Thursday, October 18, 2012
Saturday, October 13, 2012
Wednesday, October 3, 2012
Thursday, September 20, 2012
Why Japan is Not Greece
Many economists believe that Japan will become a net debtor nation. Analysts differ about when. Earlier this year we reported that Jesper Koll, managing director of research at JPMorgan Securities Japan, said, "The time is now... It’s here. It’s 'Sayonara Japan' as a net creditor country." Richard Katz believes that point is years away -- he's not even sure it is going to happen or if it does, that it will cause capital flight as has happened in Greece. Katz is editor-in-chief of the Oriental Economist Report. He is a distinguished lecturer, a former adjunct professor, and an economist who has written about Japan and US relations for three decades. Joining us to explain his latest thinking, is Katz -
Solomon: Why is Japan not going to become the next Greece?
Katz: The point at which Japan is in danger of capital flight, like Greece, is when Japan's current account becomes chronically in deficit. Some people say that could be five or ten years from now. I think it will be later -- I'm not even sure it's going to happen. Japan will most likely become a chronic trade deficit country within this decade, but the current account is different. The current account is the sum of Japan's trade balance plus the income earned on Japan's overseas assets (profits of overseas subsidiaries as well as stocks and bonds held outside Japan). Japan is not vulnerable now because it runs a big current account surplus. Even though the trade balance has been in deficit so far this year, the current account is still in surplus and will remain so for some time to come. If and when Japan does turn into a chronic deficit country, that would be a game-changer which would gradually raise the now-tiny risk of a Greek type crisis. But it would not spark an immediate crisis because Japan has a cushion of $3.3 trillion in net overseas assets.
Solomon: Why is the current account so crucial?
Katz: Running a current account deficit means that you are borrowing money from foreigners, who can easily withdraw it. All of the Euro-crisis countries had not only big government debts, but also big chronic current account deficits. Other European countries with government debts just as big, but without big current account deficits, did not go into crisis. To see this, take a look at the four quadrants of this chart. On the horizontal axis is net government debt as a percentage of GDP. The vertical axis is the current account as a percentage of GDP and presented as averages for the period from 2005 to 2010. Every one of the crisis countries -- Greece, Portugal, Spain and Ireland -- are in the right hand lower quadrant represented by the big boxes. The countries that were borrowing huge amounts of money from abroad got into trouble when the Lehman shock sent their deficits way up. They were vulnerable to capital flight; foreigners started taking their money away.
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Yet not a single country in the upper right-hand quadrant has gone into crisis. These countries have a current account surplus, which means they can finance their debt by themselves. They're not vulnerable to capital flight. Not even all the countries in the lower-right hand quadrant have gone into crisis -- not the UK, not France, nor the US.
Even when Japan runs a current account deficit, that will not immediately make it vulnerable because it has a big cushion of built-up foreign assets. Here's the same chart, but replacing the current account as a percentage of GDP on the vertical axis with Japan's net international assets.
Even when Japan runs a current account deficit, that will not immediately make it vulnerable because it has a big cushion of built-up foreign assets. Here's the same chart, but replacing the current account as a percentage of GDP on the vertical axis with Japan's net international assets.
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Again, crisis countries are in the lower right-hand quadrant. They owe a lot of money because they've been borrowing for many years. Yet all the countries in the upper right have been running surpluses for many years. They have built up a cushion of assets.
When a country has both internal and external imbalances, that's when you have a crisis. A domestic crisis alone is manageable. That's why Japan isn't Greece.
Solomon: How would that cushion work in practice?
Katz: Suppose Japan were running a current account deficit and, for some reason, foreigners became reluctant to lend to Japan. In that case, Japan could easily sell some of their international assets. At the end of 2011, the Ministry of Finance’s foreign exchange reserves amounted to $1.29 trillion. At today’s exchange rate, that is equal to 20% of GDP. In addition, net private overseas assets at the end of October 2011 amounted to $2 trillion (¥155 trillion). That equals another 33% of GDP. About 60% of those private assets are liquid financial assets, such as stocks, bonds and bank loans. That foreign investors can see this cushion is yet another reason they are unlikely to bet against Japan’s creditworthiness for years to come, just as deposit insurance reduces the chance of a run on the banks.
