Posts Tagged Mish

Japan a bug that will not escape the windshield

Enjoying the good weather? Feelin’ groovy? Getting ready for summer? Like MarketingJapan, checking out great new places to eat? As Mike has clearly fumbled the ball on this one, I’ll have to pick it up (well somebody’s gotta!)

Summer may be cancelled. Japan is a bug in search of a windshield!!! Are you prepared? Are you preparing? Buying assets that will be of value in a recession? Got stocks of food and water? Got your cash under the mattress? No? Because you can always get your cash out from an ATM???

I quote from Mish’s Global Economic Trend Analysis.  And don’t think Mike is always out to yakitori: check out his hard-hitting piece on the Tokyo concert to end nuke power.

If Japan’s current-account was negative, Japan would depend on foreign capital to make up the deficit. Will foreigners fund Japan at 0% interest rates?

I think not.

Bug In Search of Window

Japan has debt-to-GDP ratio of 220% and rising. As of July 9, the Yield on 10-year Japanese Bonds is .80%.

A mere rise of 2 percentage points would consume all Japanese revenues just to pay interest on the national debt.

Moreover, Japan’s demographics are such that pension plans are now for the first time last year net sellers of bonds, not net buyers. For details, please see World’s Largest Pension Fund Needs to Sell Japanese Bonds; Japan’s Demographic Time Bomb Officially Goes Off

As John Mauldin commented in his book Endgame: The End of the Debt SuperCycle and How It Changes Everything, “Japan is like a bug in search of a window.” If you have not yet picked up a copy, please do so. It’s a good read.

Once Japan’s current account balance goes negative in a sustained way and I believe that will indeed happen, the bug will have found the window.

via Mish’s Global Economic Trend Analysis.

(I’ve changed Mish’s link to Mauldin’s book to direct you to the Amazon Japan product page; if you buy it from here, you’ll be buying me a drink. Cheers!)

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U.S. Tax Burden: 40 Million Government Workers. Is Japan better off?

How many people work for governments in the United States?  Let’s look at the numbers.

via Tax Burden: 40 Million Government Workers. Answer: 40 million, according to a study by Prof. Paul Light of New York University.

A little top-heavy maybe?

top-heavy big-breasted woman


How many people work for governments in Japan? Last month, Saving Japan author Peter Dyloco compared the two countries Japan and the U.S. in terms of their populations and the percentage that is employed by the government. His estimate for the US was 1.7 million.

Perhaps the figure for Japan is also much higher than the 1 million Saving Japan quotes.

Some states are discovering they cannot afford to pay all the workers that they hire. According to Mish, “In a much needed development U.S. Local Governments Cut Payrolls to Lowest Level Since 2006″

Will local governments in Japan have to fire their workers? Few people seem to be considering this possibility. It seems to be another of those “impossible” scenarios that actually happened last year. The Japanese phrase is “soutei-gai” 想定外 unimaginable, completely unpredictable.

But it’s happening in the U.S., in a country that, according to pundits, has an economy that is recovering.



And so is Japan’s:

Recovering from a hangover


More Executives Say Japanese Economy Is Improving.

According to a quarterly survey compiled by The Nikkei on Saturday, 58.6% of respondents said the domestic economy is growing, a significant increase from the 38.6% seen in the previous survey from December.

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Japan Posts Record Trade Deficit in January, 4th Consecutive Deficit Month

In today’s post, Mish gives (yet another) warning about Japan’s unsustainable economic road, and makes a good suggestion (my emphasis)

At some point, I suggest now, Japan needs to stop blaming the earthquake and tsunami for its collapse in exports. Furthermore, Japan is going to have difficulty financing its debt unless its turns the situation around quickly.

That may not be likely as Japan logs record trade deficit in January

Imports rose 9.8 percent from a year ago and energy prices are one of the reasons. Japan needs alternate energy sources following the shutdown of its nuclear reactors.

While rising imports may still be blamed on the tsunami, the collapse in exports has a different reason. Europe is in a major slowdown and more US consumers are happy with GM and Ford autos.

via Mish’s Global Economic Trend Analysis: Japan Posts Record Trade Deficit in January, 4th Consecutive Deficit Month.

On the matter of alternate energy, Prof. Lenz has done a great job recently of translating from Japanese into English Japan’s new feed-in tariff law, which is closely connected with consumer usage of alternative energy supplies (especially, but not limited to, solar):

Prof. Lenz seems to be a believer in using the power of government to force businesses or consumers into certain paths of economic behaviour:

In my opinion, building codes world wide should make solar panels as part of the roof obligatory. Just as there are building codes designed to reduce the risk of fire (which of course come with a cost), there should be building codes designed to help avoiding killing everyone on the planet by Venus Syndrome.

