This category focuses largely on matters pertaining to Japan

Japan – signs of growth but grey clouds remain

The Wall Street Journal reported late yesterday (May 20, 2015) that – Japan’s First-Quarter GDP Growth Is Fastest in a Year. This follows the release of the latest national accounts data from the Japanese Ministry of Finance. The WSJ was like many media commentators – quick to put the best spin on the data that they could. They converted the 0.6 per cent quarterly growth figure for March 2015 into a 2.4 per cent annualised figure and pronounced a consumer led recovery. The facts tell us a different story. The biggest contributor to growth in the March-quarter was unsold inventories. Whether this is a sign of lagging sales and overly confident producers, who won’t remain in that state for long, or expectations of strengthening consumer demand, remains to be seen. On the face of it, with real wages continuing to fall and consumer expectations weak, things may not be as rosy as the “2.4 per cent annualised growth” result would suggest.

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Japan returns to 1997 – idiocy rules!

The financial press was ‘surprised’ that Japan had slipped back into recession, which just tells you that their sources don’t know much about how monetary economies operate. Clearly they have had their heads buried in IMF literature, which tells everyone that cutting net public spending will boost growth because the private sector is scared of deficits. This prediction has never worked out in the way the theory claims. It is pure free market ideology with no empirical basis. The other problem is that cutting net public spending when private spending is weak also pushed up the deficit. Back in the real world, Japan believes the IMF myths, hikes sales taxes to reduce its fiscal deficit, and goes back into recession – night follows day, sales tax hikes moderate spending, and spending cuts undermine economic growth. Kindergarten stuff really. Eventually this cult of neo-liberal economics will disappear but in the meantime while all and sundry are partaking in the kool aid, millions will be losing their jobs, poverty rates will rise and the top 10 per cent in the income and wealth distributions will continue to steal ever more real income from the workers.

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Japan demonstrates the real limits on government spending

Last week, Reuters put out a story (October 30, 2014) – Special Report: Tsunami evacuees caught in $30 billion Japan money trap (thanks Scott Mc for the link) – which provides an excellent demonstration of the true limits of government spending in a currency-issuing nation. The underlying principles should be understood by all as part of their personal mission to expel all neo-liberal myths from their thinking and to help them see the nature of issues more clearly. Unfortunately, the application we will talk about is sad and has tragic human and environmental consequences, but that doesn’t reduce the relevance of the example for conceptual thinking. In a nutshell, the central Japanese government has transferred some $US50 billion worth of yen to the local government to combat the destruction caused by the tsunami in March 2011. Thirty billion is unspent despite people still living in temporary housing and suffering dramatic psychological trauma as a result. Why is this happening? Doesn’t Modern Monetary Theory (MMT) tell us that a currency-issuing government can spend what it likes? Well, not exactly. What MMT tells us is that a currency-issuing government can purchase whatever is for sale in its own currency and that propensity is limited by the availability of real resources. Here is a classic demonstration of the limits of government nominal spending.

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The myopia of neo-liberalism and the IMF is now evident to all

The IMF published its October – World Economic Outlook – yesterday (October 7, 2014) and the news isn’t good. And remember this is the IMF, which is prone to overestimating growth, especially in times of fiscal austerity. What we are now seeing in these publications is recognition that economies around the world have entered the next phase of the crisis, which undermines the capacity to grow as much as the actual current growth rate. The concept of ‘secular stagnation’ is now more frequently referred to in the context of the crisis. However, the neo-liberal bias towards the primacy of monetary policy over fiscal policy as the means to overcome massive spending shortages remains. Further, it is clear that nations are now reaping the longer-term damages of failing to restore high employment levels as the GFC ensued. The unwillingness to immediately redress the private spending collapse not only has caused massive income and job losses but is now working to ensure that the growth rates possible in the past are going to be more difficult to achieve in the future unless there is a major rethink of the way fiscal policy is used. The myopia of neo-liberalism is now being exposed for all its destructive qualities.

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Should we be concerned with a fall in the Nikkei?

Up until a while ago, it was the government bond market that was going to crash in Japan if the government didn’t do something serious about implementing fiscal austerity. The bond market is still very healthy and yields are very low around the world and in Japan negative on some government bonds and bills. With that scare campaign defeated by reality, the doomsayers are now moving into making predictions about equity markets. The latest is that the Nikkei is about to crash unless the Japanese government significantly tightens fiscal policy some more. Remember this is in the context of a 3 percentage points rise in the sales tax in April which left consumers flat and real GDP growth collapsed in the second-quarter as a result.

