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Abe is certainly making a difference. But a bastion of liberal democracy? Hardly. For instance, look at the man he parachuted in as the head of NHK: http://www

by Pitarou 12y ago

Abe is certainly making a difference. But a bastion of liberal democracy? Hardly. For instance, look at the man he parachuted in as the head of NHK: http://www.bbc.com/news/world-asia-25901572 http://www.bbc.com/news/world-asia-25901572 And there's a large stretch between trying to boost the economy by encouraging female labor force participation and feminism. By that standard, Saddam Hussein might have been called a feminist in some periods of his reign. Opinion is sharply divided over whether Abe's economic policies make any sense. I'm in the "they're insane" camp. I've likened Abe to the captain of a ship who, seeing an iceberg looming, calls out, "Full steam ahead! We're going to smash our way through." But all observers agree on these two points: 1. Abenomics will be a disaster without large-scale structural reform. 2. The reform we've seen so far isn't nearly enough. Optimists believe that this reform is just round the corner ... that even as we speak Abe is busy quietly building the necessary consensus in key organisations, because that's the way reform is done in Japan. The pessimists want proof. Finally, there is a terrible, terrible paradox at the heart of Abe's economic policies. This is a complex matter, so forgive me for skipping most of the details and implications. No matter how you measure it, the Government of Japan is up to its neck in debt, and is still sinking. The only reason it can keep going is because it pays remarkably low interest rates. But the first "arrow" of Abenomics is to push up inflation, and you can be sure that this arrow will meet its mark because they can always "print" more yen. One of the iron laws of economics is that, when inflation goes up, so do interest rates. Now, to cut a long story short, it looks like the government's going to get out of this bind by directing the Bank of Japan to print even more money to buy it's debt at below-market prices. In fact, if you follow the bond market news, it's clear that this is already happening. And that, my friends, is a recipe for collapse in confidence in the yen. Speaking for myself, as a Japanese resident, I believe that the yen is an increasingly risky asset to hold. I make a point of keeping at least 50% of my savings out of yen, and away from the Japanese financial system. When the shit hits the fan, I don't want my money to be stuck behind Iceland-style capital controls. --- EDIT: Changed "recipe for inflation" to "recipe for collapse in confidence in the yen" in response to comments below.

