Notebook of Frank[编辑]
风萧萧网易笔记本
关于我 风萧萧
Facing with man-made chaotic world, honest people should not be afraid to speak out in facing with those troublemakers who lack of basic humanity. A meaningful life, is not in the length, but rather, in the value, the contribution to others, to the world.
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Why did Keynesian fail in saving Japan's economy?
2014-12-05 00:27:51| 分类： Frank'sWritings | 标签： |字号大中小 订阅
Frank Dec. 4, 2014, in Waterloo, On. Ca.
Contents
1. The motivation of the topic
2. The Rational Macroeconomic Policy of Germany
3. Fiscal Deficit has acted as economic heroin
4. The wrong is not Keynesian but the dogmatic policy makers
5. Japan exhausted all means of Keynesian but useless for reviving economy
6. Digging the nature of Japan's economic downturn
7. Bubble Economy degenerated the quality of Japanese
7.1. The incredible lazy of Japan’s employees
7.2. The Japanese disease ruins Sharp & Sony
7.2.1. The decline of Sharp Corporation
7.2.2. The decline of Sony Corporation
8. High-quality of Japanese people before Bubble Economy
1. The motivation of the topic
Aug. 28, 2014, in the article that Michael Sandel, the Sober in the Chaotic World, I once said with that: For hundreds of years, the world economy has been mainly driven by two hands, one is invisible hand of Adam Smith, stressed that the Government give up on market regulation in his book The Wealth of Nations 1776. The other one is visible hand of John Maynard Keynes, which stressing that the government intervenes in the market in his book The General Theory of Employment, Interest and Money 1936.
Talking about Keynes, most people respect The General Theory of Employment, Interest and Money 1936, but, I prefer The end of laissez-faire 1926, by which Keynes tries to reverse the ideological confusion on the laissez-faire of the over play of Invisible Hand.
In The end of laissez-faire, Keynes said with that: "These many elements have contributed to the current intellectual bias, the mental make-up, the orthodoxy of the day. The compelling force of many of the original reasons has disappeared but, as usual, the vitality of the conclusions outlasts them.” As Keynes warned, that irrational people are always mechanically imitate economics dogma with going to extremes without consideration of actual situation has been changed. Two good hands were both over distorted in the practice - excessive regulation abandon or excessive government intervention. However, even a good drug will become a poison when use in overdose. The world economy has been hovering in this way.
Dec. 4, 2014, I read article Can Japan Reboot? The writer is Kenneth Rogoff who is the Professor of Economics and Public Policy at Harvard University and the chief economist of the International Monetary Fund from 2001 to 2003.
In the article, the Professor provides some suggestions for rebooting Japan's economy due to that Abenomics seems not work after has made a wide variety of stimulus dramatically.
Due to that Abenomics is mainly based on Keynesian theory, so the failure of the Abenomics, is the failure of Keynesian theory, at least in some extent.
I think of my Feb. 16, 2014 article that Why German Economy Can Fly Against Economic Recession, in which, my comments may provide a rough answer. I excerpt some section as follow:
2. The Rational Macroeconomic Policy of Germany
In the last century, after the U.S. President Roosevelt successfully saved the Great Depression by the means of the government intervene in the economy, the most of countries take Keynesian theory, such as, Fiscal Deficit, as the magic to sitimulate their economy. Now, most of them are debt-ridden, and some of them become losers with bared buttocks and broken spine.
However, at that time, rational Germans did not silly go with the flow. May be that they have foreseen that Keynesian Fiscal Deficit is the economic heroin with instant excitement, but long-term fatal. So, they adopts own Freiburg School neoliberal theory that can sustain for long-term stable development.
Now, nearly 80 years practice have shown that the choice of Germans are smart prescient.
We are aware that, the Fiscal Deficit has caused the European Sovereign Debt Crisis, and the Freiburg School neoliberal theory helps industrious Germans playing a role as that of the savior for those European losers under Sovereign Debt Crisis.
Facing new social and economic issues, in 2003, Germns timely develop new solution Agenda 2010 with aimed at reforming the German social system and labour market to improve economic growth and thus reduce unemployment.
Of course, Germans is success again with new economic miracle.
3. Fiscal Deficit has acted as economic heroin
Feb. 9, 2014, in the article The Fed's waning magic in the age of Yellen, the writer Edward Luce said that: "Every chairman of the US Federal Reserve seems to get hit by a crisis in their first year. Whatever might blindside Janet Yellen, she starts off with a problem that affected none of her predecessors: the Fed has run out of ammunition. Moreover the one remaining weapon the Fed thinks it has – the hocus-pocus of 'forward guidance' – is a gun that fires blanks."
Many facts show that Fiscal Deficit is not only has lost its positive effect, but also has become economic heroin, and the addiction is quick growing in most of countries. Great many countries have become drug addicts, if, stop using drugs, they certainly can not stand. However, if, continue in drug use, destined to premature death. Now Fiscal Deficit has become unbearable economic nuisance.
4. The wrong is not Keynesian but the dogmatic policy makers
However, those are not the fault of the great Keynes, but the fault of the dogmatists of the policy makers, and the ignorance of the governors. They can only draw a tiger by copying home-cat, but they never have ability to independent think according to the actual objective situation that is in changing constantly.
As my view, one kind of medicine corresponds to one kind of disease, the disease has changed, and the good old medicine may become deadly poison.
Nowadays, compared with that of formation period of Keynesian theory in before and after 1930s, the big changes in the economic structure, the large increase in the economic capacity, the over triple times increase in the population, and the bestial mad plunder of over-developed Financial Economy to the Real Economy, especially, the rapid free flow of the large amount of international hot money that large enough to destroy the economy of a nation, and the access is as easy as that of just a finger click.
International situation has undergone earth-shaking changes; however, the governments worldwide are still dogmatically continuing Keynesian economic theory that developed under old situation and certainly is not suitable for new problems.
In the article The Precious Legacy that Keynes Left to Us, I said that:
"In my view, the greatest contribution of Keynes was not the The General Theory of Employment, Interest and Money but The end of laissez-faire." "The way of his bold but sensible questioning about orthodoxy with advancing ideological could help us to advance the way of our thinking, and avoid to fall into the trap of dogmatism, it is the prerequisite to do any thing correctly."
