Japan Winning The Race To The Bottom!!!


Turns out, it was probably a setting sun. 

Well, I’ve been meaning to check in on our friends in Japan for some time now.  There just doesn’t seem to be enough time in the day, any more. 

As it was easily predicted, the news just goes from bad to worse for Japan.

Policy makers to keep happy faces despite the unsettling GDP number


In retrospect, a stagnating economy looks pretty good, no?

In the second preliminary estimates published on September 8, the Japanese economy is reported to have shrunk by 1.8% quarter on quarter (qoq), or by 7.1% on an annualized basis in the April-June quarter. The estimate is a slight downward revision from the first estimate published on August 13 that calculated the shrinkage to be 1.7% qoq. 

The main reason for the change between the first and second estimate is the downward revision in the private capital expenditure. It was initially estimated to have shrunk by 2.5% qoq, and now re-estimated to have shrunk by 5.1% qoq. 

The overriding factor for the shrinkage in the economy in the April-June quarter remained unchanged between the first and the second preliminary estimate. It was the sudden slump in private consumption, a decline of 5.1% qoq, that brought down the Japanese economy in the quarter. After the sales tax hike to 8% this April, consumers sharply pulled back from their spending. 

A contraction in the economy after the sales tax hike was virtually unavoidable, but the size of the decline is bigger than many government officials expected. In late July, the Japanese government revised down their growth forecast for the fiscal year 2014 from 1.4% to 1.2%. They will have to cut their forecast again, judging by the weak GDP growth in the April-June quarter. In order for the Japanese economy to meet the current government outlook, Japan needs to keep growing at the annualized pace of 4.5% for the remaining 3 quarters. In our view, that seems highly unlikely. We (Japan Macro Advisors) forecast zero growth for the fiscal year 2014.

Policy stimulus actions will have to wait till early 2015

In the light of weak economic data received so far, not just of April-June, but also of July and August, we suspect that policy makers are starting to be worried. However, they are unlikely to take stimulus actions until early next year. Why? It is because they cannot voice explicit concerns on the economy until the 2015 consumption tax rate hike is settled. Prime Minister Abe is scheduled to decide on the tax rate hike by December this year. If policy makers are to start discussing adopting stimulus measures, the first argument they may face is “why not cancel the consumption tax rate hike in 2015?”. In order to avoid this question, policy makers are likely to maintain happy faces until the hike becomes final in the FY2015 budget. In a press conference on September 5, BoJ governor Kuroda supported the tax hike and said the negative impact from the tax hike can be dealt with by monetary and fiscal stimulus. It seems that the course of actions will be to raise the consumption tax no matter what and deal with the consequence later. In our view, it is tremendously hard to change the direction of the economy once it starts to go south, but that seems to be the risk Japanese policy makers are willing to take to make the consumption tax rate hike final.

Click here for more details on GDP

Aww ….. to double edged sword of spending money you don’t have which doesn’t help the economy.  You do have to pay it back.  This is why Japan is raising the sales tax.  They’re in such debt, they have to start balancing their books. 

Now, rational people would say, why don’t you just quit spending as much, rather than raise taxes?

But, government people, socialists, and the like believe every dime of government spending is well spent.  They cannot conceive spending less.  Additionally, they believe people and the economy is dependent upon government spending.  This is because leftards can’t do math. 

In all cases, government spending subtracts from economic productivity.  People can, and do say that government spending led to X amount of the GDP, and this is true.  Government spending is part of the calculation of GDP.  Some lunatics even try to claim there’s churn with government spending…….. that is to say, for each dollar (or currency of your choice) spent, it creates a multiple of the dollar.  Something like for each dollar spent by the government it creates an additional $1.5 of economic activity.  This is kinda/sorta true, but, only addresses 1/2 of the equation for economic growth. 

When considering such things as churn, one must realize every economy has drags and accelerators.  It’s easier to consider it like a hot-air balloon.  It has weights, and an engine to exhaust the lighter than air gas which makes the balloon rise.  If the balloon had no weights, then perhaps the churn would be enough to make the balloon buoyant.  But, if a frog had a glass ass, he wouldn’t jump so high, too.  It’s hypothetical and doesn’t address reality. 

If spending and creating money out of thin air were to lead to prosperity, then, none of us would ever have to work again!  We could just spend and print our way to untold riches!!! 

If government spending led to economic prosperity then if $3 trillion is good, why not spend $6 trillion?  If printing money led to economic prosperity, then if printing $100 billion a month is good, why not print $500 billion?

I’ve stated this before, and I’ll state it again, regarding Japan ….. stick a fork in them, they’re done. 


h/t Kim

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15 Responses to Japan Winning The Race To The Bottom!!!

  1. philjourdan says:

    Japan is a feudal society – always has been. The emperor has always taken care of its people. With a good emperor, and in times of stress, it works well. But that was 50 years ago.

    Japan is not like the US or Europe. They will sink lower and still survive as a society. It is the nature of their society.

    • suyts says:

      Yes, they will sink lower, and still survive as a quasi-society.

    • cdquarles says:

      I suspect we could say the same for China and even the US, if we allow industriousness to be subjugated by socialism. I’ve thought for a long time that there wasn’t as much of a difference between feudalism and socialism. Some of the recent cites of Marx confirmed it (surprised that I’d forgotten it, but I find Marx eminently unreadable).

      • leftinflagstaff says:

        Survival…hell, bacteria ‘survive’.

      • DirkH says:

        “but I find Marx eminently unreadable”

        He is very much so. It goes for the entire left leaning school of German crackpots; Kant, Hegel, Marx, Adorno. They have to redefine and invent so many words before they can derive their lunatic conclusions.

      • philjourdan says:

        I agree CD. But what I was getting at was the culture itself. America, whether we continue on to Socialism or not, was never socialistic/Feudalistic. So when times get tough, we cannot fall back on our history as Japan (and yes China) can do. We will collapse into chaos.

        Socialism is Feudalism without a hereditary lineage (usually).

  2. kim2ooo says:

    Prime Minister Abe is scheduled to decide on the tax rate hike by December this year. If policy makers are to start discussing adopting stimulus measures, the first argument they may face is “why not cancel the consumption tax rate hike in 2015?”.

    Must be an understudy of the Obama administration?

  3. kelly liddle says:

    “I’ve stated this before, and I’ll state it again, regarding Japan ….. stick a fork in them, they’re done. ”

    Just remember they had a 10 year start on you and you had a 10 year start on us. I am hopeful though because at least the Australian government can still cut if it needs to I believe.

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