Tuesday, November 18, 2014

Bill Mitchell — Japan returns to 1997 – idiocy rules!

The financial press was ‘surprised’ that Japan had slipped back into recession, which just tells you that their sources don’t know much about how monetary economies operate. Clearly they have had their heads buried in IMF literature, which tells everyone that cutting net public spending will boost growth because the private sector is scared of deficits. This prediction has never worked out in the way the theory claims. It is pure free market ideology with no empirical basis. The other problem is that cutting net public spending when private spending is weak also pushed up the deficit. Back in the real world, Japan believes the IMF myths, hikes sales taxes to reduce its fiscal deficit, and goes back into recession – night follows day, sales tax hikes moderate spending, and spending cuts undermine economic growth. Kindergarten stuff really. Eventually this cult of neo-liberal economics will disappear but in the meantime while all and sundry are partaking in the kool aid, millions will be losing their jobs, poverty rates will rise and the top 10 per cent in the income and wealth distributions will continue to steal ever more real income from the workers. 
Neoliberalism = moronism. Where do they find these people to put in charge?

Bill Mitchell – billy blog
Japan returns to 1997 – idiocy rules!
Bill Mitchell | Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the Charles Darwin University, Northern Territory, Australia

See also

New Economic Perspectives
The New York Times Misses the Irony of Austerity and Economic Illiteracy
William K. Black | Associate Professor of Economics and Law, UMKC

The morons are everywhere.

7 comments:

Dan Lynch said...

QE "pushed investors out of bonds and in to stocks. The Tokyo stock market soared..... The huge stock market rise only benefited a minority of rich people. 80% of Japanese people do not own any shares."

http://www.bbc.com/news/business-30077122

Bart's Law #2: if a "mistake" is profitable, expect that "mistake" to be made over and over again.

James said...

Exactly Dan, austerity is working fantastically for the wealthy, they're asset stripping the public with gay abandon. They couldn't care less how much misery it causes, there's no honor among thieves. All they know is they're against government intervention, and entitlements, and to prove it, they demand the government intervenes and hands over all of the public's assets, because they're entitled to make a profit from them.

Matt Franko said...

"QE "pushed investors out of bonds and in to stocks."

This is more metaphorical language... QE didnt "push" anything...

the firms are making a fortune selling cars, etc....

Toyota Forecasts Second Year of Record Profit on Yen Boon

http://www.bloomberg.com/news/2014-11-05/toyota-forecasts-record-profit-on-yen-boon.html

"Toyota Motor Corp. (7203), Japan’s biggest automaker, predicted a record profit for a second year, as a weaker yen boosts the value of high-profit Lexus luxury models and SUVs sold abroad.

Net income for the 12 months ending in March may reach 2 trillion yen ($17 billion), up from its previous forecast of 1.78 trillion yen, the Toyota City, Japan-based company said today in a statement. The carmaker also raised its projections for full-year operating profit and revenue."

They lower the price of their autos to US customers in USD terms and increase US sales/share, the new real terms of trade this imposes on their Japanese workers is eventually reflected in the exchange rate and their US profits soar when marked back to market in Japan in the new Yen terms....

Rinse and repeat its a gravy train....

Ignacio said...

Matt, that's why the DAX is rising too right now, but there is more to that story and that phrase is (at least) partially true:

Forward P/E valuations are completely whack, as well as some actual P/E are at historical highs. Market is just at dumb levels but this is what you get for an highly financialized economy awash of liquidity because the trillions over trillions of liabilities (negative net worth) of the 99% + government surplus over the years are the assets of someone. And with yields being repressed all over the yield curve, and the credit markets (which are the markets that traditionally drain most of that surplus) being very unattractive the FED and it's minions around the world can happily dance on supposed "wealth effects" and the stock market rising (may the net worth of Yellen may rise 1 million dollar more!). People 'has to put their money somewhere', 'people' being mostly corporations doing buybacks along ponzi-style HFT moving the market on low abysmal volume (shown by the poor performance of traditional funds of all sorts, hedge/mutual) including major banks trading desks, the big fat bonus has to be justified somehow. Finance cannibalizing the economy, no news here, nothing to see, move around please.

But tbh, the BoJ just shifted it's portfolio and is buying ETF's like crazy, so is contributing to the rises, and feeding through expectations and the ominous "central bank put". And actually with the BoJ buying 110% (!) of the bonds issued, it's diminishing liquidity and supplies on bonds markets even more. Once they own 100% of the stock and the bond market their monetarist wet dreams may come true and force people to invest their money somewhere else.

But as everybody who is not an economists knows, with real wages not only stagnating but aggressively dropping for most Japanese people, and the most wealthy not spending most of their income, it's impossible to get the economy to work. Add to that a falling yen (and increasing costs of imported basic goods) and... man, it must suck to be average Haruto right now (but I know how exactly how it feels because exactly the same story is happening Europe along with additional problems), you got both inflation and deflation is one big package right there, welcome to the future lol.

The economic policy of Japan is the very definition of insanity (pushing people to spend through dubious non-existent monetary channels while rising taxes) right now, and the worse is that everybody seems to be following the path.

Matt Franko said...

Ignacio,

Over here not so bad S&P has the forward PE of the Index at 15 currently....

See this Excel file from my guy at S&P:

https://us.spindices.com/documents/additional-material/sp-500-eps-est.xlsx‎

This guy Howard has the projected Share Count Reductions already built in to his projections here I believe..

The 500 firms are making about $1T USD equiv. in profits globally in some currency or another .... they pay out about $500B in dividends, use about 350B for capex/buybacks and save about $150B.... or thereabouts....

Nothing can stop this from happening.

as these firms provision the economy and simply "make money" doing it... food, electricity, nat gas, etc.... they keep increasing productivity and govts have been running at about a breakeven YoY so they have to be "lean and mean" but they are getting it done...

Dont know so much about Japan but it looks like they are doing sort of the same thing over there ....

rsp,


Matt Franko said...

" with real wages not only stagnating but aggressively dropping for most Japanese people, "

Right this is what happens when the PEOPLE at Toyota tell the PEOPLE at Toyota USA to drop the USD prices for the Lexus sold in USA... and the USA PEOPLE come in to the dealer and buy the auto for the lower price...

This new REAL terms of trade between the Japanese workers and the US customer is eventually 'ratified' in the exchange rate...

the Japanese are willing to take LESS USDs for the effort it took them to manufacture the Lexus, etc so they (voluntarily?) lower their own REAL terms of trade when they put Lexus' on sale... the FOREX rate is a function of these fluctuations in the REAL terms between the nations...

rsp,

Matt Franko said...

This process with reverse when the US fiscal spending starts to increase in earnest...

THEN, USA sales rates will increase and the PEOPLE at Toyota will tell the PEOPLE at Toyota USA to RAISE the prices of the autos as sales volume is strong.... this INCREASES the REAL terms of trade for the Japanese workers as the price of the Lexus goes UP in USDs...

This will again be eventually reflected in the FOREX rates as the Yen will get stronger vs USD as the REAL terms of trade for the Japanese will be increasing...

It just goes back and forth with the US macro backdrop... right now we are "muddle thru" here so the Japanese exporters have to be aggressive on price to gain/maintain share and/or sales growth...

rsp,