Solomon: Why would private parties that own foreign assets feel pressured to sell them? They're not under the control of the Japanese government.
Katz: If Japan were having a capital flight crisis that raised interest rates at home, it would pay private investors to shift some of their overseas bond and stock investments back to Japan to take advantage of those higher rates. Also, if Japan is running a big current account deficit, that means that private parties in Japan are building up debts to foreigners that they must pay in foreign hard currencies -- mostly in dollars. They need to get these dollars from somewhere. Japanese overseas assets are one source.
Solomon: Would not the government's sale of $1.29 trillion in foreign reserves simply increase the budget deficit? The ratings agencies and bond vigilantes, I think, would take notice.
Katz: They have no impact on the budget deficit, but do have an impact on the balance of payments and on the government’s cumulative balance of international assets and liabilities. That is a flow issue vs. stock issue. Rating agencies actions do not seem to have had much impact on market rates of government notes and bonds. Total overseas assets amounting to 55% of GDP, 20% owned outright by the government, should be enough to deal with bond market vigilantes.
Solomon: Can you explain why it doesn’t affect the budget deficit?
Katz: Today, Japan is running a current account surplus. Its net stock of private and government-owned foreign assets is increasing. If the current account turned negative, those assets would decrease. In this scenario, the government and private entities are not issuing new bonds to finance the current account deficit; they are selling existing assets, just as if they had sold a bridge to pay down debt. The net international assets of Japan as a whole would decline. But this action would no more increase the government budget deficit, than the Ministry of Finance increasing its reserve assets lowers the budget deficit today. The balance of payment and budget deficit issues in this case are separate issues, because Japan does not have to issue new debt to finance a current account deficit.
Solomon: Earlier this year I asked J. Koll to comment on the notion Japan had a huge cushion of overseas assets on which it could rely to finance its trade deficit. He said, "The income account is not huge. It is only 2% of GDP, almost nothing..... As anyone who has ever tried it, living off your assets is a very difficult thing to do." How do you respond?
Katz: The income account is about 3% of GDP, not 2% as you can see by the gray area in this chart.
When a country has both internal and external imbalances, that's when you have a crisis. A domestic crisis alone is manageable. That's why Japan isn't Greece.
Solomon: How would that cushion work in practice?
Katz: Suppose Japan were running a current account deficit and, for some reason, foreigners became reluctant to lend to Japan. In that case, Japan could easily sell some of their international assets. At the end of 2011, the Ministry of Finance’s foreign exchange reserves amounted to $1.29 trillion. At today’s exchange rate, that is equal to 20% of GDP. In addition, net private overseas assets at the end of October 2011 amounted to $2 trillion (¥155 trillion). That equals another 33% of GDP. About 60% of those private assets are liquid financial assets, such as stocks, bonds and bank loans. That foreign investors can see this cushion is yet another reason they are unlikely to bet against Japan’s creditworthiness for years to come, just as deposit insurance reduces the chance of a run on the banks.
Solomon: Why would private parties that own foreign assets feel pressured to sell them? They're not under the control of the Japanese government.
Katz: If Japan were having a capital flight crisis that raised interest rates at home, it would pay private investors to shift some of their overseas bond and stock investments back to Japan to take advantage of those higher rates. Also, if Japan is running a big current account deficit, that means that private parties in Japan are building up debts to foreigners that they must pay in foreign hard currencies -- mostly in dollars. They need to get these dollars from somewhere. Japanese overseas assets are one source.
Solomon: Would not the government's sale of $1.29 trillion in foreign reserves simply increase the budget deficit? The ratings agencies and bond vigilantes, I think, would take notice.
Katz: They have no impact on the budget deficit, but do have an impact on the balance of payments and on the government’s cumulative balance of international assets and liabilities. That is a flow issue vs. stock issue. Rating agencies actions do not seem to have had much impact on market rates of government notes and bonds. Total overseas assets amounting to 55% of GDP, 20% owned outright by the government, should be enough to deal with bond market vigilantes.
Solomon: Can you explain why it doesn’t affect the budget deficit?
Katz: Today, Japan is running a current account surplus. Its net stock of private and government-owned foreign assets is increasing. If the current account turned negative, those assets would decrease. In this scenario, the government and private entities are not issuing new bonds to finance the current account deficit; they are selling existing assets, just as if they had sold a bridge to pay down debt. The net international assets of Japan as a whole would decline. But this action would no more increase the government budget deficit, than the Ministry of Finance increasing its reserve assets lowers the budget deficit today. The balance of payment and budget deficit issues in this case are separate issues, because Japan does not have to issue new debt to finance a current account deficit.
Solomon: Earlier this year I asked J. Koll to comment on the notion Japan had a huge cushion of overseas assets on which it could rely to finance its trade deficit. He said, "The income account is not huge. It is only 2% of GDP, almost nothing..... As anyone who has ever tried it, living off your assets is a very difficult thing to do." How do you respond?
Katz: The income account is about 3% of GDP, not 2% as you can see by the gray area in this chart.
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The goods and services trade deficit expanded to 1.5% of GDP in the first half of 2012. It would have to double to wipe out income surplus and end the current account surplus. The trade deficit would have to triple to bring the current account to a deficit of about 1.5%. While I was wrong in expecting the trade surplus to return this year, it remains to be seen how that will go in the coming years. I still think Japan is heading to toward a chronic trade deficit, but its size is uncertain. I thought six months ago that this would occur in the 2015 to 2020 period. It may come forward a bit because of the combination of the nuclear shutdown and the ongoing troubles in Europe. A lot depends on the price of fossil fuels, which no one has been good at predicting in periods of economic uncertainty. It depends, for example, on demand from Europe and China, which is uncertain. It also depends on expansion of oil and natural gas production in the US. The upshot is the picture for the current account balance is uncertain, but I think the likelihood of Japan turning to chronic current account deficit by 2015 is very low. It will be driven by the trade situation, and the domestic investment-savings balance will adjust to that.
Solomon: Is the critical factor for Japan’s trade surplus its exports to China and Asia?
Katz: Japan’s exports to China and the rest of Asia hinge on China/Asia’s own exports to the US and Europe.
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Most of Japan’s exports to Asia serve as capital or parts inputs for these countries’ own exports. It is the sluggish recovery in the US and the travails in EU that count the most for Japan’s exports. It is the nuclear shutdown and price of fossil fuels that count the most for imports.
Solomon: What does all of this mean of policy going forward?
Katz: The good news is there is no urgency to raise taxes when the global economy is still weak and uncertain. The consumption tax hike passed by the Diet should be delayed until Japan is in better economic health. Second, Japan has the breathing room to apply structural reform to improve long-term growth while being able to use fiscal stimulus as the anesthesia to make the pain of structural reform bearable. Fiscal stimulus need not mean bridges to nowhere. It could be a combination of temporary consumer-oriented tax cuts and public works that help the economy. For example, linking suburban and semi-rural homes to sewage lines and gas pipelines -- homes now served by septic tanks and propane gas tanks -- would greatly reduce air and water pollution while cutting Japan’s energy needs. That would eliminate the need for trucks to service the septic tanks and propane tanks.
Solomon: What does all of this mean of policy going forward?
Katz: The good news is there is no urgency to raise taxes when the global economy is still weak and uncertain. The consumption tax hike passed by the Diet should be delayed until Japan is in better economic health. Second, Japan has the breathing room to apply structural reform to improve long-term growth while being able to use fiscal stimulus as the anesthesia to make the pain of structural reform bearable. Fiscal stimulus need not mean bridges to nowhere. It could be a combination of temporary consumer-oriented tax cuts and public works that help the economy. For example, linking suburban and semi-rural homes to sewage lines and gas pipelines -- homes now served by septic tanks and propane gas tanks -- would greatly reduce air and water pollution while cutting Japan’s energy needs. That would eliminate the need for trucks to service the septic tanks and propane tanks.