"The world is in constantly developing, the objective conditions are constantly to be changed, and the nature of the problems will be changed, too. Only boldly breaking the restraints of old ideological frame, the horizons of vision is able to be expanded, the new innovative ideas can be find, the innovation is able coming true. So that, when facing particular new problems, we can quickly identify specific new solutions."
"This the Precious Legacy that John Maynard Keynes Left to Us."
5. Japan used all means of Keynesian but useless for reviving economy
June 4, 2012, in the article Japan’s Bubble Economy of the 1980s, the economic analyst and Forbes columnist Jesse Colombo who wrote with that: "By 2004, residential real estate in Tokyo was only worth of 10% of its late 1980s peak, while the most expensive land in Tokyo’s Ginza business district had fallen back to just 1% of its 1989 level in the same year (Barsky, 2009)."
"Similarly, the Nikkei stock index is now trading around 10,000, just little over a quarter of its all-time high."
"It has been over two decades since the popping of Japan’s economic bubble and the country is still actively battling with deflationary forces that are so powerful that near-zero interest rates, repeated bouts of quantitative easing (some call it “money printing”) and constant Yen-weakening currency interventions have barely made a dent."
Jan 6, 2009, on Japan Times, the report Lessons from when the bubble burst said with that: after the crash in late 1990, economic growth stalled various government-sponsored fiscal and economic stimulus measures, including trillions of yen in failed public works projects, did nothing to revive the economy. This was started roughly in 1991, when the effects of the stock market crash became clear.
Mar 09, 2014, Japan's deficit hits record as economic growth slows.
Mar 31, 2014, Japan factory output contracts, dims growth outlook as tax hike looms.
Apr. 28, 2014, IMF says Shinzo Abe’s economic policy is losing momentum and warns growth could stall unless structural changes to the economy are made.
Jun. 19, 2014, Abenomics Fails to Shake Japanese Firms' Addiction to Cash
Jul. 24, 2014, Japan's record trade deficit raises fresh doubts about Abenomics
Aug. 27, 2014, Abenomics' arrows fail to hit their mark
Nov. 28, 2014, As Japanese Bankruptcies Soar, Goldman Warns "Further Yen Depreciation Could Be A Net Burden"
Sept. 15, 2014, Keynes was a failure in Japan - No need to embrace him in Europe
Nov. 25, 2914, Soaring prices caused by the depreciation of the Japanese yen worry off the New Year - Chinese International - China Daily
Above reprots reveal the terrible consequences of Japan's bubble economy, Prime Minister Shinzo Abe economics seems not work but with a side effect to press Japanese economy continuously toward deterioration.
6. Digging the nature of Japan's economic downturn
Why that various government-sponsored fiscal and economic stimulus measures, including trillions of yen in failed public works projects, did nothing to revive the economy?
Aug. 24, 2014, in the article that Over-heated real estate market is ruining Canadian economy from Japan mirroring Canada, through translation of some articles that wrote by Japanese scholars, and the people from China who are studying and working in Japan, by their personal experiences and investigation to reveal the reality of the period of Japan's bubble economy 1980s, and after the economic bubble burst, I have discussed the cause of Japan's economy decline. I excerpt some as follow:
7. Bubble Economy degenerated the quality of Japanese
Why the all of the fiscal and economic stimulus measures has been used, but have gained nothing to revive the economy?
When talking about the main cause of Japan’s declining from the economic powerhouse? Most people would blame the Plaza Accord that forced appreciation of the Yen to cause Japanese products losing competitiveness and the Bubble Economy.
The reason, as my view, all of those stimulus measures are from the macro elements of the economy, with ignoring the most basic micro elements - the quality of the people, the work-ethic of the labor, the efficiency of the production and the capacity of the innovation.
The Bubble Economy has rewritten the code of the DNA of the quality of Japanese people, from enthusiastic in hard working into enamoring in greedy speculating, thus, further affected the social moral and national’s spiritual, thereby cause the decay of whole society of Japan.
The easy gaining excessive profit from speculative activities have fueled Japanese speculative mentality with unearned ideological. It entices people keen to make living by speculating instead of hard working and less concerning on the interest of own company and most of Japanese people have lost the entrepreneurial spirit, hard-working spirit, and the rational sense of social responsibility and enterprises have deteriorated as lack of enterprising spirit and innovation dynamicI, such negative impact is more terrible, even fatal.
In essence, the national is the decisive factor for a nation’s economic development; a nation's economic decline is the decline of the quality of its national.
Whether it is a business or a country, if its member is full of concerning for the self interest, without or lack of concerning for the public interest, it will doom to be extinction.
So, I firmly believed that the impact of the Bubble Economy on the economy is just a curable social flu, but, the impact on the national’s spiritual is incurable social cancer.
The fact of the Japanese companies loses competitiveness and falling into declining are the vivid proof. The shortsightedness and lack of entrepreneurial spirit of the management team, the lack of work enthusiasm of the employees is the main reason, and also it caused Japan's economy can not recover as expected.
7.1. The incredible lazy of Japan’s employees
An engineer of China who works for a German company in taking charge of the branches in South Korea, China and Japan, after working a while in Japan, he was shocked by the lazy of Japanese employees, and completely lost the good impression for them.
Then he wrote an article post on the website and to be widely reproduced on the internet. I excerpt and translate some as follow. For facilitating narrative, here, I name the writer as Jim.
The Japanese employees are working overtime almost every day, but, only for getting overtime pay rather than for the need of production.
Jim arranged a simple task to a Japanese technician who dragged two days to finish. The same work, if, in China, a new graduated young man can finish just in half an hour.
In a break time, Jim complains the matter with German colleagues, one German said, this guy is a good one, since he did not drag for a month as that of others. Another German even suspected that Japanese employee was dozing when working.
Japanese employee did not like to take responsibility, when encountering some work trouble, usually; they will look for helping with endless complaining.
German company plans to open new production lines in Japan, so, sent Japanese staff to Germany for training. The same project in China, within a year, production lines was already operating at full capacity in three shifts for 24 hours a day. But in Japan, it took two years still in the state of machine commissioning.
The workers of China have mastered all the skills within the three months training in Germany. The German teacher said: you have learnt every thing on the training plan, you may go back to China now, and we have nothing for teaching any more.