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Japan’s growth slows under tax hikes but the OECD want more

The OECD yesterday released their interim Economic Outlook and claimed that real economic growth around the world was slowing because of a lack of spending. Correct. But then they determined that structural reforms and further fiscal contraction was required in many countries, including Japan. Incorrect. The fact that they have departed from the annual release of the Outlook (usually comes out in May each year) indicates the organisation is suffering a sort of attention deficit disorder – they just crave attention and their senior officials love pontificating in front of audiences with their charts and projections that attempt to portray gravitas. No one really questions them about how wrong their last projections were or that cutting spending is bad for an economy struggling to grow. All the participants just get sucked into their own sense of self-importance because the event generates headlines and the neo-liberal deception rolls on. The OECD needs a reality check on Japan, but it isn’t the only organisation that is pumping out nonsense this week.

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Our poster child keeps exposing the myths

A regular occurrence is the prediction of doom for Japan. Some minor upturn in Japanese government bond yields or a movement in some other irrelevant financial statistic relating to the Japanese public sector sends the financial press into apoplexy. But the Japanese economy continues to defy all these prophecies from the neo-liberal zealots and eventually they will be dismissed by the broader public as the education process continues. The latest dramas surround the massive purchases of Japanese Government Bonds (JGBs) by the Bank of Japan. The fact is that the Bank of Japan is currently exposing the myths of the mainstream position even if it would not see it that way. Our post child just keeps giving us real life examples to substantiate the views presented in Modern Monetary Theory (MMT).

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Japan will (yet) run out of money. Never!

A regular occurrence is the prediction of doom for Japan. Some minor upturn in Japanese government bond yields or a movement in some other irrelevant financial statistic relating to the Japanese public sector sends the financial press into apoplexy. The latest signal of impending bankruptcy being bandied about relates to the rising trend in foreign holdings of short- and longer-term Japanese government debt. This trend is explained by financial markets moving into less risky assets (in this case, Japanese government bonds) as uncertainty in other markets, for example the Eurozone, remains. However, the narrative then goes that eventually these purchasers will refrain from buying Japanese government debt and with the funding from the savings of the ageing domestic population drying up, the Japanese government will run out of money. Policy response? Cut fiscal deficits immediately through a combination of tax rises and spending cuts. All of which is nonsense and if the Japanese government follows the advice – there will be a 1997-style recession and public debt ratios will just rise faster than they are at present. It is better that we now all turn to the sport’s section of whatever news you read and relax.

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IMF still away with the pixies

The abysmal performance of the IMF in recent years has been one of the side stories of the Global Financial Crisis. They have consistently hectored nations about cutting deficits using models that were subsequently shown to be deeply flawed. They bullied nations into austerity with estimates of multipliers that showed that austerity would yield growth when subsequent analysis reveals their estimates were wrong and should have shown what we all knew anyway – that austerity kills growth. Their predictions have been consistently and systematically wrong – always understating (by significant proportions) any losses that would accompany austerity and overstating the growth gains. At times, in the face of incontrovertible evidence they have admitted their failures. But a leopard can’t change its spots. The IMF is infested with the myths of neo-liberalism and only a total change in remit and clearing out of staff could overcome that inner bias. Their latest offering – Japan: Concrete Fiscal, Growth Measures Can Help Exit Deflation – is another unbelievable reversion to form.

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The last eruption of Mount Fuji was 305 years ago

Humans are very habitual. In Japan as elsewhere. It seems that a regular occurrence in Japan is that some career-minded economist comes out and predicts the end. The end can come in various projected forms. Hyperinflation, government bankruptcy, bond markets vaporising before our eyes, accelerating then exploding bond yields, Mount Fuji erupting and covering the plain beneath it with hot lava, etc. In fact, the eruption of Mount Fuji is the only probable event although even that has erupted only 16 times since 781 – the last eruption being 305 years ago. That august publication (not), the Wall Street Journal gave air to the latest fanatic in the article (May 27, 2013) – Tokyo Urged to Undertake Serious Fiscal Reforms. None of the predictions in that article match the chance that Mount Fuji might erupt tomorrow. In fact, none of the predictions have any chance of being realised. And so we wait the next habitual event in the Japanese calendar which will surely come in the form of some hero in a suit from one of the corrupt ratings agencies declaring that Japan’s sovereign credit rating is in danger or has been downgraded. Like a yo-yo, the rating goes up and down when the ratings agencies need a bit of publicity. Does anything happen much in Japan when the ratings change – nought! As with all these habitual breakouts of nonsense, it is as you were Japan. Keep pumping aggregate demand and things will be fine.

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