Japan …… Going, Going …….. Gone?

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Well, we’ve known this was coming.  This would be funny were it not for the millions of souls who will suffer needlessly because of the massive stupidity of leftarded statists who know nothing of economics.

All is not lost, though.  Japan is very instructive and a vision of our future.  

Japan Falls into Surprise Recession

Surprise?  Surprise for who?

Japan’s economy unexpectedly slipped into recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to delay an unpopular sales tax hike and call a snap election two years before he has to go to the polls.

The recession comes nearly two years after Abe returned to power promising to revive the economy with his “Abenomics” mix of massive monetary stimulus, spending and reforms, and is unwelcome news for an already shaky global economy.

Gross domestic product (GDP) shrank by an annualised 1.6 percent in July-September, after plunging 7.3 percent in the second quarter following a rise in the national sales tax, which clobbered consumer spending.

The world’s third-largest economy had been forecast to rebound by 2.1 percent, but consumption and exports remained weak, saddling companies with huge inventories to work off.

Abe had said he would look at the data when deciding whether to press ahead with a second increase in the sales tax to 10 percent in October next year, as part of a plan to curb Japan’s huge public debt, the worst among advanced nations.

Abe said at a reception after returning from a weeklong overseas tour. “We are seizing a chance to exit long-lasting deflation and we cannot miss that chance,” adding he wanted to analyse the situation and make a decision on the tax. ….

…. Economy Minister Akira Amari said some economic stimulus was likely, but added it would be hard to craft an exceptionally big package because of the need for fiscal discipline.

Okay, there’s more information at the link, but, let’s stop there and point out some blatantly obvious things.

Japan is demonstrating that there’s no such thing as perpetually increasing national debt.  At some point, you have to pay the piper. 

A nation finances it’s deficit spending by issuing bonds.  People buy the bonds based solely on the belief the nation can and will pay them back ……. with interest.  The less faith the nation can pay back, the higher the interest the nation must pay in order for the people to take the risk in buying the bonds.  As stated in the article, Japan’s debt is the highest per GDP than any other advanced nation.  Simply stated, there isn’t much appetite for financing more of Japan’s debt. 

Before we continue, I want to state something, again.  I cannot state this enough.  GDP is nothing but an economic indicator.  It is not a euphemism,  nor a metric of an economy in toto.  Especially since the revision of the definition of GDP and considering government spending is part of the GDP calculation, we know, and Japan proves, GDP is not, and can not be a euphemism nor a metric of an economy in toto. 

While Japan is in a recession, they’ve been in one for quite some time, now.  It has only been the government spending which caused the GDP to in the positive.  Given that much of the spending was deficit spending and financing debt, we know Japan’s economy hasn’t really moved in many years. 

 

As noted many times before, Japan’s monetary stimulus, aka quantitative easing, aka printing money, puts the US’ and Euro zone’s to shame.  The notion behind printing money is that more money will make it easier to pay back debt, borrow more money, and put the money in the hands of the people, who would, in turn, spend more money and move the economy forward.

The biggest problem with this notion is that it tries to have the tail wag the dog.  The problem with Japan isn’t that their people didn’t want to spend money, it is that they have no money.  When I use the term “money” I’m referring to a currency which has value.  Sure, there are a many very rich Japanese.  But, for the average, common, Japanese, they don’t have anything.  Why?

This is the crux of economics.  For any strong economy, you have to do or make something of value.  Let me reiterate for emphasis.  You have to do or make something of value!!!!!!!  Or, let me put it in a different manner so people can understand …….  you have to do or make something of value!!!!!

Japan doesn’t.  Yes, they used to be the manufacturing Mecca of the world.  Japan has long since outsourced most of its jobs to other Asian nations.  They don’t have much in the way of natural resources, so there’s no reason to keep the jobs in Japan.  One has to ship the resources to Japan, it’s just as cheap to ship them to another Asian nation.  And, as any advanced nation would tell you, the people in the 2nd and 3rd world nations will work cheaper than those of us in first world nations. 

This brings me to the “do” part of the message.  While it is arguable, the notion was, for a time, that the Japanese were simply better at manufacturing than anyone else in the world.  Again, it’s arguable.  But, it’s a “so what”.  The Swiss were seen as the best watch makers and the Germans the best engineers.  But, there’s nothing a group of people can do better than anyone else for very long.  People learn.  People steal, take, borrow, other people’s ideas and make them better.  That’s what people do.  I wanted to mention this because of what I stated about what is necessary for good economic health.  It is the resources which makes the difference. 

A few nations do very well in agriculture.  The US produces an unfathomable amount of food.  Yes, the US has some very good farmers and ranchers.  But, it’s the land which makes this possible.  Some places have very good fishermen.  But, it’s the location which makes this possible.  Oil, coal, natural gas, iron, bauxite, and a host of other things naturally found in some locations are what dictates what a nation can do to move their economy along.  None of these things include printing money or deficit spending.  These things are not a basis of an economy.  An economy must be based upon something.  Whatever it is, be it fishing, forestry, or even tourism, an economy must have a basis in order to have value, potential value, and future value.  If there is no future, nor potential value, then there is no basis in which to issue, or rather, buy their bonds. 

Lastly, this brings me to the “deflation” which is mentioned much too often these days.  I haven’t looked, but, I seriously doubt actual deflation has occurred in Japan.  But, perhaps it has.  So what?  Deflation is a natural and necessary correction to goods, services, and things, which the price exceeds the people’s ability to pay.  The prices must drop, and thus, as the prices drop, so does everything else.  But, it adds buying power to the people, which, then, allows the economy to renew ……. assuming there is some basis for value in the currency.  Deflation is nothing more than an economy seeking a balance.   And, a good balance is what one needs.  Else, you end up with a spiraling national debt, excessive taxation to help pay the debt, and bonds no one wants to buy. 

A parting note:  Even if one believes Japan’s economic troubles are caused by the people spending too little money, raising the sales tax would one of the stupidest things one could impose.    

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6 Responses to Japan …… Going, Going …….. Gone?

  1. Latitude says:

    good grief….here we go

  2. cdquarles says:

    As Ludwig von Mises said about a century ago about money and credit. To get a ‘boom’ (not equal to a healthily growing economy) the government must first debase the money by artificially expanding credit (the easiest way is via a central bank issuing fiat currency). The first and best beneficiary of the resulting inflation is the government and economic actors acting voluntarily cannot cause a generalized mal-investment (note bene: prices don’t have to be increasing for this inflation to exist and while voluntary exchange could cause a localized mal-investment, competition via arbitrage would quickly eliminate it, so don’t kill the speculator acting voluntarily!). Once the inflation gets ‘normalized’, economic actors alter their behavior with the expectation of the continuing inflation (again, ‘rates’ have nothing to do with this). The effect of this is capital consumption and results in mal-investment generally. This mal-investment is the trigger for either the ‘crack-up boom then crash’ or a deflation, which may crash or not (passim Volker and Reagan’s controlled deflation … though prices themselves didn’t necessarily drop). Thus the ‘business cycle’ of ‘boom & bust’ is *always* created by government interference in the price-setting/value maximizing process called the free market.

    To also re-emphasize the Austrian School’s points. Money and credit, like all economic goods, has a supply and a demand. Economic actors act when the value received by both parties to an exchange exceeds the value given by both parties to an exchange. Any time or anywhere this voluntary determination of mutually beneficial trade is interfered with, the exchange cannot fulfil the price-setting role and there must be force or fraud involved. Economic values are subjective, and the decision is instantaneous (in that the buy/don’t buy depends on that value appraisal right then and there and the past/future are both discounted (interest)).

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