Japanese spent six months in Germany, but, after went back to Japan; they could not work properly, and complaining that Germans did not teach them well. Germans angered with that: in Germany, we were teaching you hands by hands, and you also said that you have mastered every thing already. The Japanese fought back immediately: Sorry, we forgot, our memory is too bad to remember that.
Germans were angered and collectively applied for vacation to leave Japan as a protest. The German company had to allow them to China by the name of studying for appeasing their anger.
Jim went back China with the German colleagues together. When they held a cup of coffee to watch Workshop through the window glass of the upstairs office, the production was in an orderly busy, workers were loading and unloading on the production line, the transportation-cars were running to and fro between the production sites and the storages.
All of Germans was shocked and some even exclaimed with that: my God, here is simply a heaven. One of them said with that, they (Japanese) have been sleeping for 20 years, let them sleeping for another 20 years, then, Japan will decline as a developing country, and while, China will destine to be a developed country.
Now, in many Japanese companies, employees are mostly 40-50 years old, rarely under 30. Many young Japanese are staying in unemployed. Besides the cause of the economic recession, the other cause is Japan's "special" corporate culture, which emphasizing work-qualifications and work-records, so that young Japanese have lesser work chance. Some girls have to do "compensated dating" for making money. Some boys also have to make money by doing “duck” - male prostitute.
7.2. The Japanese disease ruins Sharp & Sony
Mr. Kondo Daisuke, a scholar of Japan, who wrote many articles to criticize the Management Drawbacks in Japan's enterprises. He coined the term of "Japanese disease".
The nature of the "Japanese disease" is the manner of "evading responsibility" that evolved rigid organizational structure and Inward Oriented Conservative of the Japanese Companies. The direct result of the "Illness" is that illed-companies will increasingly debilitate and ultimately collapse.
Jul. 11, 2014, Japan's Sharp to post $141 million loss on Europe solar business.
Sep. 17, 2014, Sony predicts increased losses due to struggling mobile business.
I excerpt some section from my article Over-heated real estate is ruining Canadian economy from Japan mirroring Canada – 2 as follow, to show the reason that Sharp and Sony declines. I hope that the lessons may play a role as a mirror to mirror the enterprises of Canada, to ask that Why? How?
7.2.1. The decline of Sharp Corporation
Sep. 11, 2012, Mr. Daisuke Kondo who published a Mandarin article <Angry Gou Tai-ming> on Economic Observer Online of China, in which he criticized the “Japanese Disease” that harms Japanese companies. I excerpt and translate some as follow.
A hundred years glorious Sharp Corporation has suffered "Japanese disease." It is not only the Sharp, but the Sony, Panasonic, NEC, Sanyo, Olympus, and great many Japanese companies are the serious patients in "Japanese disease".
For example, a Japanese company planed to develop a new product. The product development department produced a "plan book", with depicting the grand blueprint of best market potential.
However, when the "plan book" spreading in other departments of the company, this new product would face with dozens or even hundreds of blames, in the end, it did not get any support. The reason is simple: For the heads of departments, the most important thing is not how to bring new products to market, to improve the turnover, but, how to avoid the risk-taking of affecting own career in case of the sales of the new products is not good as expected.
Because of the whole company have infected the disease of "evading responsibility", a lot of great new product plans have been put into the limbo. Meanwhile, in the process of this "bad model" iterative, the staff for new products’ R & D has gradually lost enthusiasm and morale, thus, resulting in the number of the plan for new products’ dropped. Nevertheless, the whole company still does not repent for that, keeping on its own way.
Once cooperation with a Japanese business that suffers "Japanese disease", I believe, regardless, which leaders of China's company will be angry as same as that of Gou Tai-Ming.
Assuming, a Chinese company raised an advantageous cooperation projects for both sides to a Japanese company, the local subsidiary of the Japanese company will immediately report to the International Department of the Japanese parent company. At this time, the International Department will require the local subsidiary to present a "plan book" as long as hundreds of pages. Just for completing this "plan book" will be going to spend a few months of time.
Then, after the negotiations with various departments in the head office, which cost more than six months usually, luckily, the "plan book" may finally appear on the meeting of the Board of directors once a month in the head office. However, most probably it will suffer the fate of being sentenced to death, because of all the directors are not concerns the plan book from its feasible or not, but, from the "how to use the plan, for their personal interest, rather than the interest of the company.
If, some directors believe that the implementation of the plan was no benefit for them selves, or own competitors in the company can get more benefits, they would oppose without hesitation and then put forward some reason to postpone the decision and ultimately to make the plan was dismissed or forced to ‘another day another meeting’, without the rational sense of caring about the interest of gaining or losing for the company."
7.2.2. The decline of Sony Corporation
Feb. 6, 2014, Japan’s scholar Daisuke Kondo published another Mandarin article The sundown of Sony: Doraemon or Crayon on a website of China, in which he criticized the ridiculous management that has been ruining Sony Corporation.
“I remember that of my college days, only the best students in science majors can enter Sony. When going out of Japan, regardless of which country, we were able to see "SONY" huge billboard and young people using "walkman". At that time, Sony is our Japanese pride, however, now?”
"For this problem, one of my college classmates, now a Sony employee replied with that: "In the company, there one by one meetings are from morning to night, after the meetings, everyone must deal with at least 100 internal mails from the company. So, Sony is not an electronics manufacturer, but a downright bureaucracy! Only those people, who are the 'Mr. Nice Guy' without any faults, could be promoted. Such a Sony could not develop new products that can shine the world any more?”
"Our company has a specialized team in charge of new product development against the rival of Apple of the United States. There was I admired executive who is in charge of the team. One day, his immediate leader of a director of Board even ordered him to stop the investment of 'no value' (ie, to give up the R & D) as soon as possible to vanquish to Apple. The executive retorted: Do you have self-esteem as a member of Sony? The Director even contemptuously asked: ‘your self-esteem can help company making money, right? Heard of the answer of a director of Board, the executive immediately decided to resign."
"In recent years, the elite who left Sony were not only the executive alone. In 2006, the former managing director who was responsible for "AIBO" R & D of futuristic robots was demobilized; the reason was that there members of board were questioning that ‘How much economic benefit that the robot R & D can bring to Sony? In 2007, former chairman and CEO of the Sony Computer Entertainment Inc., Mr. Ken Kutarag who known as the "Father of the PS (PlayStation)" was also retired after the expiry of his Job tenure.”
