Wednesday, June 6, 2012

A. Gary Shilling: "Japan Exports Money"

Scratch another one.  This time it's economist A. Gary Shilling with an article in Bloomberg:
Financing government debt and deficits hasn’t been a problem for Japan: Until recent years, the country’s big-saving consumers provided the funds to finance the shortfalls. Unfortunately, this also meant that Japanese consumers weren’t spending that money. In fact, there was so much saving left over that Japan had money to export. This is demonstrated by its trade and current-account surpluses.
That's right, Japan exports "money"! Never mind all of those Lexus and Acuras you see driving around. (And his phrase "the country’s big-saving consumers" is a bit of an oxymoron if you think about it but I digress.)

You know actually Shilling here is close to recognizing the tyranny of the math as it relates to the Sectoral Balances Equation, as his article addresses savings and exports and deficits and he jumps back and forth between these flows. From Bill Mitchell:
...the sectoral balances view of the national accounts.
(I – S) + (G – T) + (X – M) = 0          That is the three balances have to sum to zero.
The sectoral balances derived are:
The private domestic balance (I – S) – positive if in deficit, negative if in surplus.
The Budget Deficit (G – T) – negative if in surplus, positive if in deficit.
The Current Account balance (X – M) – positive if in surplus, negative if in deficit.
These balances are usually expressed as a per cent of GDP but that doesn’t alter the accounting rules that they sum to zero, it just means the balance to GDP ratios sum to zero.
A simplification is to add (I – S) + (X – M) and call it the non-government sector.
Then you get the basic result that the government balance equals exactly $-for-$ (absolutely or as a per cent of GDP) the non-government balance (the sum of the private domestic and external balances).
This is also a basic rule derived from the national accounts and has to apply at all times. [Ed: Oh the tyranny of the math .... except for MORONS!]
Close but no cigar for Shilling here though as just the title of his article: "Japan’s Unsustainable Deficit-Financing Model" reveals that Shilling does not know what he is talking about.  Too bad for him and people who may take his advice and act on this.


paul said...


Bill goes after the economics schools and you go after the pundits.

A real public service.

Unrelated, but here is an interesting article:

Mike Norman said...

The myth of Japanese private savings. It's about $100 bln, that's it.