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Abenomics in 14 Words

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Posted on Oct 19, 2013
m-louis (CC BY 2.0)

By Mike Whitney, CounterPunch

(Page 2)

This is the official data, not some gibberish you read in the mainstream media where Abenomics is celebrated as the second coming of Daruma. When wages drift lower, people spend less, consumption dwindles and the economy shrinks. Everyone knows this, which is why the clever Abe frontloaded his economic recovery program with $100 billion in plain old fiscal stimulus, mainly infrastructure spending. The idea was to give the economy a big freaking jolt that the media would attribute to the Bank of Japan’s madcap money printing. But money printing is not the cause. Fiscal stimulus is the cause. And when the stimulus runs out (next year), the economy will tank. Because QE doesn’t increase production, boost GDP, reduce unemployment, raise inflation, or create a strong, sustainable recovery. It pushes up stock prices, inflates asset bubbles and, most important, makes some very rich MF’s richer still. That’s what it does everywhere it has been implemented, and that’s what it is doing now in Japan.

But at least consumer confidence is rising, right? Isn’t that what the pundits in the media keep telling us?

Wrong. Confidence is eroding, because people are making less which makes it harder to stretch their paychecks due to rising inflation. Check this out:

Japanese consumer confidence worsened from three months ago for the first time in three quarters as more people reported their income shrank from a year earlier, according to the results of the Bank of Japan’s quarterly survey released on Wednesday. The data also showed that more people said prices had risen from a year earlier, indicating that higher utility charges and food prices may be decreasing the average household’s disposable income while base wages remain depressed….

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More people expect their income will fall in the next 12 months…

The average household spending fell a real 1.6% on year in August, marking the first y/y drop in two months after a 0.1% gain in July. The average real income of salaried workers’ households fell a real 0.9% on year in August, the first fall in six months while their disposable income also posted the first drop in six months, down 1.4%. (“BOJ Poll: Japan Consumer Confidence Slips on Lower Income”, MNI Market News)

The Bank of Japan’s (BoJ) crackpot governor, Haruhiko Kuroda, is on track to double the money supply in next two years in an effort to reach his inflation target of 2 percent. Unfortunately, higher inflation does not guarantee more activity or growth unless wages rise too. Which they aren’t. Wages are falling in Japan, so the plan is ridiculous. Check this out from Financial News:

There is no evidence that inflation will help consumption. Growth requires higher household incomes or lower savings. Inflation tends to push up prices faster than wages and thus depresses household real incomes. Savings rates have been falling steadily as inflation has turned to deflation. …

It is also argued that inflation will reduce the burden of the national debt, by increasing the rate of growth of nominal GDP. This would be true if we were looking at hyper-inflation. However, as the bond market’s response shows, moderate inflation may well make matters worse, not better, by pushing up bond yields’ rates even faster than inflation. (“Abenomics should take aim at structural reform”, Financial News)

Fed chairman Ben Bernanke has encountered the same problem in the US. Five years of zero rates and $3 trillion of asset purchases (QE) have not brought him any closer to hitting his inflation target of 2 percent. Thus, it would be reasonable to assume that QE doesn’t raise inflation and that stuffing the banks with excess reserves and juicing stock prices really won’t achieve the intended objective. Unless, of course, the real objective is to make rich speculators even richer, which it appears to be doing quite well.

Abenomics has shown some progress in spurring credit growth and personal consumption. But, once again, these positive signs are mainly attributable to the one-time-only $100 billion burst of fiscal stimulus. When that runs out in mid 2014, we’ll see that boosting base money does not lead to more spending, a broader credit expansion, or greater business investment. Instead, it leads to stock buybacks, excessive margin debt, asset bubbles, and other misallocations into thoroughly unproductive areas of yield-seeking speculation. Kuroda and pal Bernanke are, in effect, pumping petrol directly into the car’s carburetor expecting the vehicle to run smoothly. After 5 years of applying the same flawed theory, we can surmise that their confidence is misplaced.

Like QE, Abenomics is a public relations moniker that conceals the way the policy really works. “Check kiting” would probably be a more accurate designation, since the two central banks are in fact engaged in a form of fraud in which funds are drawn from an overdrawn account. Naturally, the losses from this paper hanging exercise will eventually be passed along to unwitting taxpayers in the form of inflation.

But Abenomics is not merely monetary flim-flam disguised as economic policy. It is also a straightforward attack on worker protections, progressive institutions and vital safetynet programs. For example, Abe is also pushing for “special economic zones” where he can test his theories on radical deregulation. In the words of the far-right Economist magazine, the zones would allow “Big companies… to have more freedom to fire full-time workers, which is almost impossible in Japan….(and) “to create a giant special agricultural zone on the island of Hokkaido, where firms would be allowed to own farmland.”

How is “greater freedom to fire workers” good for the economy? Personal consumption is weak already. Will it improve by hiring more low wage workers?


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