Japan's Broken Economy - 25 Years Of Failed "Stimulus" & "Temporary Illusions"

Tyler Durden's picture

Submitted by Jeffrey Snider via Alhambra Investment Partners,

So thoroughly destroyed is Japan’s economy that some of the numbers it produces are beyond comprehension, just staggering in any meaningful context. For example, Japan’s real GDP (SAAR) for Q1 2016 was ¥530 trillion (chained 2005). That compared to ¥447 trillion in Q1 1994. Over two decades and two additional years the Japanese economy has grown by a grand total of 18.5%. On straight arithmetic alone it doesn’t work out to 1% per year let alone on a compounded basis.

Since the first quarter of 2001, meaning fifteen years, real GDP “advanced” 10.4% total. Clearly the Japanese economy as bad as it was has slowed from even that revolting baseline. We don’t have to venture far or try too hard to guess when this new “slowing” occurred: since the first quarter of 2008, Japanese GDP thanks to Q1’s positive number is now the slightest amount more than eight years ago (¥530.01 trillion now vs. ¥529.63 trillion, or +0.1%). As everywhere else around the world, the Great Recession was not only a global event, it “somehow” broke the global economy in chillingly uniform fashion.

ABOOK May 2016 Japan GDP Trajectory GDP

There is something quite sinister contained within this review, particularly since I haven’t presented the Japanese economy much of any baseline at all. It is fashionable especially of late to believe this is all some trick of slowing demographics and therefore all “stimulus” is to some degree helpless in the face of Japan’s determined self-extinction. There is some truth to the charge, which is the same of any good lie, but it doesn’t amount to a 1% baseline. Capitalism is not strictly population; in fact, that is the true hidden genius and value of capitalism as it creates productive, sustained societal gain well above any demographic shifts. At 1% and less over nearly a quarter century we can safely assume there has been no capitalism practiced in Japan during that time.

For sake of further (and more damning) argument, let’s just assume that the aging population is actually to blame for Japan’s 1% unevenness. That still leaves the final slowing, the right hand side of the chart above where even 1% is now a dream and a seemingly unattainable goal. Retirement and aging didn’t suddenly amplify in 2008 and 2009.

ABOOK May 2016 Japan GDP Trajectory QE Drags

Given the history of intervention and “stimulus”, and more so when it occurs and really re-occurs, any impartial observer would be forgiven if they believed that QE’s were actually constant impediments to growth (a negative multiplier in the parlance of the orthodoxy). The proliferation of “stimulus” after the GR correlates only with this downshift in the Japanese economy that cannot be due to demographics. At best, QE’s have accomplished nothing at all positive, leaving no trace of something actually being stimulated for all the sustained “stimulus”; at worst, QE is the cause of Japan’s further nightmarish descent.

There is an easy case to be made against quantitative easing – starting with the distinct inability of the Bank of Japan (or any central bank inflicting it upon whatever economic system) to get the quantity “right.” If it is supposed to be a precisely-determined amount of precisely-measured “stimulus” then having to do it over and over and over invalidates at least the “Q” if not the “E” too. In Japan, the damage from QE is a little easier to observe than in other places, but as anywhere else it is households/consumers that bear the brunt of these unfortunate distortions that amount to little other than PR stunts (no matter how poorly QE’s perform, the media dutifully and reflexively continues to call it all “stimulus”).

ABOOK May 2016 Japan GDP Trajectory HH

Household spending in Japan has underperformed even overall GDP during these lost decades – not even managing steady 1%. After the rift in 2008 and 2009, HH’s further underperformed like overall GDP though had managed to get close to the pre-crisis trajectory. That was before QQE devastated even that likeness of recovery. Monetarists have claimed that somebody has to lose in these kinds of redistribution schemes, and the elevated quantity of QQE makes clear who that was.

These losers are only supposed to be on the short end for a short while until the stimulated recovery brings the economy roaring back so that they are paid in full for their forced “contributions.” Yet, as is clear of overall GDP, QQE, as the numerous QE’s before it, has been all cost with no recovery at all; in fact, as noted above, the Japanese economy is worse off now than it was before. The massive scale of QQE intrusion and the violent, negative reaction to it in household spending shows the true nature of all QE no longer entangled in other economic factors; the purest distillation of cause and effect. 

What we find, then, of Japan is the combination of factors that are evident almost everywhere else around the world post-Great Recession. Monetary “stimulus” is asking consumers and households to bear the burdens of that “stimulus” in order that the full recovery will take place – except as we find elsewhere, the post-GR environment has already proven that the recovery will never take place. Central banks are thus placing greater burdens upon their people for an outcome that simply can’t happen. I think that easily amounts to “stimulus” that adds only more negative factors to a global economy with already a huge burden.  

The reason for it is straight forward owing to a fallacy about the GR itself. It was never a cyclical event, nor was it the cause of this split in the economy – all economies for that matter. The Great Recession was instead a revelation of the true global economic state that existed for a long time before it. Growth and prosperity, even in Japan where GDP actually accelerated for the briefest of moments near to the 1.25% “upper bound” (a very sad commentary on Japan where just 0.25% more in GDP compounding amounts to a different world entirely) was never more than a temporary illusion.

