Moodys and Japan – rating agency declares itself irrelevant – again

I have very (very) little time today and I am typing this in between meetings. There was a lot of non-news today – the news that pretends to be news and full of import but which in reality is largely irrelevant and just serves to flush out more nonsensical commentary from self-importance financial analysis (mostly located in private banks). Then the non-news commentary suffocates any sensible evaluation and in some cases governments are politically pressured to change policy in a destructive manner – fuelling the next wave of non-news. Today’s classic non-news was the downgrading of Japan by Moodys. Once again, a ratings agency declares itself irrelevant.

Read more

Are they all lining up to be Japan?

Everyone is lining up to be the next Japan – the lost decade or two version that is. It has been taken for granted that Japan collapsed in the early 1990s after a spectacular property boom burst and has not really recovered since. The conservatives also claim that Japan shows that fiscal policy is ineffective because given its on-going budget deficits and record public debt to GDP ratios the place is still in shambles. I take a different view of things as you might expect and while Japan has problems it demonstrates that a fiat monetary system is stable and we should be careful comparing Ireland, the US or the UK to the experiences that unfolded in Japan in the 1990s and beyond.

Read more

Household saving falls but private saving increases – Japan!

In recent weeks I have received many curious E-mails about Japan all asking the same question – if net exports are positive and households saving are in decline, how come the budget deficit is so big? It is a good question and the answer relates to developing a good understanding of the components of the National Accounts and the way they interact. As I explain here, the private domestic sector is increasing its saving in Japan but it is all down to the corporations sitting on huge piles of retained earnings and reducing their investment. What these trends tell anyone who appreciates the way in which the macro sectors interact is that sustained budget deficits are required in Japan and any move to austerity would be disastrous.

Read more

Please note: there is no sovereign debt risk in Japan!

Sometimes you read an article that clearly has a pretext but then tries to cover that pretext in some (not) smart way to make the prejudice seem reasonable. That is the impression I had when I read this Bloomberg opinion piece by William Pesek (January 31, 2011) – Pinnacle Envy Signals New Bubble Is Inflating – which I was expecting to be about real estate bubbles but which, in fact, turned out to be an erroneous blather about Japanese debt risk. Please note: there is no sovereign debt risk in Japan!

Read more

Japan … just wait … your days are numbered

I was reading this IMF working paper today – The Outlook for Financing Japan’s Public Debt – which was released in January and was on my pile of things to catch up on. The paper is now being used by journalists to predict doom in the coming years for the Land of the Rising Sun. As I note, the stark deviation of the Japanese experience with the predictions of the mainstream macroeconomics models has given the conservatives a headache. As an attempt to reassert their relevance to the debate, the mainstream commentators are inventing new ploys so that they can say – yes we agree that the facts in the short-run don’t accord with our models but brothers and sisters just wait for what is around the corner. My assessment is that they have been saying this for 20 years already. In 5 more years, they will still be disappointed and still prophesying doom. They are pathetic!

Read more

Japan grows along with the hysteria

Today, the Cabinet Office in Tokyo issued the third-quarter Japanese national accounts data which showed that the economy has posted positive growth for the second consecutive quarter and is now motoring along at an annualised rate of 4.8 per cent (1.2 per cent in the September quarter). In the June quarter growth resumed at 0.7 per cent (2.8 per cent annualised) and so the recovery is getting stronger. Given they did not allow labour underutilisation of labour to rise very much (a large increase by Japanese standards but relatively small compared to countries such as the UK and the US, they should be able to absorb the jobless fairly quickly. But this will only strengthen the growing call for the government to cut back net spending. It is a case of denying what is staring you the face.

Read more

Japan – up against the neo-liberal machine

I have been intrigued with Japan for many years. It probably started with the post-war hostility towards them by the soldiers who saw the worst of them. The Anzac tradition was very unkind to Japan and its modern generations. It always puzzled me how we could hate them so much yet rely on them for our Post-World War II boom. I also thought we owed them something for being part of the political axis that dropped the first and only nuclear weapon on defenceless citizens when the war was over anyway. Whatever, I have long studied the nation and its economy. So yesterday’s election outcome certainly exercises the mind. Will it be a paradigm shift or a frustrating period where an ostensibly social democratic government runs up against the neo-liberal machine? I put these thoughts together about while travelling to and from Sydney on the train today.

Read more

The IMF has outlived its usefulness – by about 50 years

The IMF and the World Bank are in Washington this week for their 6 monthly meetings and the IMF are already bullying policy makers around the world with their rhetoric that continues the scaremongering about inflation. The IMF boss has told central bankers to resist pressure to drop interest rates, even though it is clear the world economy (minus the US) is slowing quickly. It is a case of the IMF repeating the errors it has made in the past. There is a plethora of evidence that shows the IMF forecasts are systematically biased – which means they keep making the same mistakes – and those mistakes are traced to the underlying deficiencies of the mainstream macroeconomic framework that they deploy. For example, when estimating the impacts of fiscal austerity they always underestimate the negative output and unemployment effects, because that framework typically claims fiscal policy is ineffective and its impacts will be offset by shifts in private sector behaviour (so-called Ricardian effects). That structure reflects the ‘free market’ ideology of the organisation and the mainstream economic theory. The problem is if the theory fails to explain reality then it is likely that the predictions will be systematically biased and poor. The problem is that the forecasts lead to policy shifts (for example, the austerity imposed on Greece) which damage human well-being when they turn out to be wrong.

