

http://www.theguardian.com/world/2013/oct/20/young-people-japan-stopped-...

 

Soul Glow's picture

Jaded.  Japan has been sexually explicit for years so I'm not surprised that the younger generation just doesn't give a fuck.  

BigDuke6's picture

So what?

Robots will take 40% of jobs over the next 30 years.

They will have a lower number , homogenous united population that isnt hooked on jew porn.

Move away from the bankers eternal growth paradigm and you will see japan and asia as a whole is going ok.

europe - with their amazing fast breeding muslim demographics and horde of young male refugees who think of nothing other than sex in any orifice with anything breathing - are the ones in trouble

cpgone's picture

Robots will take 40% of jobs over the next 30 years."

Try 5 to 10 years.

Its here

MSimon's picture

So Chinese porn for Japan? Or perhaps Thai?

cpgone's picture

So JApan will import male workers.

ZZZZ

new game's picture

darwin would approve of this message, so fucking what, so the island become void of japs, i'm sure another human will inhabit the island eventualy. i would prefer some news with meat on it...

Kprime's picture

SOOOO, in conclusion, negative interest rates cause erectile dysfunction.

To Infinity And Beyond's picture

more like erectile dys-IDon'tGiveAFuck

Oldballplayer's picture

As I sit here pondering my tax life, I wonder if the Fed would be taxed on their interest income from NIRP?

hooligan2009's picture

it pays all its profits to Obama so he can spend it on weak form efficient communism (i guess sauders is strong form inefficient communism?)

in the last 6 years the Fed has paid around $600 billion back to the Treasury ($100 billion a year).

now if yu follow that argument, you will likely get dizzy with the circular logic

why the hell doesnt it just print 100 billion in bank notes and take it in suitaces and deliver to the Treasury...would be about as much use

new game's picture

true dat, but that is one hellof a lot of money to divy up within the private corp. anyone see the problem here? quit the exclusive club. no need to ever worry about money and the pursuit of from labor(time). but man o man what kind of a life would that be? stoogee, fake, phoney fucks. that is the real price for fake money. so therefore they can fuck themselves into the weakest gene pool and die of deformation of body soul and mind.

Baronneke's picture

Experiment (qe1-qeinfinity) after experiment (neg. interest rates) failed so far.  Maybe, just maybe, it's time to let the markets sort it all out, just like they did in the good old days. 

In the meantime, we ould fry the criminal banksters and feed them to the Hyenas. (sort eats sort)

 


Sanity Bear's picture

Appropriate, given what "turning Japanese" is a euphemism for.

Goldilocks's picture

The dumbest journalist ever says gold is backed by nothing
http://www.youtube.com/watch?v=BiXIs3bbETA (0:47)

scuttlebutt's picture

Who said journalists are smart? Most just read the script.

Kprime's picture

yes but they give it inflection.  with the right inflection anything is believable. 

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hooligan2009's picture

pop quiz - in what chosen career can you set your own unaccountable rules, screw up for 8 years (ex Japan G7) and for 25 years (Japan) and get paid for doing nothing - double O, triple O, fuck all blank

 

 

 

 

 

ok, it was easy "central bankers" who have somehow been allowed to do whatever it takes to impoverish the rest of us without any of us having any say to vote them collectively out of office for the jumped up snake oil merchants they have turned out to be since the likes of bernanke, kuroda and draghi became their "public images"

Yen Cross's picture

    If you look at those daily candles?

  Gold went shooting star, then scissored, on Thursday and Friday. It could be a doji bearish setup. One more daily candle, and I'll figure it out.

    Gold is a really good trade, at lower levels. I mentioned the $1142.00 area last week.

  Let's see how China opens tomorrow afternoon.?  It's ANOTHER [FSA} Holiday in the States.

Kprime's picture

I don't think you are eating your veggies.

- - - - - -'s picture
- - - - - - (not verified) Feb 13, 2016 10:06 PM

what about a rate of -5 or -6 percent?

hooligan2009's picture

exactly why not -20%, then deposits could be wiped out entriely in 5 years.. wonder what we can use to store, measure and employ capital after that?

 

does it also mean that people want to delay getting paid for goods and services, just in case their free cahs flow is positive and they start losing money also?

- - - - - -'s picture
- - - - - - (not verified) hooligan2009 Feb 13, 2016 11:15 PM

and this is the major reason for ban on cash   - no one will be saved

Insurrexion's picture

 

 

Let's see if fucking Kuruda can fly like Peter Pan out of the Mitsubishi Bank Tower.

 

ThroxxOfVron's picture

A can of Red Bull and a kick in the pants...

Yen Cross's picture

  Tyler has Kuroda and Abe nailed down... Those images of flying KAMPO'syen coming out of their mouths, are priceless.