Wednesday, 12 November 2014

“Abenomics” is testing nonsense to destruction

Japan’s irrational terror of “deflation” encouraged Japanese voters to favour Prime Minister Abe’s experiment with “reflation”—an experiment being performed on an unprecedented scale.

Economist Ludwig Von Mises used to say trying to “reflate” the money supply after a catastrophic deflation was like reversing your car over someone after just running them down, and thinking that would make them feel better.

“Abenomics” is testing that to destruction.

Japan is where the Keynesian economic model rubber hit the road. In April 2013, the Bank of Japan announced a staggering $1.4 trillion QE program.
    In today’s world of Central Banking madness, $1.4 trillion no longer sounds like an insane amount. So let me put this number into perspective…
    $1.4 trillion is…

  1. The equivalent of 24% of Japan’s total annual economic output.
  2. Enough to fly every human being in Japan to California for a 2-week vacation.
  3. The equivalent of writing a check for $11,200 to every man, woman, and child in Japan.

Moreover, with $1.4 trillion, you could…

  1. Buy Australia’s entire economic output for a year.
  2. Fund NASA for the next 82 years.
  3. Treat every person on the planet to a $200 five-star dinner at one of New York’s top restaurants.

imageThe program however has been a complete failure. Japan’s GDP growth accelerated for only two quarters before turning down again. The misery index in Japan has hit a 33-year high as households were crushed by rising prices.
    Even exports, which were supposed to be the primary beneficiaries of a weakening Yen, have tanked. According to CLSA, real exports remain 16% below the 2008 peak in real terms. Sony, the once great electronics giant of Japan slashed its profit outlook by 70% and cancelled its dividend for the first time in
50 years.
In simple terms, Abenomics has failed to revitalise Japan. In very specific terms, a single QE program equal to over 24% of Japan’s GDP FAILED to generate sustainable growth in GDP, jobs, or even exports.
    So what did the Bank of Japan do?
    It increased its QE efforts.
    It is now clear that Central Banks will do absolutely anything but admit failure.

Anything but challenge their faith-based model.

When evidence meets faith, it doesn’t stand a chance.
    When a year and a half of aggressive quantitative easing failed to produce a recovery in private demand for funds, the government should have realized that the answer to the economy’s problems was not in monetary policy and shifted its focus to the second and third arrows of Abenomics.
    But the reflationists in academia and bureaucracy who are unable to accept that monetary policy is powerless in a balance sheet recession have basically said that if one pill doesn’t cure the patient, try two, and if two don’t work try four, 16, 256....
    Most patients would start to question the doctor’s diagnosis before they agreed to swallow 256 pills. But such voices have been erased from Japan’s policy debate….
     For those who believe monetary policy is always effective, no amount of evidence that there are times when monetary policy does not work will convince them otherwise.

Ironically, instead of boosting the economy, Abe's latest lunacy will merely lead to even greater Japanese economic devastation and the inevitable quadruple dip. That, or an outright economic depression, one from which the country will not emerge.

Oh, and from the Herald this morning: ‘NZ dollar soars to 7-year high against weak yen.’

“Soaring” being a relative thing in a currency war.


  1. A major problem with these qe# in nippon is rooted in the culture. Japanese are a very saving orientated people. In order for qe to work in a keynesian recession is for the people to spend and purchase goods that the factories produces. This doesn't work in the land of the rising sun since they are an export nation unable to undercut other regional competitors' and their own nation can't and won't consume what they produce. Thus, with the rest of the world still trying to recover and not buying costlier "made in japan" vice cheaper "made in elsewhere", nippon factories, companies, and economy languishes. The only way to pump up the economy is to make it into a consumer nation by deflating the yen to increase buying power and convince the population to spend. You could encourage spending by tax deduction on consumer credit, trickle down economics for production investments on consumer big ticket items and dropping prime interest to discourage saving. This fly in the face of most economists ideas, but it worked in the past: Reaganomics. What the rising son must also find from a form of Reaganisk keynesian is a goverment project that does not involve scaring its neighbors. Reagan's military buildup was a keynesian massive program that created massive demand for expesive large production that kick started idle factories. Japan can't do this for fear of alarming other nations that it has historically attacked. It need a peaceful projected that won't start an arms race. Two comes to mind: space and electronics. Starting massive gov venture on developing space explorations and incetivising advancement in computers will minimize fear of an imperial japan.

  2. Isn't it goo that for the socially responsible investor, who wishes to save with a conscience, there are a plethora of 'ethical' funds available.

  3. I'm stating the right or wrong of saving, just providing an observation and a hypothesis on solving a nation's economic doldrum. What I advanced is also why China will never sustain any economic superiority over the US. However, should China shift to a consumer aptitude (not misspelled), they can overtake the US. Fortunately Beijing doesn't know or truly want to because of the communist hold on the Middle Kindom.

  4. Anony

    You are completely wrong. Hard to imagine someone could get it as wrong as you just did, but there you are.


  5. How am I wrong? Until a counter point is stated, saying someone is wrong without reason is just name calling and not a discussion (or adult).

  6. Anon - So you're saying the path to economic prosperity is to consume more of what you produce? Sounds like more quackery to me.

  7. Anony,

    The reason nobody is challenging your assertions, is that you are "not even wrong". (

    It is impossible to logically and rationally argue against an argument as illogical and irrational as the one you posted.

    Check your basic premises, and get your facts straight, and then we can talk about individual assertions.

  8. Not at all. One of the biggest reason US is the econimc power it's because of production and consimption. The US produces sufficient wealth to allow the populous to buy products on credit. Thus, with a social desire to buy better than the "Joneses", the US middle class can and do buy and dictate durable product beyond the production of the country. Credit pushes that further. The big problem comes from when credit become limited because the production earning can't cover the credit/interests. However, if the populous places importance on saving and no credit, the country WILL NOT leverage earning to buy more, thus production WILL NOT grow and ecomomy WILL NOT grow. As an added bonous, if someone hold US debt, they are not going to greatly upset their biggest cistomer if they still can pay. What US should worry is the lost of productipn to cover th debt and the Middle Kingdom becoming a consumer nation that can cover its debt.

  9. Not at all. The key is to produce earning that esceed the credit/interests. The US is consumer, as a whole, is able to cover the debt acrued. Thus more demand on durable good can be placed to increase prouction. Without the excess demand on production, growth will become restricted. Credit and consumer demand leverages manufature expantion.

  10. $11,200 for a fortnight's holiday in California sounds very expensive - no wonder the Japs are broke!

    They would be better off coming to NZ and getting a group discount.

  11. Anononononyyyy

    Dolf is correct, as is Mark. Meanwhile you have no idea what you are talking about.



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