Mish is not at all sure using government power to force a “green agenda” is a good idea.

Solar Energy Madness in Europe

In an effort to spur solar energy in France, Germany, Spain and other European countries, bureaucratic dunces decided to pay as much as 10 times market rates for those supplying energy to the power grid.

In response, farmers in France have started building “barns” that serve no other purpose than a place to put solar panels. Supermarkets put solar panels on their roofs and unused sections of parking lots.

It has been a boom to solar panel makers (China), but it is costing costing the French power company Electricite de France SA more than a billion euros ($1.3 billion) a year to meet government mandated pledges to accept solar energy from those supplying the grid.

At the end of 2010, EDF received 3,000 applications a day to connect panels to the grid. In 2008, the number of applications was 7,100 for the entire year.

The results should have been easy to predict in advance, but you can never explain anything to economic illiterates interfering in the free markets hoping to make things better. They never do. (from Sunday Funnies 2011-01-23 Student Loans; Solar Energy Madness in Europe)

Obviously this is silly: the historical record will clearly show that politicians only have humanity’s best, long-term, interests at heart. What other motives could they possibly have for pushing green energy?

It is, admittedly, disappointing to read that the Earth Summit is doomed to fail:

said Syukuro Manabe, a climate modeller at the US National Oceanic and Atmospheric Administration, “the political system is not motivated to worry about the future“.

And here is another idiot who clearly doesn’t  know what he is talking about: politicians as thieves, in a system that discourages them from treating resources as scarce? Nuts!

Mish is just a successful investment advisor and fund manager. What the hell he know about economics?

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Mish’s Global Economic Trend Analysis: Premature Dollar Obituaries and Mainstream Economists’ Monetary Insanity; Keynes-Inspired Great Depression; Lessons Not Learned

One might have thought the Monetarists and Keynesians would have learned something from Japan. Instead, and in spite of debt to the tune of 230% of GDP, they came to the amazing conclusion “Japan did not do enough”.

Two Rules

  1. There is never enough debt to satisfy Keynesians.
  2. There is never enough fiat currency to satisfy Monetarists.

I confidently predict Japan will have a currency crisis before the US and when it happens I am equally confident Krugman and the Keynesians will make an excuse for it rather than admitting they were dead wrong.

via Mish’s Global Economic Trend Analysis: Premature Dollar Obituaries and Mainstream Economists’ Monetary Insanity; Keynes-Inspired Great Depression; Lessons Not Learned.

All of which was predicted long, long ago by Mises (originally in German, in 1940):

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of the voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. – “Human Action” (p. 570) Ludwig von Mises, LvMI, 1998).

Interest rates are at rock bottom.  The Treasuries don’t want them raised, presumably because that will increase the costs of borrowing money in the future, and increase the cost of paying back the interest in existing debts. So we are unlikely to see a “voluntary abandonment of credit expansion” any time soon. Which leaves the alternative.

The whole Mish article is long but repays study. It includes long excerpts from various posts by Austrian economist professor Antal E. Fekete.

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‘Fool in the Shower’ to Give Fed a Scalding: Caroline Baum – Bloomberg

The Fool in the Shower

Learned of Milton Friedman’s evocative image, “the fool in the shower” in this article, which Mish links to. I’ve underlined the truly astonishing part, for my busy readers’ benefit (don’t mention it!). You may need to read it twice (or ten times) to check you read it correctly the first time. Talk about double-take!

What the Fed is saying, in essence, is that as the economy improves, it’s appropriate to provide as much stimulus, or support, as it did in late 2008, when the economy was contracting and the financial system was imploding.

This is a dramatic shift. Given the long and variable lags with which monetary policy operates, past Fed officials at least paid lip service to the notion of acting preemptively: withdrawing excess stimulus — a fancy way of saying they will raise interest rates — as the economy improved.

Not so the current committee, which is tilted toward doves after the annual rotation of voting members. This group seems to think it should “continue to ease as long as there is economic slack,” said Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut. “It’s a classic, elemental mistake,” he said, one described by the late Nobel economist Milton Friedman as the “fool in the shower.”

The fool turns on the water in the shower, steps in and finds that it’s still cold. So he turns the knob all the way to hot, only to get scalded when the water heats up with a predictable lag.

via ‘Fool in the Shower’ to Give Fed a Scalding: Caroline Baum – Bloomberg.

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“There has been so much orchestrated ‘good news’ that the bottom is probably about to fall out of the market.”

Quote of the day, from “Mish“. First, Mish quotes this article about China refusing to help the IMF bail out Europe.