All the world’s “stimulus” has not been able to budge it since the paper economy of the precrisis evaporated into the credit default swaps of AIG, and the collateral shortage that never has replaced the uniformity of MBS repo; like Humpty Dumpty, all Bernanke’s horses and all Kuroda’s men haven’t been able to put together the one unifying factor from Japan to the United States, from Europe to China. It’s as if there was something else all along that took every monetarism that every central bank offered anywhere it was offered and swallowed it whole without leaving the slightest economic trace, only further and further slowing. What can possibly be bigger than all the world’s QE’s and “stimulus” combined?

ABOOK Apr 2016 Econ Baselines GDP Dark Leverage Supply

ABOOK May 2016 Europe GDP Nominal Baseline

ABOOK May 2016 China Trade Paradigm Shift

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yogibear's picture

Japan is the Federal Reserve's Keynesian Zombie.

TeamDepends's picture

Fukushima propel economy in most unfortunate direction, not kick-ass Shonen Knife trajectory Honest Abe hoping for.

O C Sure's picture

Failure for whom?

Intentional havoc is not a failure to some.

santafe's picture

Failure for the People.
Good for the Money Junkies.


philipat's picture

And their advisor, Krugman, still believes it is because they just haven't done enough stimulus. What does it take to kill pseudo-Keynsian economics once and for all?

animalogic's picture

Yes, quite right. QE was never intended to stimulate the economy. It WAS intended to save criminal banks and grossly fatten the wallets of those in the FIRE sector.

Indeed, I wish people would cease referring to QE as a "stimulus": quite the opposite, it was designed to suppress economic activity to make any genuine increase in interest rates, let alone any increases in employment and wages a virtual impossibility....yes, indeed, QE has been a fabulous success....for the1%....

1980XLS's picture

Bush's fault. Seriously this time. ("Black Rain")

25 yrs to the day.




brada1013567's picture

Who cares, Yen is a great financing curency.

philipat's picture

Until it collapses back to 250...

Davilis's picture

Sorry, but you can't have 25 years of "failure" and still have a standard of living that many other countries aspire to. The facts in evidence simply don't match this story line.

nibiru's picture

yes their standard of living is declining. Also compare Japan companies and see their decline! Also this is Japan but case in Austrian bank may have been the test-study of this soft landing. While doing this (they already can learn from Japan and the 3 decades decay there) everyone will be fleeced through inflation. The aim: to make everyone in the Deep State get through this storm with dry feet. http://independenttrader.org/another-bank-files-for-bankruptcy.html


jewish_master's picture

japan in the plug in the sinkhole of global monetry dollar ponzy scheme. their standart of life is being supported by the masters - that why they can get away with 250 debt to gdp ratio, and greece cannot.

japan is a buyer of US bonds, also hedge funds use it to carry trade low interst rates to invest in the west and have a risk free earnings. the price is total destrction of thier socaity and slow death.

philipat's picture

Um, actually Japan does, unlike Greece, still produce a whole range of industrial products that the global consumer still wants to buy, from cars to machine tools. Their problem is, of course the Zombie Banks and attendent Monetary policy designed entirely to prop up the Banks. Complicated by the cross-holdings under the Zaibatsu system. Reform in Japan (Abe's third arrow) is impossible. Combine that with a declining population and a cultural inability to "Dilute" Japnese culture via immigration and the results are what you see. Economic growth is a factor of two things and ONLY two things: Population growth and productivity growth. And with the issues decribed above, both of these are impossible in Japan.

O C Sure's picture

The easiest case to be made against QE is simply to ask, "is theft right or wrong?"

gregga777's picture

The true target of central banks QE, QQE, Operation Twist and/or stimulus in general are not on GDP, they are not supposed to make households better off, whether poor or middle class. The true reason for QE, QQE, Operation Twist and stimulus in general are to make the rich richer, everyone else be damned. That can be seen by plotting the wealth of the rich or their share of income versus everyone else and showing when each stimulus started. The central bankers uniformly lie about why they embark on these stimulus programs. The stimulus programs are ALL about making the rich richer at the expense of everyone else. And the central bank's are very, very good at making the rich richer.

bada boom's picture

The Nikkei is up 300 pts right now. I don't think they care.

stant's picture

They need to bring back the Honda 754, the Datsun pickup , and the 240z .

Kina's picture

25 years of Krugmanomics

deimos178's picture

At least we know what we have to look forward to. 25 + years, dammit at 59 that makes me 84 when these fucking retards might admit they could have been wrong. 

MEFOBILLS's picture

Since the BOJ unleashed the property bubble in the mid 80's, Japan morphed from a "credit window" economy to one driven by private bank hypothecations.

These private emissions of bank credit beginning in the 80's (capital) were directed at property, and pushed their price.  If memory serves, Japan was priced at more than North America.

In other words, Japan post WW2 was an industrial economy, modeled on the one used by Kaiser Wilhelm.  The same Japanese leaders who implemented credit windows had tested their economic theories in Manchuria - successfully.