nl 12y ago
Speaking about the economics only: And that, my friends, is a recipe for hyperinflation. Perhaps, but given that the situation over the last 15 years has been deflation there is a big, big distance to cover before hyperinflation should be thought of as a significant risk. Something needs to be done to combat the chronic deflationary cycle Japan has suffered in over 15 years. I'm unconvinced this is as bad an idea as you seem to believe.
- Pitarou 12y ago
  Like I said, it's a complex matter, and opinions differ. But ultimately, it boils down to demographics. The Japanese haven't been having enough babies. One way or another, the people who think they're going to retire comfortably are in for a nasty shock, because there just aren't enough young people to produce what they expect to consume. And inflation looks like the most likely mechanism for this to happen. As for the government debt, there are two ways out of the mess: inflation or default. And there's no way they're going to opt for default when they can just keep printing more money. The only real solution (real in the economists sense of the word) is mass immigration, and that's not going to happen until Japan is absolutely desperate. The "200,000 immigrants" the article mentions isn't nearly enough. And in any case, Japan has such a poor record on immigration policy that I confidently expect them to bungle this one, too. Look at the failure of their recent "skilled migrants" program, or their disastrous program to recruit trained Philippino nursing staff, or the abuse and corruption in the "trainee worker" program, or ... I could go on.
  - nl 12y ago
    I don't disagree with anything you are saying. But often economic management is delaying a crisis until another problem makes it go away. If Abe can get the economy growing again it makes it more likely other changes will occur - like the female participation rate increasing. The consequences of that are unpredictable. One possible scenario is that it could partially reverse the trend of a shrinking workforce. Economic growth also makes inflation unnecessary to repay debt (since tax receipts increases with growth giving the government an alternate path to repaying debt). Also worth noting is that some inflation (non-hyperinflation, but higher than comparable nations) would help devalue the Yen, which would make Japanese exports more attractive again. Anyway, I guess my whole message is that focusing too much on too long-term consequences is often unhelpful in economics. The system is too chaotic to predict that far, and usually tends towards equilibrium.
yk 12y ago
No matter how you measure it, the Government of Japan is up to its neck in debt, and is still sinking. Thing is, you need to measure the dept against some measure of economic activity ( or actually against some measure of pay back capability), and then the funny thing is that the higher the dept, the easier it is to get to sustainable levels by deficit spending. So dept goes from D to D + d and GDP goes from G to G + x d, solving for a critical multiplier x0 where the ratio stays constant, x0 = G/D So the more dept you have, the less productive need your stimulus program to be to reduce dept. Additionally, for this you can replace the measures by inflation adjusted measures and you get the same result, with some dependence on the real interest rate. ( Which can be negative.) Additionally it is surprisingly hard to get hyperinflation, just printing a few percent of GDP in new money per year will not do the trick. ( Try occupation of a major industrial region, after the end of price controls plus a lost world war.)
- Pitarou 12y ago
  That's a nice macroeconomic model you have there. But what happens when G/D < x0 and then you increase D? But you're right about the hyperinflation thing. I was being overly dramatic. I should have said: And that, my friends, is a recipe for a collapse in confidence in the yen. But the effects are pretty similar.
  - yk 12y ago
    I would call it rather a back of the envelope calculation, but if the multiplyer is too small, then you increase dept more than GDP. So yes, the policy of a stimulus program still needs to be good enough, my point is that after a certain point you will not get out of financial trouble by cutting spending.
    - kostyk 12y ago
      and again "dept" hmmm
- VexXtreme 12y ago
  Not to be pedantic or anything, but what do you mean by "dept"? It's an honest question. Are you referring to debt or is it a different concept I'm not familiar with?
crdoconnor 12y ago
>No matter how you measure it, the Government of Japan is up to its neck in debt, and is still sinking. Japan's debt is a trailing indicator of economic malaise, not a leading indicator. >The only reason it can keep going is because it pays remarkably low interest rates. It ought to be obvious to anybody with an ounce of sense that any country that prints the currency it borrows in can choose its own interest rates. This is precisely what Quantitative Easing does. >But the first "arrow" of Abenomics is to push up inflation, and you can be sure that this arrow will meet its mark because they can always "print" more yen. Yes, this is true. >One of the iron laws of economics is that, when inflation goes up, so do interest rates. This is totally utterly false. As long as QE continues (and so far it has continued), interest rates on Japanese bonds will be held at zero. >Now, to cut a long story short, it looks like the government's going to get out of this bind by directing the Bank of Japan to print even more money to buy it's debt at below-market prices. In fact, if you follow the bond market news, it's clear that this is already happening. And that, my friends, is a recipe for hyperinflation. This is not just false, it is absurdly false. Hyperinflation hyperventilators have been predicting Japanese hyperinflation since 1997 when their debt went over 80% and they continued deficit spending. What happened instead? Deflation. They couldn't have been more wrong then just as you couldn't be more wrong now. Like any economic variable, inflation can be targeted. In Japan, it simply wasn't targeted and it wasn't aimed for during the last 20 years. They just engaged in QE, which swapped bonds that represented Japanese savings earning subinflation interest for cash savings which also earned subinflation interest. And they thought this money was magically going to be spent? For inflation to happen you need spending. PART of what is new about abenomics is that it actually does do a bit of that, but not very much.
- Pitarou 12y ago
  Less of the "anyone with an ounce of sense" type language, please. Not everyone who disagrees with you is stupid. What you say is correct as far as it goes but ... well ... I could write: > Only a driveling idiot does not understand that a government that prints its own currency doesn't need to borrow money at all. And it would be completely true. They tried that in Zimbabwe, didn't they? I'm wall aware that Japan has a few magic charms (high savings rates, strong balance of trade, and so on) that enabled the government to run up far higher debts than would be possible elsewhere. But it looks to me like those charms are all used up now.
kaonashi 12y ago
With the moralizing about Japan's debt, you're forgetting one absolutely key fact: what Japan owes is something that Japan is the monopoly issuer of. If you leave out this fact, then everything that follows is just going to be off-base.
- Pitarou 12y ago
  I'm very, very well aware of that fact, kaonashi. And I made explicit reference to it in my original post.
  - kaonashi 12y ago
    If you were, then you would also be aware that the Japanese debt will be rolled over in perpetuity at a rate of the BoJ's choosing. Any inflationary pressures are going to come from real supply problems/limits, not monetary policy.
    - Pitarou 12y ago
      Because the BoJ is going to keep on funding the government's debt forever with freshly printed yen, right? Which is just a complicated way of saying that the government is going to print money to pay for it's spending program. You don't see a problem with that?
      - crdoconnor 12y ago
        We're assuming here that the Japanese government has the capability of lowering as well as raising spending if they feel inflation is too high. They can also raise interest rates and end QE. So yes, explain why that would be a problem, exactly. In terms of real effects on the economy that the Japanese would experience.
        Pitarou 12y ago
        Thank you for not SHOUTING this time.
J_ 12y ago
I think you're pretty much correct. Kyle Bass has been talking about this for years. When the Japanese hit 2% inflation, people are going to be rushing out of JGBs if the government maintains ZIRP. This is a complex issue, so I'm going to refer people to this talk that Kyle Bass gave last year: https://www.youtube.com/watch?v=7kFcDKBpdII https://www.youtube.com/watch?v=7kFcDKBpdII
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by Pitarou 12y ago