Read more

Rinse and repeat – Truss chaos – the new benchmark

For years, those who want selective access to government spending benefits (like the military-industrial complex and other parasitic sectors), while claiming the government cannot afford to provide adequate income support to the most disadvantaged citizens have used various ruses to give an air of authority or legitimacy to their claims. So in the UK, the lie in 1976 by the then Labour government that it was going to have to borrow from the IMF to stay solvent has been regularly wheeled out. In Europe, it was the ‘tournant de la rigueur’ (austerity turn) introduced by the French government of François Mitterrand in 1983 that effectively cancelled the commitment to the progressive – Programme commun – that is often cited as a demonstration of the limited capacity of governments to resist the global power of the financial markets. The fact that it was progressive governments that instigated these events made it more emphatic – the Left essentially swallowed the fictions introduced by the Right and the corporate elites that governments were now powerless against the power of the financial markets. The macroeconomic contest was essentially ceded to the conservatives and it has been that way since. There is now a new ruse that the elites are using that the progressives are also spreading – the Liz Truss Ruse. This apparently tells us that governments must appease the financial markets or face currency destruction and rising bond yields. Like its predecessors, there is no validity to the claims. But the Left is so bereft that it cannot see through the smoke and mirrors. And that is why the world is in the parlous state that it is – the contest of ideas is non-existent. It is a case of rinse and repeat – except all is happening is lies and posturing is being recycled.

Read more

Inflation excluding volatile items is now falling back to around 2 per cent in Australia – despite the efforts of the RBA

Today (March 27, 2024), the Australian Bureau of Statistics (ABS) released the latest – Monthly Consumer Price Index Indicator – for February 2024, which showed that the annual inflation rate steadied at 3.4 per cent. Today’s figures are the closest we have to what is actually going on at the moment and show many of the factors that drove the sudden burst in inflation are now abating and the current factors that are significant are more to do with abuse of market power than overspending or excessive wage demands. Significantly, if we look at the All Groups CPI excluding volatile items (which are items that fluctuate up and down regularly due to natural disasters, sudden events like OPEC price hikes, etc) then the monthly inflation rate was zero and the annualised rate over the last six months is 2.5 per cent – which is in the middle of the RBA’s inflation targetting range. If we take the annualised rate of that series, over the last three months, then the inflation rate is 2 per cent, at the bottom of the RBA’s range. The general conclusion is that the global factors that were responsible for the inflation pressures are abating fairly quickly as the world adapts to Covid, Ukraine and OPEC profit gouging. This inflation was never about overspending.

Read more

Claims that mainstream economics is changing radically are far-fetched

I have received several E-mails over the last few weeks that suggest that the economics discipline is finally changing course to redress the major flaws in the curricula that is taught around the world and that perhaps Modern Monetary Theory (MMT) can take some credit for some of that. There has been a tendency for some time for those who are attracted to MMT to become somewhat celebratory, even to the point of declaring ‘victory’. This tendency is not limited to the MMT public who comment on social media and the like. My response is that we are probably further away from seeing fundamental change in the economics profession than perhaps where we were some years ago – after the GFC and in the early years of the pandemic (which continues). My answer reflects the incontestable fact that the make up of faculties within our higher education systems has not changed much, if at all, and the dominant publishing and grant awarding bodies still reflect that mainstream dominance. There is still a lot of work to be done and a lot of ‘funerals’ to attend (à la Max Planck).

Read more

Keynes was wrong because he failed to consider class conflict

I was asked during an interview the other day from Paris whether I was a Post Keynesian. I replied not at all and explained that I have never felt that my ideas fit into that category although in a facile sense we are all post keynesian in a temporal sense. Most progressive economists would answer yes if confronted with that question, even most of the economists involved in advancing Modern Monetary Theory (MMT). My point of departure is that while there was a lot of important analytical material in Keynes’ writing that is worth preserving and integrating into, say, MMT, where Keynes went astray was his antipathy to the insights provided by Karl Marx. In particular, I consider that Keynes seriously misunderstood what the dynamics of the class conflict were within a capitalist mode of production. Keynes made major errors in his predictions that one can directly attribute to this blinkered approach to capitalism. I was reminded of this when I read an Op Ed in the Japan Times this week (March 10, 2024) – The economic future of our overworked grandchildren. This blinkered approach, which has fed into the modern Post Keynesian literature – which examines capitalism as if it is an ahistorical, neutral system of production and distribution – is a major reason that I do not associate my work with that school of thought.

