Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

Tag: japanification

Japanification Revisited

By

On January 8, 2016

Comments

The thesis Stirling and I were running from the early 2000’s was that the plan under which America’s elites were operating was Japanification. Run a bubble, and when it bursts refuse to take losses and go into stagnation.

This thesis has proved out repeatedly.

Let’s shine a light on the past. The oldest articles are in the wilds of dead blogs, but there are a few still available.

August 6, 2008:

In Japan, they call it the Bright Depression. Ever since the 1980s bubble burst, the Japanese economy has never been able to rev up its engines and roar again. Slow growth or small contractions have been the rule. It hasn’t been awful. It hasn’t actually been a classic depression. But, somehow, the good times have never come back. Unemployment, never previously a problem, just won’t go away.

….

There is going to be a recovery, it has already started in Asia. Job numbers should start turning around in the spring in the US, though the number of people employed as a percentage of the population will not recover this economic cycle, and probably not for a generation.

However, Japanification doesn’t mean you don’t get some recoveries. You do, then they sputter out. Employment never really recovers, wages stagnate, and things are just generally lousy without plunging the country into an all out depression. So, yes, in that sense the country was “saved’ from a Great Depression, but choosing the worst alternative.

….

The end result of Japanifying, regressive taxation (whether direct or indirect) and  attempting to restart the financial casino will not be pretty. There will not necessarily be any immediate disaster, and some numbers will look good. But the fundamental problems of the economy under Bush have not only not been fixed, they have been made worse and the evidence is being systematically buried. There won’t be another financial crisis immediately, but another one has been made inevitable.

This has all borne out.

June 6th, 2009:

 The strategy is simple enough.

1) Give the banks money.

2) Let them avoid acknowledging as much of their losses as long as possible.

3) Allow them to gouge taxpayers for as much as possible, to dig themselves out of their own hole over a number of years.

The end result of this is going to be Japanification–at best. Not a “lost decade,” as many folks have said, but a semi-permanent wavering between slight job gains and job losses, where a good economy never, ever, comes back. And because the US, unlike Japan, is not a net exporter, it’s questionable how long Japanification can work in the US, in any case.

Fun stuff.

November 12, 2009:

There is going to be a recovery, it has already started in Asia. Job numbers should start turning around in the spring in the US, though the number of people employed as a percentage of the population will not recover this economic cycle, and probably not for a generation.

However, Japanification doesn’t mean you don’t get some recoveries. You do, then they sputter out. Employment never really recovers, wages stagnate, and things are just generally lousy without plunging the country into an all-out depression. So, yes, in that sense, the country was “saved’ from a Great Depression, but by choosing the worst possible alternative.

Called shot. Accurate.

February 20, 2010:

Once more, the percentage of Americans employed will not recover to pre-Great Recession levels for at least a generation, probably longer. This is a deliberate policy choice and everything Obama and Bernanke has done—from refusing to take over banks, to refusing to force lending at reasonable rates, to engaging in an inadequate stimulus, to refusing to make banks recognize their losses, to doing everything they can to encourage slashing Social Security and Medicare, has had the effect of making Japanification more and more likely.

This is just a small selection of posts. I may go through the called shot posts at the time of the stimulus, TARP, and so on, but heck, they just say the same thing.

By papering over the problem, by “extending and pretending,” Bernanke, Geithner, Congress, and Obama (Bush gets a nod, but TARP would not have passed without Obama, it is his child) ensured a generation’s worth of shitty economy for most people.

Yes, if we had chosen not to “extend and pretend,” the hit in 2009 and 2010 would have been worse, BUT the economy today would be far far better. In choosing the method we chose to do the bailouts, we also made the choice to have a shitty economy.  Employment has never recovered, in terms of the percentage of the population, and will not (we’re about to hit a recession), wages are down for much of the population, and all the gains of the last economic cycle have gone to the top three to five percent.

Mind you, there was an historic stock bubble. The rich are even richer than they were in 2007. Obama and Bernanke’s policy has done what it was intended to: It has preserved, and then increased, the wealth of the rich.

If you enjoyed this article, and want me to write more, please DONATE or SUBSCRIBE.

Japanification and the end of the American Dream

By

On August 14, 2014

Comments

Stirling Newberry and I have been writing about Japanafication for years—on blogs, at least since 2004.

Those of us who are old enough remember when Japan was THE miracle economy.  Technologically advanced, vibrant and rich.  It was eating America’s lunch, and most other countries.  For peak alarmism at this fact in a fictional form, read Michael Chrichton’s Rising Sun.

Tokyo real estate was worth more than the entire world’s real estate combined.

Then the bubble crashed.  Japanese policy was to protect the banks, and to bury the bad loans on the books.  They undertook literally decades of stimulative policy, mostly pouring useless concrete (exactly the wrong thing to do unless your country really lacks that sort of infrastructure, which Japan did not.)

To put in terms familiar to my readers, they extended and pretended.

Japan went into semi-permanent stagnation.

We have, now, the news of a quarter drop in GDP of 6.8% annualized for the last quarter.  (This is blamed on increased sales taxes, but it was coming anyway.)

The long stagnation is over (it’s been over for a bit).  Japan is actually in decline.

This is important because Japanification was always the plan for the US after the bubbles: extend and pretend, stagnate wages and employment.  Pretend.

But there were significant differences between the two countries.  Japan started with massive savings and a huge trade surplus.  It is now in trade deficit and savings compared to debt are way down.  Economic equality was relatively high, as well, spreading demand.

