Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Japan Is Dying And We Still Don’t Get It?!

Economics / Japan Economy Nov 18, 2014 - 04:18 PM GMT

By: Raul_I_Meijer

Economics

What is it with us? Don’t we WANT to understand? Japan announced on Monday that its economy is in hopeless trouble and back in recession (as if it was ever out). And what do we see? ‘Experts’ and reporters clamoring for more stimulus. But if Japan has shown us anything over the past years, and you’re free to pick any number between 2 and 20 years, it’s that the QE-based kind of stimulus doesn’t work. Not for the real economy, that is.


The land of the setting sun has during that time thrown so much stimulus into its financial system that Krugman-esque calls for even more of the same look even more ludicrous today than they did all along. Abenomics is a depressing failure, just as we knew it would be since it started almost two years ago. It’s not complicated, and it never was.

Japan’s stimulus has achieved the following: banks get to pretend they’re healthy and stocks rise to heights that are fundamentally disconnected from underlying real values. On the flipside of that, citizens are being increasingly squeezed and ‘decide’ not to spend (not much of a decision if you have nothing to spend). Since Japan’s ‘consumer’ spending makes up about 60% of GDP, things can only possibly get worse as time passes. If ‘consumers’ don’t spend, deflation is the inevitable result – and that has nothing to do with the much discussed sales tax, it’s been going on for decades -.

Therefore, the sole thing QE stimulus has achieved is a wealth transfer from poorer to rich. And that’s not only the case in Japan. Mario Draghi yesterday hinted – again – at all the stuff he could start buying next year, including sovereign bonds, even though that would violate EU law. And whether or not Germany will let him in the end, the fact that he keeps the option alive even if only in theory, tells us plenty about the mindset at the ECB.

That is, it’s the same as in Japan. And doing the same can only lead to the same results. A poorer population, a richer toplayer and an economy that continues to shrink, which will and must lead to the same deflationary trend. The idea that an economy can be rescued by pushing public funds into its finance system and stock markets has been forever thrown out by Japan’s experiences.

Draghi said yesterday that ‘monetary policy has done a lot’, and while that may be correct, it says nothing about WHAT it has done. From where I’m sitting, Germany’s recent drift into negative territory and the ongoing record unemployment rates around the Mediterranean certainly tell us a lot about what it has NOT done. QE, no matter how big and how crazy, doesn’t heal real economies, it makes them sicker.

If consumer spending makes up 60% of GDP, as in Japan, or even 70%, as in the US, then you need to boost that spending. And you don’t do that by handing over what financial wiggle room you have left, to banks so they can pile it on to the reserves they hold at central banks.

It is accepted as gospel that it’s a good thing to give banks free money, but it would be the devil’s work to give it to consumers. Instead, the latter must be squeezed from all sides, through austerity, the loss of services, benefits, wages and jobs, in order to prop up the financial system. How and where is it not clear what that will result in? There’s only one possible outcome.

The reason why all governments and central banks keep following the failed QE stimulus path regardless lies in the relative political powers that different parts of a society have. In today’s world, saving the banks, which equals saving the rich, is not only the priority, it’s the only deliberation.

And if you might be under the impression that what is true in Japan and Europe does not hold in the US, why not start with this graph from Doug Short, and take it from there.

If and when an economy is as deep in the doldrums as all major economies today are, you can’t rescue it by taking from the poor to save the rich. It’s fundamentally impossible. You need the bottom 90%’s spending in order to generate enough GDP to stay out of deflation. Money must move through an economy for it to stay sufficiently ‘lubricated’. And the only people who can keep that money moving are the bottom 90%. It’s Catch-22.

Any stimulus must be directed at the bottom, or it must of necessity fail. Nothing commie or socialist about it, but simply the way economies work. And it’s not just some difference of ideal or insight or something, it’s very simply that an economy cannot function without its poorer 90% of citizens spending.

Anything else is simply Grand Theft Auto. Both Japan and Europe are preparing for more of it.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2014 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.
Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules