Category Archives: Economy

Japan on a Larger Scale, by James Rickard

Go deep enough into debt and you can’t climb out, as Japan has found out and as the US and Europe are finding out. From James Rickard at dailyreckoning.com:

In my 2014 book, The Death of Money, I wrote, “The United States is Japan on a larger scale.” That was five years ago.

Last week, prominent economist Mohamed A. El-Erian, formerly CEO of PIMCO and now with Allianz, wrote, “With the return of Europe’s economic doldrums and signs of a coming growth slowdown in the United States, advanced economies could be at risk of falling into the same kind of long-term rut that has captured Japan.”

Better late than never! Welcome to the club, Mohamed.

Japan started its “lost decade” in the 1990s. Now their lost decade has dragged into three lost decades. The U.S. began its first lost decade in 2009 and is now entering its second lost decade with no end in sight.

What I referred to in 2014 and what El-Erian refers to today is that central bank policy in both countries has been completely ineffective at restoring long-term trend growth or solving the steady accumulation of unsustainable debt.

In Japan this problem began in the 1990s, and in the U.S. the problem began in 2009, but it’s the same problem with no clear solution.

The irony is that in the early 2000s, former Fed Chair Ben Bernanke routinely criticized the Japanese for their inability to escape from recession, deflation and slow growth.

When the U.S. recession began during the global financial crisis of 2008, Bernanke promised that he would not make the same mistakes the Japanese made in the 1990s. Instead, he made every mistake the Japanese made, and the U.S. is stuck in the same place and will remain there until the Fed wakes up to its problems.

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Orange Mordita, by Eric Peters

Just what this country needs—higher gas taxes! From Eric Peters at theburningplatform.com:

Trump rode a wave of average man outrage into the Oval Office. But the Orange Man could be swept out of it just as easily if he pursues what he has hinted at doing – raise the federal tax on gas.

Not by a little bit, either.

Nothing could be more politically suicidal. Besides which, it is just a terrible idea. More money to Uncle means, inevitably, less freedom for us. More ways to extort the states to impose more freedom-stifling outrages – everything from (historically) dumbed-down DUI standards – and the vile East German-style checkpoints to go with – as well as “buckle up” laws and dumbed-down speed limit regimes.

Giving Uncle more money is – as the saying goes – like giving an idiot child a machine gun. Trump ought to know this. Don’t feed the Swamp Thing.

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“That’s Something China Can’t Tolerate”: Tensions Erupt As China Slams Australia’s “Irresponsible Comments”, by Tyler Durden

Many nations commercial relationships with China are so extensive that China can throw its weight around. From Tyler Durden at zerohedge.com:

It all started in late February when we reported that a political row had erupted between China and Australia, with Beijing cracking down on imports of coal from Australia, cutting off the country’s miners from their biggest export market and threatening the island nation’s economy at a time when it and its fellow “Five Eyes” members who have sided with the US by blocking or banning Huawei’s 5G network technology.

In the weeks that followed, while Beijing disputed such a draconian export crackdown, China was overtly targeting Australian coal imports with increased restrictions – what Beijing claims were quality checks – that delayed their passage through northern ports. Given Australia has the highest level of income dependency on China of any developed nation as 30.6% of all Australian export income came from China last year, equivalent to US$87 billion (twice the trade volume with Japan, Australia’s next biggest trading partner), and Australia’s coal industry is deeply dependent on its exports to China, which account for 3.7% of Australia’s GDP, this prompted much speculation that Beijing is punishing coal companies as retribution for political acts by Canberra, one of Washington’s closest allies. “The last time Australia was so dependent on one country for its income was in the 1950s when it was a client state of Britain,” Sydney Morning Herald’s international editor, Peter Hartcher Hartcher said in March, according to the SCMP.

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Big Old Problem Just Re-Erupted on Eurozone’s Southern Flank, by Don Quijones

Italy is in recession, has debt out the wazoo, and its banking system is in bad shape. From Don Quijones at wolfstreet.com:

Italy’s fiscal health is once again in serious decline.

On Wednesday, Italy’s coalition government slashed its growth forecast for the Italian economy in 2019 to 0.2% – the weakest forecast in the Eurozone – from a previous forecast of 1%. Italy is already in a technical recession after chalking up two straight quarters of negative GDP growth in the second half of 2018.