Richard Katz is editor-in-chief of The Oriental Economist Report. Katz has written about Japan and US relations for over three decades. He was a visiting lecturer in economics at the State University of New York in Stony Brook and an adjunct professor of economics at New York University Stern School of Business. He's authored two books about Japan -- "Japan, the System That Soured: The Rise and Fall of the Japanese Economic Miracle" and "Japanese Phoenix: The Long Road to Economic Revival". In “A Nordic Mirror”, he explained why Scandinavia has recovered from similar structural defects far more quickly than Japan. Richard holds a BA in history from Columbia University (1973) and holds a masters degree in economics from NYU (1996). www.orientaleconomist.com
Monday, September 17, 2012
Plans for a new Yamanote Line station was announced this year. in 2012
Plans for a new Yamanote Line station was announced this year. in 2012
East Japan Railway Co. may build the first new station on the Yamanote Line since 1971, adding the site would be between Shinagawa and Tamachi stations.
The story below (Heading above) in the Japan Times highlights the application for a real estate buying strategy in Tokyo. The East Japan Railway Co is building a new railway station between Shinagawa and Tamachi stations.
http://www.japantimes.co.jp/text/nn20120105a2.html
Sites to look at are in areas where subways might be extended or new stations added. a principle guiding decision will be:
1. Local minimum population density - look at neighbouring areas
2. Distance between train stations - look for anomalies
3. Explanation for anomalies - why is there no station there? Topographic anomaly so no settlement; perhaps a park, etc.
4. Growing population density - historical evidence that the area is growing in population. High rise developments, new stores like HokkaHokkaTai-obento shops or Mackers,etc are good signs to keep an eye out for, take a look at Japan's very good population statistics. They offer monthly changes in demographics.
http://www.citypopulation.de/Japan-TokyoKu.html
http://www.demographia.com/db-tokyo-ward.htm
5. Space for growth - stations need to be supported by near-station development. It is harder to develop a station if the railway company cannot build some type of shopping precinct to service it.
Buying mortgagee bank owned property to 'hold' as a rental property to profit from anticipated future development. After a proposed new station is announced, you could expect property prices (Cap Gains) do very well.
QE3 & the Ponzitards
As depicted by the thtle of this post, we are now witnessing geopolitical/economic/environmental meltdown in real-time. It's an accelerating train wreck that has the public paralyzed - frogs in boiling water. Their only recourse is American Idol, South Park and Faux News.
I try not to get too political since I have outright disgust for the two party pseudo-democratic system, but when Mitt Romney indicated that his election platform involves yet another tax cut for the wealthy, I almost shit a brick. Bush's tax cut from a decade ago is still baselined into the recurring deficit and requires ongoing borrowing i.e. it's a tax cut paid for by America's grandchildren. And apparently paying for 60% of the Federal budget (borrowing the rest) is just too much burden for today's 'taxpayer'. So, they need a bigger break. Leave aside the fact that the wealthy, including Romney himself, already pay a lower tax rate than the middle class and they keep their real money in offshore bank accounts paying 0% tax. Meanwhile, lest we forget, Bernanke's latest lubing of the stock market (and all risk assets) is a direct income benefit to the wealthy and a commodity inflation tax on the middle class.
The Economist Goes Mad Magazine
No sooner had I written my most recent diatribe against the alpha males who bulldozed their way to the top by repeating the same moronic strategies over and over again, than I am presented with yet more mind boggling examples.
First off, with respect to Monetary Policy, I was remiss in not pointing out the most egregious (albeit obvious) aspect of the latest policy moves. Which is the constantly overlooked fact that monetary policy - cheap money - got us into this mess in the first place. Once again, it's the signature of the Idiocracy to believe that the way to get out of a problem is to just apply MORE of the same bad policy that caused the problem to begin with. As a reminder, both the ECB (via OMT) and the Fed (via QE3) this past week declared that they will print as much money as necessary to resolve these ongoing debt problems that were created by easy money.
With respect to Fiscal Policy, that Full Retard moment has been building for years across all Western Nations. However, the recent climactic moment occurred when non other than Larry Summers - Dean of Harvard and a key architect of the 2008 meltdown, said that the best way for the U.S. to get out of debt is to borrow MORE money.