America came out of the financial crisis with a trade deficit, a pathetic savings rate and massive inequality.  This is why I predicted that Japanification would not work in the US.  It could not, because there was no saved fat to be used to create the long bright depression the Japanese had.

This brings us to stimulus and development (not just for developing countries).  The money must be used not for pork projects with no follow on, but to create new industries or to bring money off the sides into the economy.  Pouring concrete (and not even bothering to shore up nuclear reactors in areas which were not electorally viable) was pointless in Japan.  Buying bonds is pointless and even harmful.

Likewise you cannot have real open trade flows and expect to keep whatever you are building.  You build it, you make it work and once an industry is systemized, it can be moved to a low cost domiciale. It takes deliberate government policy to prevent that.

Monetary policy in Japan could never work, because the money went to the wrong things, and much of it immediately decamped overseas in the so-called carry trade—borrow low in Japan, buy securities somewhere else where they had a higher return.

All of this should be obvious and uncontroversial. It is not, it flies directly in the face of modern neo-liberal theory and it is that theory, in the face of decades of failure, that the Japanese followed.

The human capacity for ideologically driven stupidity and atrocity is endless. (Those who do not believed me are invited to study Church history and its effect on society from 1000 AD to 1900 AD or so.)  People will ignore the evidence in front of their eyes, years of failure and continue doing the “safe”, “orthodox” thing no matter what the results.  This is true even for well-meaning people.

Of course, in the US, Japanification has a US twist: it massively increases the wealth of the already wealthy, through unconventional monetary policy.  American leaders are far too greedy to make Japanification work: any surplus, or room to lend, or room to print money, must be given away to rich people as quickly as possible.

I point out, finally, that the first sin in Japanification was buying the bad loans.  This was a huge mistake in the US too, bailing out the banks and not forcing them and their share and bondholders to take their losses was the main mistake of the financial crisis.  Yes, things might have been worse if the US had done so (though steps mitigating the hit on the regular economy would have been easy enough to take with the 4 TRILLION dollars used bailing out rich people), but even so, the US would have recovered better afterwards.

Instead the US has an economy in which 90% of the population has seen an actual decrease in income and wealth, while 10% has seen an increase: with the 1% and the .1% and the .01% benefiting most of all.

Japanification was the plan for America. It isn’t working, it could never work, but the policies in place are nonetheless doing what is most important to their architects: they are making the rich richer, and everyone else poorer and doing it quickly.

The Bush years were the long suck.  This is the deep dive, and remember, the US isn’t in recession yet (though it is in depression).  The pain when it happens (and absent nuclear war, there is always another recession), will be unbelievable.

If you enjoyed this article, and want me to write more, please DONATE or SUBSCRIBE.

 

The consequences of (yet again) failing to stand up to the banks

By

On May 14, 2009

Comments

sunset-by-vj-fliksThe Senate just stopped limits on credit card rates.  Sometimes it takes a socialist to say the obvious:

“When banks are charging 30 percent interest rates, they are not making credit available,” said Mr. Sanders, who noted credit unions are limited to 15 percent. “They are engaged in loan-sharking.”

The banks have been given, loaned and guaranteed trillions. They are given access to money at very close to zero percent.  They then lend it out at much much higher rates.  As Sanders notes, 1/3 of credit card holders are being charged more than 20%, some as high as 40%.

That’s usury.  More to the point, it means that for all intents and purposes they aren’t making credit available.

Does anyone wonder why consumer spending dropped again?  Would you borrow at 20% to 40% to buy anything other than food or pay for housing, when jobs are still being lost at over half a million a month?  No one with any sense would.

Months ago I noted that the simplest way to get banks lending again would be to either have the Fed lend directly to consumers, or have the FDIC take over a major bank like Citigroup or Bank of America and use that bank to lend at decent rates.

Instead of doing that, the Bush and then Obama administrations decided to give money, guarantees, loans and nearly free money to banks which were impaired and which needed to gouge their customers as hard as they could to make a profit.  The result is that treasury secretary Timothy Geithner keeps saying the financial sector is fine, while more Americans lose jobs, consumer spending drops, banks won’t allow homeowners to get out from under bad mortgages even when it would save the bank money, and a new round of foreclosures is on its way.

On top of that, the mark to market rule was changed to allow banks to keep assets on their books at mark to model (ie. mark to fantasy) values.

All of this money will have to be paid back eventually.  The strategy is simple enough.

1) Give the banks money.

2) Let them not acknowledge as much of their losses as possible.

3) Allow them to gouge taxpayers for as much as possible, to dig themselves out of the hole over a number of years.

The end result of this is going to be Japanification—at best.  Not a “lost decade” as many folks have said, but a semi-permanent wavering between slight job gains and job losses, where a good economy never, ever, comes back.  And because the US, unlike Japan, is not a net exporter, it’s questionable how long Japanification can work in the US, in any case.

The banks took trillions of dollars of losses.  The refusal to make them take their losses; the refusal to wind up any of the big banks; the refusal to recognize that what is important isn’t the banking system but what the banking system does, and thus the unwillingness to cut past the big banks and lend directly means that those trillions of dollars of losses are going to have to be paid back by consumers and taxpayers.  You will pay.  You will pay not just in high interest rates, but in lower wages, and for many of you, a lack of jobs.  The economy will not, before the next recession after this downturn, return to the same level of employment the US had before this crisis.

All of this because neither party, and neither President, had what it took to stand up to the banks.

(What a good policy would have looked like.)

Powered by WordPress & Theme by Anders Norén