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Wobbly Abenomics
Another Stimulus in Japan?

Less than a week after Prime Minister Shinzo Abe seemed to be moving toward more medium-term and longterm-minded economic reforms, one of Abenomics’s chief architects says Japan needs more stimulus. The Financial Times reports that advisor Etsuro Honda has called more stimulus an “urgent task.” The analysis comes amid widespread concerns that Japan may be sliding into recession. Honda himself told the FT that “I don’t think we should call it a technical recession yet, but generally speaking, the Japanese economy is in a static situation. It is not growing positively.” More, via the WSJ:

Output of goods, ranging from boilers and excavators to cars and cosmetics, fell 0.5% in August from the previous month, following a decline of 0.8% in July, according to government data released Wednesday.

The figure sharply undershot a consensus forecast for a 1.0% increase, prompting the ministry to downgrade its assessment of output to “trending on a weak note” from “trending with ups and downs.” […]

“Japan’s recovery has ground to a halt,” said Marcel Thieliant, economist at Capital Economics. The latest output data suggests “Japan’s economy shrank yet again in the quarter that ends today. Additional easing by the Bank of Japan next month looks all but inevitable,” he added.

Moreover, last Thursday Abe declared an end to deflation just hours before the publication of reports finding that deflation had in fact returned.

Abe has acknowledged current economic difficulties, and has put forward new proposals to boost the country’s economy. But his biggest proposals focus on more structural issues like the low birth rate and the fast-growing elderly population, and if Honda and others are right Abe should be (and perhaps is) more concerned about the immediate future.

Meanwhile, while Japan’s leaders might be discussing another stimulus, Reuters reports that Indonesia’s have gone ahead and announced one:

In a live television broadcast, [President Joko] Widodo announced a series of measures to attract investment, such as streamlining dozens of overlapping trade and industry regulations, simplifying the permission process for “strategic projects”, and easing rules for foreigners opening bank accounts in foreign currency.

These are just the early responses to a Chinese slowdown that Asian leaders, like many traditional investors, seem to believe shows few signs of abating.

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  • Thom Burnett

    I’m very unclear what ‘stimulus’ means. I thought it meant government spending in subsidies or on work projects. Like what the US did a few years ago. What this article describes as Indonesia’s actions – deregulating and streamlining bureaucracies is very different.

    It’s my understanding that Japan has tried the government spending type of stimulus many times in the 80s and 90s – without success.

  • Jacksonian_Libertarian

    It is instructional to understand how an economy becomes deflationary to begin with. It happens naturally when private debt levels reach a saturation point while the economy is experiencing low inflation. A good example is the way a traffic jam occurs when traffic density reaches a certain point, and first one person hits their brakes and then another and then everyone. In a deflationary depression, first a borrower decides he can’t carry anymore debt, then a bank sees defaults rising and raises credit requirements, and then the whole thing snowballs down to a basic maintenance level. Where paying off existing debt takes priority over borrowing new money to take advantage of profitable opportunities, which are few and far between in a deflationary depression anyway.

    Japan has been mired in deflation for 26 years, you don’t fight deflation with huge Government spending programs, these have been tried over and over and they don’t work. You fight deflation with inflation, you print huge amounts of money until the largest measure of the money supply the M3, begins to grow fast enough to create an inflation of better than 5% in the real economy not in the consumer price index, which is just a basket of products that are sensitive to bottlenecks and regulations that have nothing to do with the money supply.

    I believe the solution for the US which has been in “Great Depression 2.0” for the last 7 years, is to payoff all foreign holders of US Treasuries some $6+ Trillion. And then use this money together with the $2+ Trillion already held by the Federal Reserve Bank, to create individual, inheritable, Social Security Accounts for every American which would be invested in mutual funds not Treasuries. This would immediately increase every American’s net worth by about $30,000, while pumping about $9 Trillion into the capital markets. In addition this would devalue the dollar on world markets and reverse the trade deficit for the first time in over 40 years. The extremely competitive American companies that have survived decades of being at a price disadvantage, would swiftly grab much of the world market share in their respective industries. As exporters exploded in growth the American economy would improve almost overnight, inflation would begin to devalue private debts, and lending to take advantage of profit opportunities would kick start the growth in the M3 money supply.

    This solution would work. All it would take is recognition that we are 7 years into “Great Depression 2.0” and we need to deal with a destructive deflation, not some non existent and only annoying anyway inflation.

    • billy roche

      I am pretty smart on Macro but I did not understand your post. I’d like to. Will u try again and make it simpler for an old fool. tnx!

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