"In the booming period of before, Sony company once gathered a large number of ‘Doraemon’ talents - they can come up with all kinds of whimsy from their "Mind Treasure Bag", and then to materialize them into a variety of future products. But now, unfortunately, the Sony is filled with the people who work with lips only as that of the ‘Crayon’ ”
8. High-quality of Japanese people before Bubble Economy
Now, I think of a story in Mandarin long time ago, the famous American marketing authority Philip Kotler who once said that: For Japan, what is the panacea to heal its wounds of the war, to stand up on the war-ruins, and to become the economic powerhouse? For achieving economic advantage, Japanese waged the war, but, failed. From the pain, they learnt that, the use of economic means can achieve more brilliant achievements than that of the use of the military. This means is the marketing.
The economic miracle shows the high-quality of Japanese people. Following is a story about it.
In morning August 19, 2013, I had a chat with the father of my new neighbor in Waterloo, Ontario. He said that his brother once was a top executive of a Canadian Steel Manufacturer and had twice visited Japan for learning the experience of the advanced corporate management in 40 years ago. His brother appreciates the good quality of Japanese very much with a comparison between Japanese and Canadian in case of production accident.
When facing production equipment fails, any Japanese operator would immediately stop the production, and then, all of the people gathered together to make diagnosis and treatment, after troubleshooting, everyone immediately went back own position to resume the production. But, the Canadian was just blindly standing, there no one was attempting for troubleshooting.
Following are some memories about the industrious noble quality of Japanese people. I could not recall the source of them already, but the facts are true.
When 1973 oil crisis, the plant of the Sony Corporation was shutdown and the workers were staying home waiting for notification of work. However, the workers went back to plant to do some thing available voluntarily with the hope that company could survive.
Mr. Kazuo Inamori, the founder of Kyocera Corporation of Japan. In the newly established period of the company, a customer ordered special shape of water pipes, because there was no prior experience in the production of such pipes. In the process of heating and forming to required shape, the water pipes were burst. Then, Kazuo Inamori was holding the pipe when sleeping at night and slowly turning the pipe, so that pipes was heated evenly, and made it into required shape finally.
Now, we have convinced that it was that industrious noble nature of Japanese people created Japan's postwar economic miracle.
People may ignore an important fact that the birth of the Plaza Accord is also a proof that made ??in Japan was once invincible and swept global market, and also is the proof that the high quality of the enterprises and the employees of Japan.
Supposing that the enterprises and the employees of Japan still remained the spirit of entrepreneurial and responsibility, and still in hard working, today's economy of Japan will still be over that of Germany, and those made ??in Japan will be still invincible and sweeping global market.
This is one of the main reasons that Japan’s economy has been long-term downturn. And it is why that the Three Magic Arrows of S hinzo Abe did not achieve the desired results.
From above lessons, I firmly believed that, no doubt, such Japanese diseases of the employee lazy, the "evading responsibility", and more, is an objective results of the Japanese subjective selfish ideological, which was developed from the Holy Baptism by Japan’s Bubble Economy 1980s.
The aftermath of the bubble economy is still hurting all aspects of Japanese society, from the social ideological to the personal spiritual, from the macro national economy to the micro family life, from the world class companies to the ordinary employees, and more.
The sad facts of Japan made me firmly believed: it is that the quality of employees decides the fate of the enterprise. It is that the quality of the nationals decides the fate of the nation. And it is that social moral, social ideological impacts the quality of the national in a great extent.
Japan, one misstep in opening real estate market, can not get rid of the nightmare of the bubble economy.
--- Frank Dec. 4, 2014, in Waterloo, On. Ca.
Can Japan Reboot?
Kenneth Rogoff
Kenneth Rogoff, Professor of Economics and Public Policy at Harvard University and recipient of the 2011 Deutsche Bank Prize in Financial Economics, was the chief economist of the International Monetary Fund from 2001 to 2003. His most recent book, co-authored with Carmen M. Reinhart, is This Time is Different: Eight Centuries of Financial Folly.
http://www.project-syndicate.org/commentary/japan-slow-economic-growth-by-kenneth-rogoff-2014-12
CAMBRIDGE – Japanese Prime Minister Shinzo Abe’s recent policy decisions – to increase monetary stimulus dramatically, to postpone a consumption-tax increase, and to call a snap election in mid-December – have returned his country to the forefront of an intense policy debate. The problem is simple: How can aging advanced economies revive growth after a financial crisis? The solution is not.
It is now clear that the first round of Abe’s reforms – known as “Abenomics” – has failed to generate sustained inflation. Hopes for continued recovery have now given way to two consecutive quarters of negative growth. The question is whether Abenomics 2.0 will put Japan’s economy back on the path to renewed prosperity.
My own view is that the “three arrows” of Abenomics 1.0 basically had it right: “whatever it takes” monetary policy to restore inflation, supportive fiscal policy, and structural reforms to boost long-run growth. But, though the central bank, under Governor Haruhiko Kuroda, has been delivering on its side of the bargain, the other two “arrows” of Abenomics have fallen far short.
There has been no significant progress on supply-side reforms, especially on the core issue of how to expand the labor force. With an aging and shrinking population, Japan’s government must find ways to encourage more women to work, entice older Japanese to remain in the labor force, and develop more family-friendly labor policies. Above all, Japan needs to create a more welcoming environment for immigrant workers.
There has been some movement on immigration. Panicked by deadlines for the 2020 Summer Olympics in Tokyo, the government managed to clear the import of foreign construction workers (though the decision had to make its way through a half-dozen ministries). But overall progress has been slow. Japan desperately needs more nurses and hospice workers to care for its aging population, but bureaucratic and political resistance to immigration is deeply entrenched.
When I first started asking my Japanese academic friends about Abe’s supply-side reforms, they said, “Don’t worry, they’re coming.” Then, after a while, they would say, “Don’t worry, they’re coming – but slowly.” Recently, the mantra has changed to, “Don’t worry, we still think they’re coming.” One can only hope so. Without structural reforms, especially of the labor market, Abenomics cannot succeed in the long run.
The timing of the April 2014 consumption-tax hike (from 5% to 8%) was also unfortunate. It would not have been easy for Abe to postpone the move, given that it had been locked in place by broad-based political agreement before he took office. But the government could have engaged in more aggressive fiscal stimulus to counteract the hike’s short-term effects. Instead, two successive quarters of negative growth have had a dispiriting psychological impact.