One could say the WW2 was about Industrial Capitalism vs Finance Capitalism.

Japan's Mancurhian railroaders brought this knowledge with them and entered MITI, and secrety ran Japan using credit guidance windows until BOJ (in concert with IMF) ran their property bubble gambit. The money masters within the IMF knew that a property bubble would change Japan's society, and shows the money power in action.

ONe cannot fix a problem unless it is identified.  The author Jeffrey Snider did not mention what actually happened to Japan, nor did he mention the private debts that built up, nor did he mention how high property prices make an economy inefficient. 

See the movie Princes of Yen to fully understand Japan's dynamic.  


It's 1.5 hours long, but at least when you read people like Jeffrey, you will be able to understand where they go off the rails.  Their narrative has little to do with reality.

QE is the swapping of debt instruments for central bank keyboard money. It unprints debt instruments.  If debt instruments are considered as near money, then the overalll composition of money supply was the only thing that changed.

QE channels money into reserve loops of banks, and hence it buys TBILLS  (unprinting them), thus holding TBILL price high, and interest rate low.

The main transmission then is "new debt" from the future due to low interest rates.  

It should be abundantly clear now, that QE is not direct stimulus.  Making more future debt to pay off past debt is just kicking the can down the road.


MEFOBILLS's picture

When the FED swaps keyboard money at one of the private banks, said keyboard money goes into reserves and gets "stuck."  Dollars in reserve loops now get interest.  Open Market Operations are to control interest rates - or the price of money.

By paying interest on money, then that prevents a rate collapse to zero.  Banks used to hold TBills in reserves because it paid interest, but QE "unprinted" those TBills.

Any other country using reserve type banking, who engage in QE, must also fear rate collapses below zero.

But, people already in debt are not going to take out more debt even if rates are low.

High debt loads mean that peoples output vector away from them, and toward "creditors."  In this case, the creditors are bankers.

Since people have high debt loads, their output cannot flow in a circular pattern and hence they cannot buy equally from other producers.  People cannot evenly trade their output, because finance capital parasite is sucking up life energy.

carneades_jazz_hands's picture

Hey Japan!  How do you like Bernanke-san now?                     Dumbfucks!

He was foisted on us, but you chose him.  And even after his policies failed, you chose to double down on stupid by picking another banker that emulate him even more...and you paid Bernanke to fuck you up too! 

That's the mark of a good con, the saps even want to pay.

Bernanke... Thought he knew everything, didn't know anything, except how to steal for his masters.

Japan,want to grow your economy? Get rid of the Central Bank and their Banker owners.  They're a huge tax on the productuers.  Little old Iceland showed the way, how you doin' compared to them?


DaveA's picture

Never has one chart so clearly shown the cause of a nation's demographic demise:


Though the property bubble did much to prevent young adults from marrying and starting families, Japanese in previous centuries had plenty of children in even more cramped accommodations.

GeoffreyT's picture

This story represents yet more total fucking economic ignorance given a forum on ZeroHedge: I've been around this place since 6 months after it launched, and the standard has taken a really sharp lurch downwards in the last 18 months.

This is just the latest in innumerate dumb-cuntery about Japan. I hold no brief for the BoJ or the government (or any government, anywhere, ever - the highest alternative use for all politicians is to use them as fertiliser).

But here's the thing... to the extent that government has a justifiable job, it is to manage the government sector in such a way as to enable to private sector to generate increasing per capita consumption.

A possible defensible second-order role is to put in place redistributive policies that reduce the Gini coefficient.

And guess what? To 3 decimal places, Japan's per capital consumption growth over the last 20 years is the same as the US - and their Gini coefficient is lower, and rising at a lower rate, than the US.

What's worse (for the US) is that the primary contributor to Japan's rising Gini coefficient is the growth in the number of retiree households (because retirees always have lower disposable income than non-retirees with a similar age-education profile).

By contrast, the rising Gini coefficient in the US is entirely driven by increasing capture of additional productivity by an extremely narrow plutocracy/oligarchy.

And of course Japanese household balance sheets are in much better shape than the US household balance sheets.

In fact, since the 1980s the BoJ has done less liquidity injection overall than the Fed, and the Japanese government's accumulated deficits are lower as a proportion of GDP than the US' - especially when you account for both using GAAP style accrual methods. That's because the BoJ has only recently started targeting asset prices, whereas the Fed has been doing so since 1987.

r3phl0x's picture

QE was never really supposed to boost GDP or personal income, happiness, etc. It was supposed to raise valuations in The Most Favored Asset Classes: equities, bonds and housing - rewarding those who were able to frontrun it. And in that sense QE worked perfectly.

jewish_master's picture

1 boost economy by innovation ad imporvemnt in effeciny of production. u cant have these when the oligarchy is sucking the life blood of the middle class who are the innovators. countless entp. are stuck in dead end jobs to finance increasing rents instead on focusing on inventing the new google. steve jobs used to sleep on his friend couch. this enviroment creeats people who aviod risk becuase if u fail the price is too hugh - and progress involves  risky ventures. in essence the rich dump all the risk on the poor.