nl 12y ago

Speaking about the economics only: And that, my friends, is a recipe for hyperinflation. Perhaps, but given that the situation over the last 15 years has been deflation there is a big, big distance to cover before hyperinflation should be thought of as a significant risk. Something needs to be done to combat the chronic deflationary cycle Japan has suffered in over 15 years. I'm unconvinced this is as bad an idea as you seem to believe.

Pitarou 12y ago
Like I said, it's a complex matter, and opinions differ. But ultimately, it boils down to demographics. The Japanese haven't been having enough babies. One way or another, the people who think they're going to retire comfortably are in for a nasty shock, because there just aren't enough young people to produce what they expect to consume. And inflation looks like the most likely mechanism for this to happen. As for the government debt, there are two ways out of the mess: inflation or default. And there's no way they're going to opt for default when they can just keep printing more money. The only real solution (real in the economists sense of the word) is mass immigration, and that's not going to happen until Japan is absolutely desperate. The "200,000 immigrants" the article mentions isn't nearly enough. And in any case, Japan has such a poor record on immigration policy that I confidently expect them to bungle this one, too. Look at the failure of their recent "skilled migrants" program, or their disastrous program to recruit trained Philippino nursing staff, or the abuse and corruption in the "trainee worker" program, or ... I could go on.
- nl 12y ago
  I don't disagree with anything you are saying. But often economic management is delaying a crisis until another problem makes it go away. If Abe can get the economy growing again it makes it more likely other changes will occur - like the female participation rate increasing. The consequences of that are unpredictable. One possible scenario is that it could partially reverse the trend of a shrinking workforce. Economic growth also makes inflation unnecessary to repay debt (since tax receipts increases with growth giving the government an alternate path to repaying debt). Also worth noting is that some inflation (non-hyperinflation, but higher than comparable nations) would help devalue the Yen, which would make Japanese exports more attractive again. Anyway, I guess my whole message is that focusing too much on too long-term consequences is often unhelpful in economics. The system is too chaotic to predict that far, and usually tends towards equilibrium.

yk 12y ago

No matter how you measure it, the Government of Japan is up to its neck in debt, and is still sinking. Thing is, you need to measure the dept against some measure of economic activity ( or actually against some measure of pay back capability), and then the funny thing is that the higher the dept, the easier it is to get to sustainable levels by deficit spending. So dept goes from D to D + d and GDP goes from G to G + x d, solving for a critical multiplier x0 where the ratio stays constant, x0 = G/D So the more dept you have, the less productive need your stimulus program to be to reduce dept. Additionally, for this you can replace the measures by inflation adjusted measures and you get the same result, with some dependence on the real interest rate. ( Which can be negative.) Additionally it is surprisingly hard to get hyperinflation, just printing a few percent of GDP in new money per year will not do the trick. ( Try occupation of a major industrial region, after the end of price controls plus a lost world war.)

