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Economic Suicide

by MIKE WHITNEY

Abenomics has been great for stock speculators and corporate bigwigs, but for everyone else, not so much. The fact is–despite all the media hype and monetary fireworks–Prime Minister Shinzo Abe’s three-pronged strategy to end 20 years of deflation has been a total bust. But don’t take my word for it, check out this clip from Reuters and see for yourself:

“In the fourth quarter of last year, Japan’s economy grew at an annual rate of just 0.7 percent, revised figures show, slower than the initial estimate of 1.0 percent on weaker business investment and consumption….” (Japan fourth-quarter growth, external balance suffer blow in test for Abenomics, Reuters)

See? Japan’s economy is dead as a doornail. No sign of life at all. What more proof do you need than that?

And Abenomics won’t end deflation either. That’s another fiction. The weaker yen is just going to force working people and retirees on fixed income to reduce their consumption which will intensify the slump. Heck, even the IMF has figured that one out. Take a look at this clip from one of their recent pieces:

“The average Japanese worker has been dipping into his savings to finance consumption growth. But there’s a limit to how far he can do this. The savings rate as a percent of disposable income has declined from around 5 percent a decade ago to close to zero today, leaving little further room for spending from savings….Looking forward, real wages are set to come under even greater pressure this year and next with higher underlying inflation and successive increases in the consumption-tax rate.” (Abenomics—Time for a Push from Higher Wages, IMF-direct)

It sounds to me like the IMF is telling old Shinzo that his plan sucks, doesn’t it?

Whoever thought that dumping trillions of dollars into the financial system would end deflation had a couple screws loose. That’s not how it works. The Fed loaded up on $4 trillion in financial assets and inflation is still hovering at a measly 1 percent. So if the theory doesn’t work in the US, why would it work in Japan?

It won’t. The way to generate inflation is by circulating money in the economy and increasing the velocity. That means full employment and higher wages. That means fiscal stimulus and redistributive taxation. That means fixing the damn economy. But Abe’s not going to do that because it doesn’t jibe with his class war strategy which is what drives the current policy. Now check this out from Roger Arnold at The Street:

“The essential policy tools of Abenomics are massive monetary and fiscal stimulus aimed at forcing the yen lower, which should cause exports to rise and domestic production to increase, leading to increased domestic job production and consumption: the virtuous cycle. In the process, Japan also increased sovereign debt, which must be serviced by the government. The servicing of that debt is supposed to come from an increase in tax receipts to be made available by the increased domestic production and consumption.

But it isn’t working.

The failure of Abenomics to stimulate economic activity and raise tax receipts enough to pay for the stimulus is now causing the government to double back on these programs with a counter-cyclical consumer tax increase of about 3%, which will be implemented in April. In other words, Abenomics is making the real economic and fiscal situations in Japan worse, not better. They are digging a bigger sovereign debt hole and accelerating the trajectory toward insolvency…Investors would be wise to avoid Japan altogether now, and probably permanently.” (Arnold: Abenomics’ Failure Is the Global Canary, The Street)

That’s probably good advice, although I think Japan’s implosion will take much longer than Arnold seems to believe. But that’s beside the point. What matters is the that policy doesn’t work. The economy isn’t growing, personal consumption is weak, the trade deficit, the current account deficit and the national debt are all ballooning at the same time, and the Japanese people are growing more pessimistic. And on top of it all, a 3 percent sales tax is set to kick in at the beginning of April which is going to send the economy stumbling back into recession. (Abe pushed through the tax hike to placate his right-wing constituents even though the risks to the economy were obvious.)

So, it’s all bad, unless you’re high-flying stock trader or a money-grubbing corporate CEO, that is. Then things have never been better. Get a load of this in the Wall Street Journal:

“While Japan Inc. may be whistling a happy tune on the back of robust profit growth and a weaker yen thanks to the pro-business agenda of Prime Minister Shinzo Abe, a key survey released Wednesday shows that consumers aren’t in a similar Abenomics-induced state of rapture.

The Cabinet Office’s monthly Consumer Confidence Index contracted for the third straight month in February to 38.2. That’s the worst reading since Mr. Abe entered office in January 2013 and the lowest since September 2011. Respondents were even more pessimistic than during Mr. Abe’s year-long term as prime minister between September 2006 and September 2007…

Even though recent data showed the basic earnings of workers in the world’s third-largest economy rose for the first time in almost two years in January, respondents in the February survey were less optimistic about their income growth, the value of their assets, and their overall livelihood than they were a month earlier.

The downbeat reading prompted the government to downgrade its assessment, saying it is “on a weak note.” (Japanese Consumer Pessimism Hits New High Under Abe, WSJ)

To say the Japanese are depressed, would be an understatement. Your average Joe is “even more pessimistic” than he was when Abe stepped down in 2007 and the economy was on the brink of rigor mortis. Does that sound like the “Happy Days are here again” blabber you’ve been reading in the media or hearing from liberal pundits like the madcap Dr. Krugman?

Also, according to a Cabinet Office survey that appeared in the Japan Times on Saturday, only 22 percent of respondents “think the economy is headed in the right direction”, while 76 percent are worried about the impact the consumption tax will have on the economy.

How’s that for a ringing endorsement of Abe’s Kamikazenomics? The only people who still believe in Abe’s song and dance are the ivory tower set at Princeton and Yale. Everyone else has thrown in the towel.

Abenomics is a public relations scam designed to shift more payola to voracious stock speculators and their thieving corporate counterparts. It’s a fraud wrapped in a lie. That’s all there is to it. But there are victims, that’s for dang-sure. Just check out this article in Bloomberg and you’ll see what I mean:

“Japanese Prime Minister Shinzo Abe looks set to drive an indicator of economic hardship to a 33-year high by increasing taxes and prices amid stagnant wages. The misery index, which adds the jobless rate to the level of inflation, will climb to 7 percentage points in the three months starting April 1 when Japan raises its sales levy to 8 percent from 5 percent, based on the median estimates of economists in Bloomberg News surveys of unemployment and consumer prices. That would be the highest level for the measure since June 1981 when Japan was emerging out of depression after the oil shocks in the 1970s.

Bank of Japan monetary stimulus designed to spur economic growth and achieve 2 percent inflation has weakened the yen by 6.8 percent in the past 12 months, eroding the value of wages to a record low. Abe, the son of an ex-foreign minister who grew up in a house with servants, is under fire from the opposition party after the cost of living surged to a five-year high.

“Inflation is really tough,” said Kiyoshi Ishigane, a senior strategist at Mitsubishi UFJ Asset Management Co., which oversees more than $77 billion. “Those who speak favorably about inflation might have been born in wealthy families and never experienced the hardship that inflation brought.” (Misery Index Rising to 33-Year High on Abenomics: Japan Credit, Bloomberg)

The Misery Index is peaking and all you hear in the US is a bunch of baloney about glorious Abenomics and the miraculous effect of money printing. What a joke. People are hurting big-time in Japan, and shifty Shinzo is only adding to their pain with his monetary Hara-kiri. It’s madness. Wages dropped for 19 months in a row before they got a “one-off” bump-up last month of 0.1 percent, which is a big nothingburger. The overall trend is down, down, down. On top of that, roughly 35 percent of Japan’s workforce is part-time employment; no pension, no bennies, no job security, no nothing. Things slow down, and you get booted down the stairwell with not as much as a “Goodbye, Charlie!” They probably don’t even bother with the perfunctory pink slip. Just grab your lunchbox, and “out you go.”

So how does Abe figure he’s going to generate inflation when workers are flat on their backs and don’t have enough scratch to buy the widgets that Japan Inc produces?

The whole thing is a non starter, which is why I think this “fighting deflation” trope is a big freaking smokescreen to hide what’s really going on, which is a massive transfer of wealth to the investor class via asset inflation. That’s what’s really happening, right? Abenomics is just a way to produce fat returns during extended periods of slow growth and deepening stagnation. The big boys figured out how to overcome the very conditions that they created with their unbounded avarice. I guess they figure that, just because everyone else has to suffer through a goddamn Depression, doesn’t mean they have to too.

You got to hand it to these guys, they think of everything.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at fergiewhitney@msn.com.

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