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Wobbly Abenomics
Get Ready for Abenomics 2.0

After successfully pushing a historic remilitarization effort through parliament, Japanese Prime Minister Shinzo Abe is refocusing on economics, the Japan Times reports:

Formally re-elected head of the ruling party, Prime Minister Shinzo Abe said Thursday he has set out three new goals for “Abenomics” and will target a 20 percent increase in gross domestic product to ¥600 trillion.

The three new economic policy goals include: promotion of economic growth, child-rearing assistance to push up the low birth rate and social security measures to increase nursing facilities for the elderly.

Abe has been promising economic growth since he ran for office, but he has had little to show for his efforts lately. From April to June, the Japanese economy contracted by 1.6 percent, dashing previous hopes that a sustained recovery might be taking hold. In an embarrassing turn of events on Thursday, Abe announced an end to deflation just hours before a report came out saying that prices had fallen for the first time since 2013.
Much of the downturn is driven by factors outside of Abe’s control. Japan’s economy has been hit hard by the Chinese slowdown. Furthermore, Abe came into office after decades of stagnation, so it was never realistic to expect a quick turnaround. Still, the United States has a strong interest in seeing Japan, which is the biggest regional counterweight to China, start growing.
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  • Gene

    On the TAI main page, the teaser for this article is “Amidst deflation and heavy opposition to his successful remilitarization law, Abe needs to prove he can manage the economy.”

    Please tell me that TAI doesn’t actually believe a government can “manage the economy.” Politicians who believe they can do so are among the most dangerous people alive.

    • rheddles

      True that, but overly democratic government has forced those who will make extravagant promises regarding matters not in the government’s purview to the top. I wish I could live a millennium to see if the next effort at republican government learns from our error. But we did no better than the Romans. Let the games commence.

  • Jacksonian_Libertarian

    His problem is 26 years and counting of deflation. It takes inflation to fight deflation, and this means increasing the money supply to above the growth rate. It is easy to increase the base money supply, the central bank just buys back government treasuries. Increasing the M3 money supply which measures the private debt in the economy, and is the measure which affects the real economy, is more difficult. In order to get businesses and people to borrow more money, and use that capital to take advantage of profitable opportunities, there have to be profitable opportunities as well as an expectation that the debt can be paid back. In an inflationary environment, paying back debt is much easier as incomes rise over time and the price of the debt declines in value. Comparing this to deflationary environment where the debts become harder to pay over time as incomes fall and the debt invisibly appreciates in value.
    Since the Central bank loses any control over interest rates in a deflationary economy because you can’t go below 0%. And the Bank capital reserve requirements become superfluous because the Banks aren’t lending much. The only tool it has is to expand the base money supply. For Nations like the US with its huge amounts of US Treasuries sitting in foreign hands (~$6+ Trillion) this is easy, just pay them off. For Japan, whose Treasuries are mostly held in country expanding the money supply isn’t nearly as beneficial. It might be necessary for Japan to payoff or forgive or find some new way to significantly reduce the amount of private debt.
    In the US the ~$6+ Trillion could be added to the ~$2+ Trillion already held by the Fed, and used to create individual and inheritable Social Security Accounts for every Citizen (killing 2 birds with 1 stone). This would immediately boost every American’s Net Worth by about $30,000. By setting up these accounts so that they can be invested in Mutual Funds and not just US Treasuries, ~$9 Trillion could be injected into the Stock Market and provide capital for economic expansion. Something similar might be done with the Japanese Treasuries. But it wouldn’t have as great a benefit as it would in the US, because America has been running a trade deficit for 40 years, and reversing that would be like a shot of Adrenalin to America’s economy. It is likely that if the US economic engine get rolling again, it will pull most other economies out of deflation over time.
    A few facts to keep in mind:
    Fact: There is only one economic law “Supply and Demand”.
    Fact: Currencies are as subject to “Supply and Demand” as any other commodity, and the “Forex” where currencies are traded, is the largest market in the world.
    Fact: All world currencies are fiat money and therefore “Fractionated Banking” controls their “Supply” and therefore value.
    Fact: Inflation is an annoyance, but Deflation is “destructive”.
    Fact: No economy should ever be allowed to go into a destructive “Deflation”.
    Fact: Maintaining an “Inflation” is the “Duty” of the Central Bank issuing the currency.
    Fact: Bankers love deflation it makes their portfolio of loans increase invisibly in value.
    Fact: Any Central Bank which allows their nation’s currency to go into a destructive Deflation, when Inflation is so easy to maintain, should have all of the responsible Bankers “Executed for Treason”.

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