Pitarou 12y ago
That's a nice macroeconomic model you have there. But what happens when G/D < x0 and then you increase D? But you're right about the hyperinflation thing. I was being overly dramatic. I should have said: And that, my friends, is a recipe for a collapse in confidence in the yen. But the effects are pretty similar.
- yk 12y ago
  I would call it rather a back of the envelope calculation, but if the multiplyer is too small, then you increase dept more than GDP. So yes, the policy of a stimulus program still needs to be good enough, my point is that after a certain point you will not get out of financial trouble by cutting spending.
  - kostyk 12y ago
    and again "dept" hmmm
VexXtreme 12y ago
Not to be pedantic or anything, but what do you mean by "dept"? It's an honest question. Are you referring to debt or is it a different concept I'm not familiar with?

crdoconnor 12y ago

>No matter how you measure it, the Government of Japan is up to its neck in debt, and is still sinking. Japan's debt is a trailing indicator of economic malaise, not a leading indicator. >The only reason it can keep going is because it pays remarkably low interest rates. It ought to be obvious to anybody with an ounce of sense that any country that prints the currency it borrows in can choose its own interest rates. This is precisely what Quantitative Easing does. >But the first "arrow" of Abenomics is to push up inflation, and you can be sure that this arrow will meet its mark because they can always "print" more yen. Yes, this is true. >One of the iron laws of economics is that, when inflation goes up, so do interest rates. This is totally utterly false. As long as QE continues (and so far it has continued), interest rates on Japanese bonds will be held at zero. >Now, to cut a long story short, it looks like the government's going to get out of this bind by directing the Bank of Japan to print even more money to buy it's debt at below-market prices. In fact, if you follow the bond market news, it's clear that this is already happening. And that, my friends, is a recipe for hyperinflation. This is not just false, it is absurdly false. Hyperinflation hyperventilators have been predicting Japanese hyperinflation since 1997 when their debt went over 80% and they continued deficit spending. What happened instead? Deflation. They couldn't have been more wrong then just as you couldn't be more wrong now. Like any economic variable, inflation can be targeted. In Japan, it simply wasn't targeted and it wasn't aimed for during the last 20 years. They just engaged in QE, which swapped bonds that represented Japanese savings earning subinflation interest for cash savings which also earned subinflation interest. And they thought this money was magically going to be spent? For inflation to happen you need spending. PART of what is new about abenomics is that it actually does do a bit of that, but not very much.

Pitarou 12y ago
Less of the "anyone with an ounce of sense" type language, please. Not everyone who disagrees with you is stupid. What you say is correct as far as it goes but ... well ... I could write: > Only a driveling idiot does not understand that a government that prints its own currency doesn't need to borrow money at all. And it would be completely true. They tried that in Zimbabwe, didn't they? I'm wall aware that Japan has a few magic charms (high savings rates, strong balance of trade, and so on) that enabled the government to run up far higher debts than would be possible elsewhere. But it looks to me like those charms are all used up now.

kaonashi 12y ago

With the moralizing about Japan's debt, you're forgetting one absolutely key fact: what Japan owes is something that Japan is the monopoly issuer of. If you leave out this fact, then everything that follows is just going to be off-base.

Pitarou 12y ago
I'm very, very well aware of that fact, kaonashi. And I made explicit reference to it in my original post.
- kaonashi 12y ago
  If you were, then you would also be aware that the Japanese debt will be rolled over in perpetuity at a rate of the BoJ's choosing. Any inflationary pressures are going to come from real supply problems/limits, not monetary policy.
  - Pitarou 12y ago
    Because the BoJ is going to keep on funding the government's debt forever with freshly printed yen, right? Which is just a complicated way of saying that the government is going to print money to pay for it's spending program. You don't see a problem with that?
    - crdoconnor 12y ago
      We're assuming here that the Japanese government has the capability of lowering as well as raising spending if they feel inflation is too high. They can also raise interest rates and end QE. So yes, explain why that would be a problem, exactly. In terms of real effects on the economy that the Japanese would experience.
      - Pitarou 12y ago
        Thank you for not SHOUTING this time.

J_ 12y ago

I think you're pretty much correct. Kyle Bass has been talking about this for years. When the Japanese hit 2% inflation, people are going to be rushing out of JGBs if the government maintains ZIRP. This is a complex issue, so I'm going to refer people to this talk that Kyle Bass gave last year: https://www.youtube.com/watch?v=7kFcDKBpdII https://www.youtube.com/watch?v=7kFcDKBpdII

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