Nikkei

Insider

We're All Turning Japanese

Japan is the proxy for our future
Tuesday, September 10, 2013, 1:40 PM

Executive Summary

  • As goes Japan's efforts to rescue it's economy, so will go the U.S. and E.U.
  • Japan's options:
    • Outsource its manufacturing base
    • Replace as much human labor with automation as it can
    • Rush to trade its depreciating currency for hard assets around the world
  • What Japan is telling us about the Keynesian endpoint

If you have not yet read Part I: Abenomics' Dismal Anniversary, available free to all readers, please click here to read it first.

Japan Is Reflecting the Future of Western Economies

While many observers continue to follow Europe as the proxy for post-growth dynamics in the OECD, it's actually Japan that merits the closest analysis.

Much farther along in its post-growth phase, bloated with government debt and having tried a number of big-bang initiatives over the decades, Japan not the U.S. or Europe is leading the way. The country has never really recovered from the gigantic property and stock bubble over twenty years ago.

As proof, just consider the biggest trading story of the past 12 months. Was it the Federal Reserve's intention to taper? How about the chaos in emerging market currencies in countries like India and Indonesia? Or perhaps the continued economic depression in peripheral Europe, as countries like Spain, Portugal, and Greece re-run the 1930s, with mass unemployment and people burning wood from forests to say warm? No, not even such dramatic suffering in Europe was enough to move markets or the EUR currency much this past year.

Instead, it was Abenomics and the front-running (and then chasing) of wildly huge moves in both the Nikkei and JPY that helped drive liquidity and speculative juices across all markets. It is not a coincidence that the peak of this frenzy in May heralded the peak in many markets.

But Japan has more than a financial problem. Despite the hand-wringing about Japan's debt, the world has ignored for some time now Japan's debt-to-GDP, GDP on an absolute basis, and Japan's low cost of capital. Japan borrows. Japan prints. Japan devalues. But the world doesn't care.

An issue the world may finally begin to care about, however, is that Japan has failed to launch itself out of deflation and is making very little progress in its struggle now. Indeed, Japan has a demographics problem and a resources problem that far outweigh its financial problems. To this point, instead of launching into recovery, Japan is running with the resources Red Queen, as every step of its currency devaluation is met with rising costs to import the raw materials Japan uses to make its goods... » Read more

Blog

Abenomics' Dismal Anniversary

Why we need to care about Japan's continued decline
Tuesday, September 10, 2013, 1:39 PM

Abenomics, the radical set of reflationary policies designed to (air)lift Japan out of its multi-decade slump, is approaching its first anniversary. Don't expect a joyful celebration. » Read more

Blog

The Dead Weight of Sluggish Global Growth

Weighing heavier each year
Tuesday, July 9, 2013, 1:04 PM

Global Slowdown

The U.S. economy weakened appreciably in the first quarter of 2013. But what if this weakness persists into the second quarter just completed, and worsens still in the second half of this year? Q1 GDP, as reported on June 26th, was revised lower to just 1.8%. And various indications suggest that Q2 could come in slightly lower still, at 1.6%. Might the U.S. economy be guiding to a long-term GDP of 1.5%? That’s the rate identified by such observers as Jeremy Grantham the rate at which we combine aging demographics, lower fertility rates, high resource costs, and the burdensome legacy of debt. Well, after a four-year reflationary rally in just about everything, and now with an interest-rate shock, the second half of 2013 appears to have more downside rather than upside risk. Have global stock markets started to discount this possibility? » Read more

Blog

Four Signs That We're Back in Dangerous Bubble Territory

Stocks, bonds – everything – at risk
Tuesday, May 21, 2013, 7:09 PM

As the global equity and bond markets grind ever higher, abundant signs exist that we are once again living through an asset bubble or rather a whole series of bubbles in a variety of markets. This makes this period quite interesting, but also quite dangerous.

With equity and bond markets at or near all-time record highs, with all financial assets consistently shrugging off bad or worse news as the riskiest of assets continue to find consistent upward bids, we find ourselves in familiar and bubbly territory. » Read more

Blog

Japan vs. Newton (and Certain to Lose)

Running head first into hard limits
Monday, April 8, 2013, 9:17 PM

Conventional thinking and reporting has it that Japan is conducting a larger version of the same monetary experiment they’ve been running for about 15 years.  The implication here is that we can safely analyze what Japan is up to through the same monetary lens as always, but with a slightly wider aperture.

By now, we are all familiar with the details.  Japan has initiated a program of monetary expansion that goes by the shorthand of 2-2-2.  In 2 years, the Bank of Japan (BoJ) will fully double the monetary base as they seek a minimum of 2% inflation. » Read more

Blog

The Arrival of Japan's Sunset

The repercussions will be tremendous
Monday, February 18, 2013, 6:05 PM

For a successful technology, reality must take precedence over public relations, for nature cannot be fooled. ~ Richard Feynman

Waiting for Japan's economy to make a strong recovery has been an ongoing game since 1990. Shall we play that game one more time? » Read more