The government’s budget for this year was based on the assumption that the economy would expand by 1% this year. Now, it seems the economy may not grow at all; it could even shrink.

One direct result of this is that Italy’s current account deficit for 2019 will be substantially higher than the 2.04% of GDP Italy’s government pledged to stick to late last year. And that can mean only thing: another standoff between Rome and Brussels over the direction of fiscal policy is in the offing.

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The Japanification of the World, by Charles Hugh Smith

As it grows faster than the underlying economy, debt becomes quicksand from which the economy cannot extricate itself. From Charles Hugh Smith at oftwominds.com:

Zombification / Japanification is not success; it is only the last desperate defense of a failing, brittle status quo by doing more of what’s failed.

A recent theme in the financial media is the Japanification of Europe.Japanification refers to a set of economic and financial conditions that have come to characterize Japan’s economy over the past 28 years: persistent stagnation and deflation, a low-growth and low-inflation economy, very loose monetary policy, a central bank that is actively monetizing debt, i.e. creating currency out of thin air to buy government debt and a government which funds “bridges to nowhere” and other stimulus spending to keep the economy from crashing into outright contraction.

The parallels with Europe are obvious, but they don’t stop there: the entire world is veering into a zombified financial, economic, social and political status quo that is the core of Japanification.

While most commentators focus on the economic characteristics of Japanification, social and political stagnation are equally consequential. If we only measure economic/financial stagnation, it appears as if Japan and Europe are holding their own, i.e.maintaining the status quo via near-zero growth and near-zero interest rates.

But if we measure social and political decay, the erosion is undeniable. Here’s one example. Few Americans have access to or watch Japanese TV, so they are unaware of the emergence of the homeless as a permanent feature of urban Japan. The central state propaganda media is focused on encouraging tourism, a rare bright spot in Japan’s moribund economy, and so you won’t find much media coverage of homelessness or other systemic signs of social breakdown.

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As the Madness Turns, by MN Gordon

Government debt is growing much faster than the economy, which can only lead to disaster. From MN Gordon at economicprism.com:

The first quarter of 2019 is over and done.  But before we say good riddance.  Some reflection is in order.  To this we offer two discrete metrics.  Gross domestic product and government debt.

GDP for the quarter, as estimated by the March 29 update to the New York Fed’s GDP Nowcast, grew at an annualized rate of 1.3 percent.  For perspective, annualized GDP growth of 1.3 percent is akin to getting a 1.3 percent annual raise.  Ask any working stiff, and they’ll tell you…a 1.3 percent raise is effectively nothing.

By comparison, the U.S. budget deficit for fiscal year 2019 is estimated to hit roughly $1.1 trillion.  This amounts to an approximate 5 percent increase of the current $22.2 trillionnational debt.  In other words, government debt is increasing about 3.85 times faster than nominal GDP, which is about $21 trillion.

These two metrics offer a rough perspective on the state of the economy.  Deficit spending is grossly outpacing economic growth.  Heavy treatments of fiscal stimulus are being applied.  Yet the economy’s practically running in place.  In short, the state of the economy is not well.

And as the economy slows and then slips into reverse later this year, and as Washington then applies more fiscal stimulus, these two metrics will move even further towards madness.  What’s more, the Fed is gearing up to promote this greater state of madness in any and every way possible…

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US government’s net worth is now NEGATIVE $75 TRILLION, by Simon Black

One guess as to who is on the hook for that negative $75 trillion. From Simon Black at sovereignman.com:

Usually around the middle of February each year, the US Treasury Department releases an annual report of the federal government’s financial condition.

It’s called the Financial Report of the US Government… and it looks a lot like an annual report that you might see filed by a big company like Apple or Facebook.

Except that, unlike Apple and Facebook, the US government’s annual report is absolutely gruesome.

This year’s report is no exception, save for one humorous anecdote: they -just- released it. In other words, they’re a month and a half LATE (given that the report is typically released in mid-February).

I actually CALLED the Treasury Department myself in early March, asking when they would publish the report.

The bewildered individual on the other end of the line said that he had no earthly idea, given that the government had been shut down for so long earlier this year.

Anyhow, if you want to see the report for yourself, you can download it here.

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