The IMF is proposing an expansion of its lending resources to safeguard the global economy against any worsening of Europe’s debt crisis, according to an official at a Group of 20 nation. The lender is pushing China, Brazil, Russia, India, Japan and oil-exporting nations to be the top contributors

Then comments, “That the IMF feels the need to make such a request should not be anything to cheer about. Indeed, there has been so much orchestrated “good news” that I can’t help wondering if the bottom is about to fall out of the market.”

via Mish’s Global Economic Trend Analysis: IMF Proposes Trillion Dollar Lending Expansion.

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Welcome to 2012! And $7.6T Debt Mountain!!

Update: scroll down to see a nice graph

Welcome to 2012, and a planet-load of debt! From Bloomberg, via Mish:

Governments of the world’s leading economies have more than $7.6 trillion of debt maturing this year, with most facing a rise in borrowing costs.Led by Japan’s $3 trillion and the U.S.’s $2.8 trillion, the amount coming due for the Group of Seven nations and Brazil, Russia, India and China is up from $7.4 trillion at this time last year, according to data compiled by Bloomberg.
The amount needing to be refinanced rises to more than $8 trillion when interest payments are included.

Country 2012 Bond, Bill Redemptions ($) Coupon Payments
Japan 3000 billion 117 billion
U.S. 2783 billion 212 billion
Italy 428 billion 72 billion
France 367 billion 54 billion
Germany 285 billion 45 billion
Canada 221 billion 14 billion
Brazil 169 billion 31 billion
U.K. 165 billion 67 billion

Japan’s Problem

Remarkably, rolling over US debt is unlikely to be a problem. The same cannot be said for Japan. Because of demographics, pension plans will be net sellers of Japanese bonds. Unless balance of trade or tax revenues increase enough in 2012 Japan will not be able to roll this debt over at 1%. A rise to 3% would consume nearly all of Japanese revenues.

But don’t worry, everyone, coz, a) Japanese debt is all held by Japanese, so only Japanese tax-payers will get screwed!
and b) Japan will raise VAT to a frigging awesome 8%!!!

Ha! Mission accomplished!

PS I’m posting this from Scribefire, a Firefox blogging plugin I haven’t used for a year at least, because WordPress’s “Press This” tool isn’t working for some reason.

Japan debt since the bubble burst, from

Japan debt since the bubble burst, from (

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A peak into Japan’s future?

A peak into the future for Japan? Some people think that “deficits don’t matter” as Dick Cheney said in 2000, and the Washington Post reminded readers in 2004.  If you believe that, there is no need to read what follows.

The tax hikes are quite massive : apart the tax on house ownership which was canceled by Berlusconi government 3 years ago and so is just a comeback, there will be tax increase on revenues applied by each Italian region, there has been increase between 5 and 10% of fuel petrol, diesel, propane and methane.

Federconsumatori estimates that the sum of the all the austerity budget laws passed this year Berlusconi + Monti will reduce the spending power of a typical family of 7.6%.

via Mish’s Global Economic Trend Analysis: Explaining Italian Christmas Season Sales It’s Far Worse Than Previously Reported; How Various Austerity Measures Will Affect Spending in 2012; Emails from Italian Readers; Massive European Recession On the Way.

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“All hell could break loose”

japan balance of trade

japan balance of trade

Here is the key: If Japan does not maintain a trade surplus covering both interest on its national debt and bond redemptions, all hell will break loose. This gives rise to the question as to how long Japan’s vaunted export machine can remain intact. I do not have the answer to that question, but China and the rest of Asia are nibbling away bits and pieces now. The tsunami sure did not help.

Trade issues and demographics explain Japan’s paranoia regarding a strengthening Yen. It is also another one of those global imbalances that “does not matter, until it does, and it will” kind of things.

It is mathematically impossible for every country to maintain a trade surplus and increase exports, yet every country wants to do just that.

Rising interest rates would crucify Japan, and that is why Japan is courting China, hoping China will buy Japanese debt.

via Mish’s Global Economic Trend Analysis: Japan Proposes Nonsensical Deal to China: “I’ll Loan You a Nickel if You Loan Me a Nickel”; Japan Worries About Servicing Its Debt.

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German video with English subtitles – reporter gets thrown out of EU building for asking questions!

In a former life, I studied German, but it’s now a little rusty, so I was pleasantly surprised to find this recent, interesting video in German with helpful English subtitles.

It seems to be some boring story about a TV reporter getting thrown out of the EU parliament building for being rude and impertinent to EU Parliamentarians, but never mind, the important thing is to hear that glorious guttural yet flowing German language while reading the English subtitles. (The comments reveal that this video has been blocked in German for some unfathomable reason. )

(If the video below doesn’t work, you can also view the video on Mish’s Economic Analysis site)

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