True, the slump is partly an illusion: the earlier boom was fueled by Japanese households’ effort to beat the tax by front-loading purchases of consumer durables – a nuance that seems to have been lost in the public debate. But the big picture remains: Abenomics so far has failed to turn around a deflationary mindset.
Mind you, Japan’s outsize government debt and undersize pension assets are a huge problem, and only the most reckless and crude Keynesian would advise the authorities to ignore it. For the moment, the risks are notional, with interest rates on ten-year government debt below 0.5%. But saying that Japan’s debt is irrelevant is like saying that a highly leveraged hedge fund is completely safe; the risks may be remote, but they are not trivial. Think about what would happen if the Bank of Japan actually managed to convince the public that inflation will average 2% on a sustained basis. Would ten-year interest rates still be 0.5%?
What if other factors – say, a sharp decline in emerging-market growth – led to a sharp rise in global real interest rates, or a rise in risk premia on Japanese debt? In principle, Japan could weather such shocks without high inflation or other extreme measures, but it is folly to deny the country’s vulnerability. A hedge fund can simply go out of business; that is not an option for a great nation.
Fiscal sustainability requires an eventual rise in the consumption tax, and of course Japan should not wait until international investors start doubting its willpower. The problem is in the timing and tactics. Postponing the second consumption-tax increase seems like a good compromise between pushing Abenomics to escape velocity and maintaining long-run credibility.
But this brings us back to Japan’s deeper problems. Demand policies alone will not alone prevent two more lost decades, much less guarantee two golden ones. Demographic decline was a key factor in setting off Japan’s 1992 financial crisis and the long malaise that followed. Japan is still a rich country, but its ranking in terms of real per capita income has now slipped below that of many other advanced economies – including the United Kingdom, by some measures – and far below that of the United States.
Japan’s experience holds important lessons for Europe, the main one being that stimulus policies, though necessary in the short run to support demand, cannot address long-term structural deficiencies. If Abenomics 2.0 fails to embrace deep structural reform, it will fare no better than the original.
As Japanese Bankruptcies Soar, Goldman Warns "Further Yen Depreciation Could Be A Net Burden"
Tyler Durden on 11/28/2014 11:20 -0500
It is no secret that one of the primary drivers of relentless S&P 500 levitation over the past two years, ever since the start of Japan's mammoth QE, has been the use of the Yen as the carry currency of choice (once again as during the credit bubble of the early-2000s), whose shorting has directly resulted in E-mini levitation. One look at the intraday chart of any JPY pair and the S&P500 is largely sufficient to confirm this. Those days, however, may be coming to an end, at least according to Goldman which overnight released a note saying that the Yen is "Almost at breakeven: Further yen depreciation could be a net burden."
Here are the highlights:
The yen has depreciated quickly beyond ?115/US$ from the ?107/US$ level since the FOMC made the decision to terminate quantitative easing and the BOJ surprised with additional easing at the end of October. This has prompted concern over possible damage to Japan as a whole if the yen weakens further.
Using industry input/output tables to investigate the costs and benefits of a weak yen, we find that the manufacturing sector still reaps forex translation gains under Japan’s current economic structure. However, in materials and nonmanufacturing industries that have limited opportunity to pass on forex-driven cost growth to exports, the costs of a weak yen far outweigh the benefits. According to our calculations, a 25% decline in the yen’s valueresults in a ?4.1 tn net cost increase for Japanese industry as a whole since 2012 and a ?10.5 bn increase in household sector import inducement.
By contrast, the decline in commodity prices is a substantial relief. A 10% decline in commodity prices cancels out the increase in net cost borne by 14.5% yen depreciation. The 25% decline in commodity prices so far (oil price) offsets the net cost increase borne by 35% yen weakness. Calculating from the late 2012 rate of ?78/US$, 35% depreciation works out to a rate of ?120/US$. In other words, the combination of the oil price around US$80/bbl and the yen exchange rate of ?120/US$ is just about at breakeven, netting out the benefit and cost of yen depreciation and oil price decline since Abenomics began.
That said, our commodities research team sees limited scope for further decline in crude oil prices, while we expect the yen to depreciate further as the FRB and BOJ’s policies diverge. If further yen depreciation is not accompanied by real economic growth in the form of an export volume recovery and broad wage increases, and ends up merely producing forex translation gains, we believe it could very well place an increased burden on the Japanese economy as a whole. Needless to say, the cost burden will ease if the rapid decline in oil price over the last few days stabilizes at the low levels.
Oddly enough, one can almost make the case that the collapse in crude price has been manufactured to allow Japan's QE to continue as long as possible. And yet, this is hardly comforting news to Japan's companies, which as shown in the chart below, are seeing a surge in bankruptcies unseen in recent history. This is how Goldman explains this:
For the nonmanufacturing sector, yen depreciation means growth in net cost, increased burden for corporate and household sectors
Nonmanufacturing industries export little. Most of the goods they produce are consumed domestically. Imported intermediate products used as raw materials in the nonmanufacturing sector amount to only ?8.6 tn, but we estimate that depreciation-linked input cost is ?40.3 tn as this includes electricity/gas used at retail stores and event spaces as well as fuel (oil) costs for transporting goods. Nonmanufacturing sector exports, meanwhile, amount to just ?18.5 bn. A 25% decline in the yen’s value raises the input cost by ?10.1 tn, but this far exceeds the additional export receipt of ?4.6 tn, resulting in a net cost increase of ?5.5 tn. This additional cost must be borne by the “domestic sector” in Japan—i.e., the corporate or household sector.
Keeping personnel costs in check is key for companies forced to bear increased costs due to yen depreciation. Personnel costs have a high weighting in the nonmanufacturing sector, and if the yen continues to weaken it will be difficult to continue raising wages unless sales rise commensurately with cost increases. Cost increases in the nonmanufacturing sector due to yen depreciation have an ultimate ripple effect on the household sector because the higher costs are passed on to retail prices and/or they prompt companies to rein in personnel costs (see Exhibit 2).