I try not to get too political since I have outright disgust for the two party pseudo-democratic system, but when Mitt Romney indicated that his election platform involves yet another tax cut for the wealthy, I almost shit a brick. Bush's tax cut from a decade ago is still baselined into the recurring deficit and requires ongoing borrowing i.e. it's a tax cut paid for by America's grandchildren. And apparently paying for 60% of the Federal budget (borrowing the rest) is just too much burden for today's 'taxpayer'. So, they need a bigger break. Leave aside the fact that the wealthy, including Romney himself, already pay a lower tax rate than the middle class and they keep their real money in offshore bank accounts paying 0% tax. Meanwhile, lest we forget, Bernanke's latest lubing of the stock market (and all risk assets) is a direct income benefit to the wealthy and a commodity inflation tax on the middle class.
The Economist Goes Mad Magazine
Speaking of insanity, the subject that spawned this latest diatribe - geopolitics. Just this week "The Economist", in examining the recent spate of Anti-American protests across the entire Muslim world, declared that the best response for the U.S. was to interfere MORE in the region. So again, the best response to a failed policy leading to widespread anarchy, poverty and disillusion is to just double down on the same bad policy. To be specific, "The Economist", which is ostensibly an economics-oriented magazine devoted an entire article giving glib armchair general advice on how the U.S. should provide military support to the rebels in Syria. I didn't realize that the pencil necked geeks at "The Economist" were military strategists. Of course, the same magazine was a proponent of U.S. involvement in Libya where the U.S. embassy was just blown up. Who knew that intervention could have such high and immediate ROI? And dare I state the obvious, but if a Danish cartoon or homemade video on YouTube can cause a billion Muslims to go apeshit, then stay tuned for a lot more cartoons and homemade videos...
Wow, this shit is melting down in real time and the only thing preventing public acknowledgement of the fact is the new season of NFL football commanding attention. Also redirecting attention away from reality is the impending election to determine which of two Harvard buffoons will be the best spokeman for the 14,000 special interest groups operating in D.C.
Lastly, with respect to iPhoney 5 (really 6, but who's counting), as expected, the Idiocracy really, really wants one: lol this is hilarious...
Sunday, September 9, 2012
A Microcosm of Japan’s Tough Future?
A Microcosm of Japan’s Tough Future?
If the city of Yubari is, indeed, a glimpse of future Japan, this may be what the Nikkei has been or starting to discount. The index is still down a stunning 77 percent from its December 29, 1989 all-time high and has only managed a 27 percent bounce off the October 2008 low.
It’s the economy demographics, stupid!
Japan has suffered through severe trials and tribulations, including the bursting of a real estate and stock market bubble, a prolonged depression, and a tragic earthquake and tsunami. One can only wonder about the social stability of, say, the U.S. or other western countries if they were to experience the same scale of testing. Just imagine a similar stock market nightmare which would put the S&P500 at 282.99 in August 2026. Ouch!
What a testament to the non-entitlement mentality of the Japanese people. Godspeed, our Japanese friends.
Saturday, September 8, 2012
Steve Keen Study Economics At UWS September 2012
Steve gave the talk at UWS's Open Day, as an intoduction to economics for prospective university students.
the Economics & Finance program at UWS has been almost unique amongst economics departments around the world in deliberately pursuing a "pluralist" approach to economics.
the Economics & Finance program at UWS has been almost unique amongst economics departments around the world in deliberately pursuing a "pluralist" approach to economics.
Robert Glasper - The Spirit of Jazz - Reflection of Society
Rob hits so many good points regarding the current state of jazz.Its both refreshing and fantastic that Glasper is pushing the genre forward as apposed to staying in the nostalgic style of play. it's like jazz quit progressing after the 80s. the 70's was like the last major shift in jazz and as a result it stagnated . I love what the Experiment are doing!
Peter Schiff - US Real Estate & Stocks outlook 08-06-12.
Peter Schiff bearish when it comes to the US dollar and economy. He as an ardent opponent of the Federal Reserve, and proposes reduced government spending and taxes and increased personal savings as the solution to the US debt problem. He blames the collapse in housing prices on unrestrained lending by banks and predicts a similar economic collapse in the near future triggered by sovereign debt.
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