The average Japanese have been living beyond their means for many years. Their day of reckoning is coming, one way or another. Just a question of whether they go gentle into that good night, so to speak.
A Snapshot Of Last Night's Yen And Nikkei Flash Crash Late last night, everything was going great, or horribly wrong depending on whether one still has some frontal lobe neurons left after years of indoctrination at Keynes U, and the USDJPY was soaring, levitating slowly at first then surging and touching 115.50, just 450 pips from the USDJPY 120 "pure insanity" level, when everything went wrong. This is the blow-by-blow thanks to Bloomberg: At 12:50pm Tokyo time, Nikkei 225 Index was sitting pretty, up 0.5% for the day. Then came the tumble. Over the next 22 minutes, Nikkei Index lost 1.8% to touch intraday low of 16,725.45 USD/JPY followed suit, but with a lag, based on data compiled by Bloomberg; currency slid from 115.38 to 114.46 during that period, marking 0.8% drop Japanese banks sold down Nikkei to take some money off the table, given its 8% advance since Oct. 31 when BOJ announced its latest easing, which in turn caused USD/JPY to retreat, according to a Tokyo-based FX sales trader Nikkei 225 closed down 0.9%, reversing earlier gain of as much as 0.6% And the chart which quite visibly shows that Japan is now a cardiac-arrest patient in terminal V-Fib. At least the country which one year ago brought daily flash crashes - and halts - of its entire bond market, is keeping it interesting, and now algos have to wonder just when the next fake market flash crash will tumble, and wipe everyone out, when the upward left of the V-shaped recovery refuses to appear. But perhaps the one thing that guarantees Japan's economic death was this: Economist Paul Krugman met Japanese Prime Minister Shinzo Abe this morning and said he was worried a further increase in sales tax planned for next Oct. could cause Abenomics to fail, Abe aide Etsuro Honda said. Krugman did not specify how long the delay should be, saying he was concerned increasing the tax as scheduled could mean Abenomics fails. Abe did not give his own view on the tax. Sorry Paul, Abenomics already failed: here is a chart of Japan's nominal and real wages - for ordinary Japanese consumers it is just a matter of when not if they panic.Per Goldman: "Real wages (nominal wages less the CPI inflation) registered a large decline of 2.9% yoy, after falling 3.1% in August. Summer consumer spending was sluggish in spite of the largest rise in summer bonuses since 1991, even considering the impact of the consumption tax hike and bad weather. Despite high one-time bonus payments, the continuous decline in real wages, especially the much lower pace of increase in basic wages (which is considered permanent income) relative to inflation rate, is restricting consumer behavior." The only good news: Japan has now moved into the Krugmanesque twilight zone, where the only remedy to failure will be doing more of what caused the failure in the first place, thus mercifully accelerating Japan's implosion into the Keynesian abyss.
You owe me some cats, I think. Abenomics Officially Leads Japan Into A Triple-Dip Recession Japanese GDP fell for the 2nd quarter in a row making it official - as we warned a month ago - that Japan has entered a triple-dip recession. Against hope-strewn expectations that the rebound from a sales-tax-driven slump would create a magical 2.2% (annualized) expansion, Japanese GDP slumped 1.6% in Q3 - missing by the most since March 2011. So no tax increase... and thus fiscal responsibility goes out the window. Abe dissolves government and bails on another failure? Abenomics - FTMFW!!! Missing by the most in 42 months!! The full breakdown... We can't wait for the spin.
Yield Curve @TenYearNote 2m2 minutes ago Between Jan and Sep there were 214 cases of corporate bankruptcies related to the weaker yen. ~2.4 times the total for same period a yr earlier.
I read the dialogue between Tao and Martinghoul and I must say that the facts come out on Martinghouls side. Something missed however is that Japan hasn't really applied Keynesian economics in any serious way until quite recently. The article posted to initiate this thread is profoundly incorrect and loaded to the gills with dis-information. In particular, there's nothing other than cursory knowledge of Keynesian economics evidenced in the article. One reads such ridiculous statements as:"Since the popping of the BOJ-induced bubble in 1989, Japan has been the most faithful adherent of Keynesian principals. At the onset of the crisis, they immediately began on their misguided path with large doses of deficit spending. Instead of allowing the economy to rid itself of bad investments and heal, they continued to prop-up failed business models — creating Zombie banks and an equally Zombie-like economy" ... As if Keynes was ever an advocate for inducement of bubbles in good economic times -- he advocated just the opposite -- or propping up failed business models and creating Zombie banks. Deficit spending, yes of course! That is the temporary consequence of Keynesian economics applied during recessions. The debt acquired during recessions, however, is to be paid down during boom times. It is an unfair test of Keynesian economics when the patient stops taking the medicine half way through the course of the disease. I am no expert on Japanese macro economics, but we all know they've suffered years of stagnation. Following on the heels of the U.S. Fed's success, and with the election of Abe, they altered course, moving more in the direction Keynes would have prescribed. They've done this, however, rather inexpertly it seems. Recently, because of concerns over still larger deficits, I would guess, Japan increased their national sales tax from 5 to 8%. I can't emphasize enough how profoundly un-Keynesian this move was! Keynes, in fact, would have prescribed just the opposite, i.e., lowering the sales tax from 5% to 3%! In his General Theory, Keynes, emphasized the government's stimulation of demand during slack times as a means of reducing unemployment and deflation. The Japanese government's move to increase sales tax at a time of slack demand has had exactly the deleterious effect that Keynes would have predicted were he alive today. In the U.S., where the economy has been handled somewhat better -- or is it just good luck and the reserve status of the buck? -- there is still conflict between the vestiges of 1980's supply-side economics and the demand-side stimulus that is prescribed according to the General Theory. Thus we too are suffering from inept application of Keynes ideas, but not to as great an extent as Japan. Supply-side conflicts with demand-side economics. We should do one or the other; not both at the same time! Demand side stimulus is needed in both Japan and the U.S. Unfortunately, it is difficult to get full cooperation in implementing the necessary stimulus when these countries' Treasuries are saddled with heavy deficits from mismanagement of economic boom times. What we should do in the U.S., and do it immediately, is substantially lower the income tax rate on the lower two brackets, and pay for this by bifurcating the top bracket into two, and raising the rates, progressively, on both. Recall that just the opposite was done during the 1980's when the number of brackets was reduced, and a cut in the uppermost bracket was paid for by increases in the lower brackets. Reversing the damage done through this misguided, unsuccessful and counterproductive application of 1980's, supply-side economics would increase consumer demand and put the U.S. economy on the right track. Some will argue that any tax increase in times of a slack economy is proscribed by Keynes General theory. But as Romer and other economists have pointed out, consumer demand is more sensitive to tax rate changes in the lower brackets than the upper. To argue otherwise is arguing supply-side economics. Congress should have approved the 4% increase on the top bracket that the administration asked for. I would have gone even further by breaking the top bracket into two brackets. As too few brackets was also a consequence of the severe tax rate compression begun in the 1980's, and which has only been partially undone at this point.