Costs of yen depreciation outweigh benefits for industry as a whole: Policies for addressing weak yen effect appear limited based on past experience
A similar calculation made using input/output tables for 2005 results in a “net export” figure of ?16.3 tn for the manufacturing sector. Even after subtracting nonmanufacturing sector “net cost” of ?14.9 bn, net exports of ?1.4 tn remain, indicating that policies to offset the impact of a weak yen had a positive impact on the Japanese economy as a whole. The secular rise in crude oil prices from 2005 significantly raised the cost of intermediate inputs—mining, oil, and coal products—for both manufacturing and nonmanufacturing. For industry as a whole, input costs affected by yen depreciation increased to ?86.6 bn in 2012 from ?71.8 tn in 2005. Over the same period, exports of goods and services from Japan declined to ?70.3 tn from ?73.2 tn due to yen appreciation, the global financial crisis, and the March 2011 earthquake. The lack of growth in exports is due partly to the global demand cycle, but a larger structural factor is that Japanese companies have lost global market share due to the shift of production overseas and increased competition with foreign products.
In 2012, the structure of the Japanese economy was that manufacturing sector had net export value of just ?5.5 tn, which was insufficient to offset the nonmanufacturing sector’s net cost of ?21.8 tn, resulting in net cost of ?16.3 tn for Japanese industry as a whole. A 25% decline in the yen’s value raises industry’s net cost burden by ?4.1 tn, which is equivalent to 0.8% of GDP. The impact of weak-yen policy measures based on experiences when Japan was a net exporter, has clearly diminished.
Bankruptcies precipitated by yen depreciation on the rise
According to a recent bankruptcy survey by Tokyo Shoko Research, there were 214 bankruptcies due to the weak yen in January-September 2014, which is 2.4 times the 89 seen in January-September 2013. Far more of the bankruptcies were in the nonmanufacturing sector—81 in transport, 41 in wholesale trade, 19 in services, and 11 in retail—than in the manufacturing sector (44), which is consistent with our analysis based on the input/output tables.
Surprisingly, the number of bankruptcies since 2013 due to yen depreciation far surpasses the number of bankruptcies in 2009-2011 due to yen appreciation. Presumably, in many cases in 2009-2011 the strong yen was not cited as the direct cause of bankruptcy because there were numerous other factors at work also, beginning with the sharp slowdown in the global economy and financing difficulties. Nevertheless, the 353 bankruptcies since 2013 attributed to the weak yen are 2.2 times greater than the 157 bankruptcies from 2009 to 2011 attributed to the strong yen (see Exhibit 3).
And it is not just corporations that are approaching their weak-yen breaking point. So are households:
Household burden increases with weaker yen
Let us turn to the household sector. The input-output table has a matrix of “import induction value by final demand categories”. This shows the value of goods and services imports induced by final demand categories such as household consumption, private business investments, public fixed investment and exports (see Exhibit 4).
Household sector final demand totaled ?279 tn in 2012, with imports accounting for ?41.9 tn, or 15.0%, of household consumption. This includes gasoline and mineral fuels (oil, coal) needed to generate electricity for households. Taking into account the decline in the yen’s value since 2012, household sector import value has risen ?10.5 tn to ?52.4 tn. The ?10.5 tn rise is equivalent to 3.6% of 2012 household sector disposable income of ?287 tn.
In 2005, imports represented ?32.8 tn of household final consumption. This figure rose ?9.1 tn to ?41.9 tn in 2012, and if we take the 25% decline in the yen’s value into account, the rise comes to ?19.6 tn over seven years. Mining, oil, and coal products account for 50% of the rise since 2005, clearly showing how the rises in gasoline, kerosene and electricity prices due to yen depreciation increased households’ burden.
Household final consumption was largely unchanged during this period, rising just barely from ?277 tn in 2005 to ?280 tn in 2012. This means that domestic consumption of goods and services declined to the same extent that import consumption value increased. Disposable income declined just slightly over this period, to ?287 tn from ?290 tn, meaning that the rise in import costs for households due to yen depreciation was borne directly by households, causing them to curb their spending.
Food and fuel-related imports in the household sector totaled ?22 tn in 2012, accounting for 54% of household sector imports of ?41 tn. The recent decline in crude oil and other commodity prices is partially offsetting the impact of the weak yen, but not the rise in costs due to yen depreciation on the 46% of imports that are not food or fuel-related.
Goldman's conclusion:
If further yen weakness is not accompanied by real economic growth in the form of an export volume recovery and broad wage increases, and ends up merely producing forex translation gains, we believe it could very well place an increased burden on the Japanese economy as a whole. Needless to say, the cost burden will ease if the recent rapid decline in oil price stabilizes at the low levels.
Needless to say, none of this is preventing the momentum-chasing algos to push the USDJPY up some 100 pips in the overnight session to offset the tumble in energy companies and push the S&P higher, and send it almost back to the highest level seen since 2007. And once the USDJPY trigger the 119 buy stops, all bets are off, if only for the Japanese economy. The Nikkei and the S&P 500 on the other hand, well those will keep rising as more economic devastation rains on Japan's economy thanks to Abenomics.
Then again, with Paul Krugman now openly advising Abe, it should come as no surprise that Japan's economy is in the late stages of a total and unprecedented collapse.
Keynes was a failure in Japan - No need to embrace him in Europe
September 15, 2014 By Detlev Schlichter http://detlevschlichter.com/2014/09/keynes Detlev Schlichter is an independent economist, market commentator and investment strategist.
Detlev had a 19-year career in international financial markets as a trader and portfolio manager, including stints at J. P. Morgan, Merrill Lynch, and Western Asset Management.
In 2011 he published his first book Paper Money Collapse – The Folly of Elastic Money (John Wiley & Sons), which won the get Abstract International Book Award in 2012, and which is now in its second edition.
Detlev is a frequent commentator on economics and financial markets via this website and the media. He has appeared on television and radio (Sky News, Reuters TV, Russia Today, BBC Radio 4 Analysis and BBC Radio 4′s Start The Week), and his editorials have been published by The Wall Street Journal, City A.M., TheStreet.com and mises.org.
Detlev is on the advisory board of the Ludwig von Mises Institute Canada and a senior fellow at the Cobden Centre London, a free market think tank devoted to sound money. He holds a degree in economics (Diplom-?konom) from Ruhr-Universit?t Bochum, Germany. He lives with his family in London.
Please note: Nothing on this website, including attached documents or links to other sites, should be considered investment advice. For use of this website please see Terms & Conditions.