Read more

Latest US inflation data is no cause for alarm – the trend is down

It’s Wednesday and I have looked at the US CPI release overnight that has set alarm bells off in the ‘financial markets’ and among mainstream economists. My assessment is that there is nothing much to see – annual inflation less volatile items is still falling and the lagged impact of shelter (housing) is still evident even though that component is also in decline. I also examine an argument that the trend towards increasing self-reliance among nations is likely to precipitate renewed global conflict. My own view of this trend is that it must accelerate to allow us to shift to a degrowth trajectory. And I finish with some fine concertina music.

Read more

Apparently the bond vigilantes are saddling up – on their ride to oblivion

When I was in London recently, I was repeatedly assailed with the idea that the Liz Truss debacle proves that the financial markets in Britain are more powerful than the government and can force the latter to comply with lower spending and lower taxes. It seems the progressives have a new historical marker which they can use to walk the plank into conservative, sound finance mediocrity. For decades it was the alleged ‘IMF bailout of the Callaghan government in 1976’ when Chancellor Dennis Healey lied to the British people about running out of money and needing IMF loans to stay afloat. They, of course, never needed any loans but Healey and Callaghan knew the people wouldn’t know that and they used the fiction as a vehicle to keep the trade unions in a subjugated position. That lie has resonated for years and has been a principle vehicle for those advocating smaller government, more privatisation, and more handouts to the top-end-of-town while at the same time cutting welfare payments to the poor, killing the national health system, degrading public utilities, transport and education and all the rest of it. Well now that gang, which now rules the Labour Party in Britain has a new fiction – the ‘Truss surrender to the markets’. And the logic is spreading elsewhere with lurid claims emerging that the so-called bond vigilantes are saddling up to force the US government broke.

Read more

The Smith Family manga – Episode 12 – the Season 1 finale – is now available

Episode 12 – the finale for Season 1 in our new Manga series – The Smith Family and their Adventures with Money – is now available. We will let everyone calm down from the excitement for a little while to give us time to write and draw Season 2, which will begin on May 24, 2024.

In the meantime, have a bit of fun with it and circulate it to those who you think will benefit …

Read more

US inflation rate is declining – no case for further rate rises

It’s Wednesday and I have comments on a few items today. I haven’t been able to write much today because the power has been down after the dramatic storms yesterday in Victoria damaged the network and caused absolute chaos (see below). Power is mostly back on now (which is why this post is later than usual). The US CPI data released yesterday showed that inflation continues to decline and the so-called ‘surprise’ that seems to have shocked the ‘markets’ are mostly down to the eccentric way the US Bureau of Labor Statistics calculates housing costs. The data provides no justification for further rate hikes in the US or anywhere else for that matter. I also report on an interesting survey from Japan regarding local attitudes to foreigners. I don’t think it reflects Japanese insularity although many will conclude otherwise. Then some Wayne Shorter.

Read more

Australia – inflation falling rapidly

Today (January 31, 2024), the Australian Bureau of Statistics released the latest – Consumer Price Index, Australia – for the December-quarter 2023. The data showed that the inflation rate continues to fall sharply – down to 4.1 per cent from 5.2 per cent in line with global supply trends. There is nothing in this quarterly release that would justify further interest rate rises. Yesterday, the ABS published the latest – Retail Trade – data for December 2023, which showed a marked slowdown in consumer spending in December 2023 after many consumers brought forward spending in November 2023 to take advantage of the discount sales. So it is likely that overall spending is subdued and I expect the inflation rate to continue to decline in the next three months.

Read more

Lower British fiscal deficit gives the central government no more or no less capacity to net spend to reduce unemployment

It’s Wednesday and I am bound for London later today. We will see how that turns out having not travelled there since the beginning of the pandemic. I will take plenty of precautions to avoid Covid. But it will be good to catch up with friends in between several engagements, including my teaching responsibilities at the University of Helsinki, which I have been acquiting for the last few years via Zoom. Today, I reflect on the latest public finance data released by the British Office of National Statistics which shows the fiscal deficit is smaller than expected. Even progressive journalists have written this up as providing more scope for pre-election largesse to be provided. The fact that the fiscal balance is lower provides no more or no less scope for the government to net spend. The relevant questions that should be answered before such an assessment can be made are ignored by the journalists, including the fact that the unemployment rate is rising and the supply-driven inflation is falling fast. After some announcements of events in London and Europe, we have some violin music to end today’s post. There will be no blog post tomorrow as I will be in transit.

Read more

British Labour Party running scared of the usual shadows

This is an election year in the UK and unless something dramatically changes, the Labour Party will be in power for the next term of Parliament and will have to manage a poly crisis that they will inherit from 40 or more years of neoliberalism. Note, I don’t confine the antecedents to the Tory period of office since 2010 because the decline started with James Callaghan’s Labour government in the 1970s and then just got worse during successive periods of Labour and Tory rule. During that long period, there has been no shortage of economists and public officials predicting that the financial markets would soon reap chaos as a result of the public debt levels being ‘too high’ (whatever that means). The most significant chaos came in 1992 when Britain was forced out of the European exchange rate system, which it should never have joined in the first place. While all these economists are now pressuring the likely next British government to pull back on their promises to ‘assuage’ the financial markets, there is not even a scintilla of evidence to support their predictions of doom. And the Labour party leaders are too stupid to realise that.

Read more
Back To Top