Monday, December 17, 2012

Economic Tomfoolery To Continue In Japan

By, Chris Rossini
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The Wall Street Journal reports on the economic ignorance of the newly elected Prime Minister (my emphasis):
Fresh from a landslide election victory, Japan's next prime minister, Shinzo Abe, pressed ahead with his top priority of reviving the sickly economy, vowing a hefty spending package and increasing the pressure on the central bank for quick action to pull the country out of recession and deflation...

Turning up the heat on the Bank of Japan to take much more aggressive measures to reflate the world's third-biggest economy...

Mr. Abe, who said he would form a Cabinet on Dec. 26, vowed a "large-scale" budget for government spending to help revive an economy heading toward a third straight quarter of contraction and to end decades of deflation. The budget will take into account the gap between oversupply and weak demand in the economy...
First let's tackle the idea of "reflation":

In 1896, William Graham Sumner observed: “For three hundred years our history has been marked by the alternations of ‘prosperity’ and ‘distress’ which are produced by the booms and their collapses. When the collapse comes, the people who are left long on goods and land [and stocks] always make a great outcry and start a political agitation. Their favorite device always is to try to inflate the currency and raise prices again until they can unload…No scheme which has ever been devised by them has ever made a collapsed boom go up again.”

Sumner pointed to the reason that all such efforts had failed. “The most far-reaching vice in all these [inflation] schemes was that they led the people to believe that the methods of a ‘boom’ could be successfully employed in the place of the methods of thrift.”

Murray Rothbard also spoke frequently on the idea: “It is clear that prolonging the boom by ever larger doses of credit expansion will have only one result: to make the inevitably ensuing depression longer and more grueling. The way to prevent a depression, then, is simple: avoid starting a boom.”

Now to the oversupply nonsense of Prime Minister Abe:

If businessmen wish to sell their “overproduced” goods, then cut prices! Cut them low enough to sell it all.

Is Abe concerned that businesses will suffer losses? Of course he is.

Then the correct thing for him to do is to ask better questions: If entrepreneurs, en masse, have to take losses, why did they all bid prices too high? Who tricked them into thinking that they would make a profit at the prices they paid for capital goods?

Mr. Abe, could it be that the same central bank, that you're asking to "reflate" the economy, caused the so-called "oversupply" by tricking entrepreneurs with falsified interest rates?

Japan (like the U.S.) is dominated by poor economic thinking. Thinking that will bring upon further economic pain in the future.

Both countries can keep trying to pull economic rabbits out of their hats, but one thing is for sure: At some point the market will have the last word.

At some point, markets will clear.


  1. Chris,

    You fool. Everyone knows that William Graham Sumner, was like Rand Paul and was a total sell-out and a statist. You should be ashamed of yourself for quoting him.

  2. Good article! BTW, the Liberal Democratic party was set up by the US during the occupation of Japan. It still represents US interests.

  3. What's taking so long for the market to clear?

  4. AP reports Stocks End Near Session Highs on 'Cliff' Optimism. AP Stocks rose on Wall Street as investors were encouraged by signs of progress in budget talks in Washington. Just two weeks remain before tax increases and government spending cuts take effect if no deal is made. And the NYT reports President Delivers a New Offer on the Fiscal Crisis to Boehner. President Obama delivered Speaker John A. Boehner a new offer on Monday to resolve the pending fiscal crisis - and what may be close to a final deal, which would raise revenues by $1.2 trillion over the next decade but keep in place the

    Stock ETFs rising included
    ITB, 3.8%
    PKB, 2.5
    RWW 2.4 as BAC, 4.0, C, 4.0, WFC 3.7, BK, 2.8 JPM, 1.5 rise
    KCE 2.2
    KRE 2.2
    KCE 2.1
    RZV, 1.8
    PICK, 1.7
    XRT, 1.6
    IAI 1.6
    IYC 1.5
    CSD, 1.5
    IWM 1.4
    JKE, 1.4
    IYZ, 1.3
    SPHB 1.3
    SLX 1.2
    IGN 1.1
    IGV 1.1
    SKYY 1.1
    XPH 1.1

    World Stocks, VT, rose 0.8%, to a new rally high today on hopes of a deal to avoid the Fiscal Cliff, with Shanghai Shares, traded by CAF, jumping vertically higher for the second day, rising 3.3%. While the National Bank of Greece, NBG, led Greece, GREK, lower.

    The biggest risk humanity face as a result of the Fed's QE4, and the ECB’s OMT unprecedented experiment in quantitative easing, that has produced investor confidence and the decline of risk aversion, with World Stocks, VT, rising 12%, and World Small Cap Stocks, VSS, rising 15%, in a six month risk on Major World Currency, DBV, and Emerging Market Currency, CEW, momentum rally, is that that monetary easing has crossed the Rubicon of debt monetization, and that the world has passed through Peak Credit, on the exhaustion of the world central banks’ monetary authority.

    This is exactly the case, as a see-saw destruction of fiat wealth is underway, as the Steepner ETF, STPP, broke out on a steepening 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX, which drove Total Bonds,, BND, sharply lower today, while Junk Bonds, JNK, Leveraged Buyouts, PSP, and Senior Bank Loans, BKLN, as well as Distressed Investments like those taken in under QE1, and traded by Fidelity Mutual Fund, FAGIX, rose to new highs.

    The rise of the benchmark Ten Year Interest Rate, ^TNX, to 1.76%, means that the bond vigilantes have gained control of the bond market. Ben Bernanke and Mario Draghi’s monetary policies have turned the springs of credit toxic. Charts show that the highest degree of loss of trust has come in global debt is centered in World Government Treasury Bonds, BWX, Emerging Market Bonds, PCY, Mortgage Backed Bonds, MBB, Municipal Bonds, MUB, and High Yield Municipal Bond, HYMB, and even the so called inflation protected bonds, the Long Duration TIPS, LTPZ, have fallen from channel support.

    US Government Debt began falling in December 2012. US Treasuries entered their third week of falling, with 10 Year US Government Notes, TLT, -2.24% so far this month, the 30 Year US Government Bonds, EDV, -3.12%.

    Yahoo Finance chart shows that the investment benefit of world central bank monetary expansion has been Inflationism; World Stocks, VT, have grown 2% in the last two years, and Bonds, BND, 5%. It has been the purchase of Distressed Investments, like those traded in Fidelity Mutual Fund FAGIX, and that were exchanged for money good US Treasuries, such as US Ten Year Notes, TLT, which were for the most part returned to the Fed and now reside in Excess Reserve.