Draghi’s volte-face two weeks ago has emboldened the Keynesian majority in the media and in economic research departments. It has injected new life into their relentless campaign for yet more state intervention in the Eurozone economy. It wasn’t anything the ECB actually did (or announced) that initiated this new euphoria. As usual, the measures fell short of what the tireless advocates of “stimulus” demanded. To the true Keynesian, no interest rate is ever low enough, no “quantitative easing” program ever ambitious enough, and no fiscal deficit ever large enough. But with his talk of “stimulating demand” and his calls for “fiscal flexibility”, Draghi was finally speaking the Keynesian lingo. It was this that got hearts racing.
“Choirs of angels must have sung over the statement that the eurozone has a problem with demand,” enthused Martin Wolf, head guardian of the Keynesian faith at the Financial Times, so aptly called the “pink Times”. Remember, that a lack of demand is, in the Keynesian religion, the original sin and the source of all economic troubles. “Aggregate demand” is the sum of all individual demand, and all the individuals together are not demanding enough. How can such a situation come about? Here the Keynesians are less precise. Either people save too much (the nasty “savings glut”), or they invest too little, maybe they misplaced their animal spirits, or they experienced a Minsky moment, and took too much risk on their balance sheets, these fools. In any case, the private sector is clearly at fault as it is not pulling its weight, which means that the public sector has to step in and, in the interest of the common good, inject its own demand, that is “stimulate” the economy by spending other people’s money and print some additional money on top. Lack of “aggregate demand” is evidently some form of collective economic impotence that requires a heavy dose of government-prescribed Viagra so the private sector can get it’s aggregate demand up again.
Wolf thinks deficits should be higher, preferably as a result of public investment and tax cuts, and of course, there should be some proper quantitative easing, not just the meagre purchases of ?750 billion of asset-backed securities the ECB promised at the last meeting. (Sadly for Draghi, the goal posts on what constitutes real QE have been secretly moved. Now, only buying large chunks of government bonds is deemed worthy of the label.)
In fairness to the ECB president, it should be mentioned that he also spoke of the need for structural reform, but as usual, this is a bore for the Keynesians. “My view is that structural reforms are mostly irrelevant for the recovery,” opines Wolfgang Münchau, Wolf’s colleague at the FT. What Münchau wants is, of course, more fiscal spending and more money printing. Structural reform – the belief in which he considers “cranky” – should only be thrown into the mix as a bribe to keep the Germans happy. He envisions some fiscal and monetary “carpet bombing” to force the economy into higher growth, damn it!
To commentators like these the prospect of Germany running a balanced budget (potentially in 2015, it would be the first since 1969) is bound to cause apoplectic seizures. According to the Wall Street Journal, Germany’s leftish weekly Der Spiegel called the goal a “fetish”, declaring that “an investment program for Germany would be an act of European solidarity.” The FT’s Wolf diagnoses that the deficit forecast for the Eurozone as a whole of “just 2.5 percent” means that the fiscal stance is “too tight”.
Meanwhile in Japan
Things must be much better in Japan then, a place evidently not run by the some inflation-fearing and austerity-obsessed Teutons, and for the past 20 years the veritable motherland of “fiscal flexibility.”
“Japan ran fiscal deficits equivalent to 8.4% of GDP last year, and had a public sector debt of 245% of GDP, both (!) the highest among major economies,” the Wall Street Journal reported last week (my emphasis). Well, that must have injected a lot of aggregate demand into the economy!
Since Japan’s easy-money-bubble of the 1980s popped in 1989, the country has obediently implemented the entire tool book of Keynesianism, and has done so repeatedly, but in particular it employed ad nauseam the proposal of Wolf, Der Spiegel and Münchau of “public investment” to stimulate the economy – to no avail, other than causing ever larger deficits.
Drawing from IMF sources, wikipedia compiled the following list of suicidal stimulus policies: “Between 1992 and 1995, Japan tried six spending programs totaling 65.5 trillion yen and cut income tax rates during 1994. In January 1998, Japan temporarily cut taxes again by 2 trillion yen. Then, in April of that year, the government unveiled a fiscal stimulus package worth more than 16.7 trillion yen, almost half of which was for public works. Again, in November 1998, another fiscal stimulus package worth 23.9 trillion yen was announced. A year later (November 1999), yet another fiscal stimulus package of 18 trillion yen was tried. Finally, in October 2000, Japan announced yet another fiscal stimulus package of 11 trillion yen. Overall during the 1990s, Japan tried 10 fiscal stimulus packages totaling more than 100 trillion yen, and each failed to cure the recession. What the spending programs have done, however, is put Japan’s government in poor fiscal shape.”
Oh, but the list is not complete without this additional bon mot:
“Japan’s expansionary monetary policy failed to achieve recovery.”
Policy rates have not been above 1 percent in Japan for 18 years. The country has for more than 20 years been the laboratory rat of applied Keynesianism – and to say that the promised results did not quite materialize seems a gross understatement.
To be able to ignore the abject failure of Keynesianism in Japan the commentariat has adopted the meme that inflation is too low for fiscal pump priming to work. It’s the deflation, stupid - although the consumer price index has hardly changed over the past 10 years in Japan. In stark contrast to what the news media want you to believe, Japan had pretty much price stability. It is true, that the Bank of Japan has not kept the printing presses at full throttle consistently, and has varied bouts of QE occasionally with a calmer policy approach. Keynesianism can evidently only deliver the goods if reckless fiscal spending is paired with reckless money printing. And that is part of the appeal of “Abenomics”, which started early in 2013 with a promise to end “deflation” (price stability) to the cheers of the global Keynesian fraternity. Over the past 12 months, Japan not only had the biggest fiscal deficit, it also had the fastest growing central bank balance sheet in the developed world. If anybody tried Herr Münchau’s carpet bombing approach it is Japan.
Here is the Wall Street Journal again:
“Revised data…showed that the country’s gross domestic product contracted an annualized 7.1% in the April-to-June quarter from the previous three-month period, as businesses as well as consumers retrenched after the government raised the sales tax.”
What? – After 20 years of the most extravagant fiscal stimulus in history and on the back of “all-in” money printing, a 3 percent hike in the sales tax causes the economy to nosedive?
“Even with the negative impact of the higher sales tax making a sharp fall in GDP a foregone conclusion, analysts still expressed concern. …’Everything buckled – consumption, capital spending, housing investment and infrastructure. This is very bad,’ said Etsuro Honda, an economic advisor to Mr. Abe, in an interview.
There is now talk of postponing the next tax hike which is not going to do much to fix Japan’s real problem: a growing debt load.
But hey, what about doing some extra “public investment” to stimulate the economy?
Hardly a surprise
I cannot exclude that all this lunatic hyperactivity may result in the odd calendar quarter occasionally showing some better headline growth. Maybe the Japanese even get their wish for proper inflation some day, and higher yields and a falling currency. (Be careful what you wish for!) We can still safely exclude that this program of Keynesianism on steroids will someday unshackle Japanese animal spirits and release the economy on a path of healthy, balanced and self-sustaining growth. These policies are part of the problem. They are not the solution.
None of this should be a surprise. To find out that Keynesianism must fail we do not need the real-life example of Japan. A proper look at its weak theoretical foundations should have sufficed. That is what a journalist of a different caliber did already more than 50 years ago: the incomparable Henry Hazlitt, who was principal editorial writer on finance and economics at the New York Times from 1934 to 1946 (oh to think of who holds that position now!!), and who published his critical dissection of Keynes’ General Theory in 1959. Hazlitt knew and could explain why Keynesian policies must fail. What a different type of journalism Hazlitt gave his readers when compared to the unthinking and unrelenting carping about the need for more “stimulus” we read everywhere today.
What is probably most galling about the Keynesian media onslaught is that, with a brazenness that is reserved for the truly deluded, these commentators invoke the spectre of a “Japan-like lost decade” in Europe if their advice is not heeded. It boggles the mind.
Notwithstanding the new love-in between Draghi and the Keynesians, I believe there is still too much resistance to outright Keynesianism in Germany and among the Northern contingent of the Eurozone. These countries broadly remain of the eminently sensible view that without meaningful structural changes in France and Italy, without reforms that increase their competitiveness, lower their structural unemployment, and stabilize their fiscal outlook, Germany and Co. remain at risk of paying for any fiscal troubles in these countries in the future. The market is of the view that the debt load has already largely been communalized via the ECB. Remember Draghi’s dangerous promise to “do whatever it takes.” This is deeply unpopular in Germany. It is also not that simple. When one of the big countries faces its Greek moment Draghi will find out that he cannot do that much after all. I believe the German government will continue to drive home the point that the French and Italian governments have to do their homework. There is little appetite for any fiscal adventurism a la Keynes.
But Mr. Wolf and Mr. Münchau should not despair. They can always enjoy the wonderful successes of applied Keynesianism in Japan.
Detlev Schlichter says September 16, 2014 at 10:00 am
No, I don’t agree at all. You misunderstood. – The statement that, if you print enough money you lower the purchasing power of the monetary unit, is held by pretty much all economists. Austrians, Keynesians, and Monetarists alike. In fact, many Keynesians believe that higher inflation would be good, so they recommend more money creation. – Has low inflation in Japan falsified the statement that if you print enough money you lower the purchasing power of the monetary unit? Has it therefore meant, as you say, a failure for Keynesiansim, Monetarism, and Austrianism, as all of them agree on this point? – No. Because Japan has evidently not created “enough” money. In fact, the balance sheet of the Bank of Japan has grown much less in the 10 years before the 2007/2008 crisis than that of any other major central bank (including the ECB). (If memory serves, it has hardly grown at all.) Although the BoJ was the first to do QE, it has frequently reversed the process and shrunk its balance sheet again, similar to what the ECB did recently. Then there are the “mitigating factors”, which Swissie mentions in his comment below. If the demand for money rises faster than the supply, you won’t get inflation. (Again, all the major “schools” agree on this.) There is no need to rewrite monetary theory because of what happened recently in Japan.
I guess most Austrians agree with Shinzo Abe and the Keynesians that if you are really determined about debasing your currency and creating inflation, you will ultimately be able to do it. Where we disagree is what the results in terms of sustainable growth are going to be. So far, the BoJ has done enough money printing to keep the bond bubble inflated but not enough to cause inflation. Abe wants to change that.
Why did I say, most observers were surprised about low inflation? – Because inflation is also the result of public confidence. If people lose confidence in their money, they spend it, the velocity of money goes up and inflation kicks in, even if at that point the central bank stops adding money. This has not happened in Japan, and I think it is somewhat surprising. I think it could still happen. But none of this constitutes a failure of any economic theory. No serious monetary theoretician will claim that his theory shows at what point confidence disappears. This is not a question of theory at all but is always a judgement call about people’s behavior.
Finally, the damage that the policy of easy money has caused in terms of capital misallocations is not measurable. The measurable cost in terms of inflation has so far been negligible. But the benefit of expansive fiscal policy has clearly been negligible while the cost in terms of larger deficits has been measurable and large.
Soaring prices caused by the depreciation of the Japanese yen worry off the New Year - Chinese International - China Daily
Posted:November 25,2014 Views:10
China News Network November 25 (by Europe leaves, according to Japanese news network reported on November 25, entered December, Japan would usher in the New Year peak season. However, due to the depreciation of the yen, making imported goods prices soaring, Japan began to prepare for the New Year's housewives, is a major blow livelihood.
pan's Aeon supermarket news that imports from Australia beef and fresh vegetables, all have been a price rise of around 5% of the seafood category, salmon and shrimp also have a more substantial price rise this year in September, salmon price than the same month last year rose 17 percent, shrimp prices have gone up 19 percent.
Although the depreciation of the yen to foreign tourists to Japan brought great convenience, but the New Year period, because the depreciation of the yen, making the number of Japanese going abroad will be there was a substantial reduction in Japanese travel agency JTB said the forecast data released show, New Year Japanese overseas travel will be reduced by about 10 percent to 20 percent over last year.
Prime Minister Abe's correspondent at the recent conference that in the past because of the high yen makes some companies go bankrupt, it is necessary to continue to uphold the policy of the Japanese yen depreciation(http://www.like-news.us/).
However, due to the depreciation of the yen, but also makes the life of people in trouble, the consumption tax tax increase and the yen's depreciation Daily life in commodity prices increase, this double whammy, so many housewives to tighten the purse, no more flowers money, which also makes the Japanese consumer market into a rare in recent years in the doldrums.
Further reading:
Japanese municipal government for money to rent office building called Convenience Stores and pull tourists (Editor: Liu
