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Economics

Ещё один японский урок

Jun 26, 2017 Stephen S. Roach

НЬЮ-ХЕЙВЕН – Перед нами ещё один сюрприз из длинной серии сюрпризов отрицательной инфляции. В США начался процесс снижения так называемого базового индекса потребительских цен (core CPI), в который не включаются цены на продовольствие и энергоресурсы, причём это произошло ровно в тот момент, когда ожидался его рост. За три месяца, завершившиеся в мае, базовый индекс потребительских цен практически не изменился, оставаясь всего лишь на 1,7% выше уровня годичной давности. Для американской экономики, которая, как принято считать, приближается к желанному состоянию полной занятости, эта новость стала резким звонком пробуждения, причём особенно для Федерального резерва, который уже снял все преграды на пути возвращения инфляции к целевому уровню 2%.

На другой стороне планеты аналогичная драма разыгрывается в Японии. Впрочем, в дефляционной японской экономике сюжет этой драмы намного жёстче.

По данным за апрель, базовый индекс потребительских цен Японии остаётся практически неизменным относительно уровня годичной давности; в мае аналогичный результат зафиксирован в столичном регионе Токио. Для Банка Японии, который использовал беспрецедентный арсенал нетрадиционного монетарного оружия с целью остановить длившуюся 19 лет дефляцию (снижение цен на 16,5% с 1994 по 2013 годы), это стало не просто резким пробуждением. Это позор, граничащий с разгромом.

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0 Comments on this paragraph, 32 Comments on this article

Mauricio Duran-Loriga Jul 5, 2017

Every time I see a central banker or a politician talking about future inflation I wonder what big a laugh she/he must be having inside.

I also wonder if after their press conferences, these people review their performances on screen as to check whether their humongous lies had the slightest appearance of credibility.

Back to square one. What is the lion's share cost in producing goods and services? LABOR.

The oversupply of labor created by the 2 billion (Asian) workers that joined the global workforce in late XX century has to be absorbed prior to achieving inflation.

Until global labor cost arbitraging runs its full course, sustained inflation will be part of the Santa Claus' yearly wish list. And this will take decades from now.

Or else, we kill 2 billion people. I suspect they may resist !

None of this two outcomes are politically palatable, so our corrupt leaders keep playing illusionist tricks and parroting hollow theories in order to gain some extra time until their tenure is finished and the hot ball is passed on to the next acting puppet. The Oscar for Best Performing Actor goes for Ben Bernanke, for his performance in "Muddle through, unscathed".

But it will get much worse with overall unstoppable robotization. "Labor" costs as you know them will sink deeper, making oversupply even greater and cheaper than today. But with dramatically less human workers at the global workforce, demand for goods will collapse too.

The failed politics of monetarists and keynesianists will give way to the politics of population control. Central bankers "shine" will be replaced by much more dangerous psychopaths.
- bruce birkett Jul 20, 2017
  
  I think you are missing something, which is related to the transferred benefits of labor to those not laboring.
  
  In Europe, the 20-23% VAT just increases the cost of goods and services with the tax transferred to government and redistribution.
  
  I always love the story of the Russian and the Hotel. A small hotel owner has a Russian come in and ask if they have any rooms available. The hotelier answers yes. The Russian asks to see the room. The hotelier says he will need to leave a deposit and the Russian agrees handing over $100 bill. As he goes up the stairs to see the room, the hotelier quickly calls over the bus boy. Quick, he says, go pay the butcher..... the butcher quickly pays the baker, etc. Finally, the hooker comes in with the same $100 and gives it to the hotelier for the past use of a room. Now, the Russian is just coming down the stairs. He looks at the hotelier and says, "I think we'll check out another hotel". The hotelier hands him back his $100.
  
  Now, what would happen if everyone had to pay 23% to the government.
  
  Here's a link to another interesting thought on how the young are being forced to support retirees and the aged in the US that is not being recognized in the healthcare debate.
  
  https://drive.google.com/file/d/0BwenUPUOO574alY0QXlaZHBxNmM/view
  - Matthew Roberts Dec 30, 2017
    
    What's the point of the hotel story? An argument for no taxes and no state? Good luck with that out on the lunatic fringes. But it doesn't even say anything. In what world is there one and only one $100 bill for all time? In what world are there no banks creating money? In what world is there no Government spending? Your story is an attempt at Economics 101, but without the 1, the 0 or the other 1. It's only appeal is to people who don't like paying taxes and who believe doing so serves zero purpose. I.e. the terminally ill-informed.
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Angel Gavieiro Jul 3, 2017

That unorthodox Monetary Policy did not work is something that most people (but Central Banks, of course) agree for some time now. Their major consequence has been the inflation of a financial markets bubble which, inexorably, will explode sooner or later (it looks like there are more and more market voices pointing to 2017...).

Therefore, as briefly pointed by Mr. Roach, let's leave it to Fiscal Policy. However, as surely he and many people coincide, the majority of developed economies do not have much slack left for Keynesian policies, given their record levels of public debt... which they are not willing to keep increasing, getting them even more vulnerable to markets mercy (moreover if we are waiting for the next crisis). Getting more progressive in taxes, though recommendable in any case, will not raise enough to sustain large public investment/expenditure plans for long (... obviously going to outright rich expropriation goes outside legal realms, at least in democratic systems).

Thus, we face a perfect catch-22... no solution under current 'country-based' paradigm; this situation would likely lead, after next crises explodes and then 29-depression type spreads, and given current geopolitical waters, to more wars (even WWIII), if we are to follow history lessons.

My only visualization of a potential exit from this mess is changing of paradigm to 'supranational-based' economics.
The intervention I proposed (back in early 2016) was a new type of Global QE (coordinated by major CBs) in the order of $13-15tr invested in extra-long term bonds issued by newly re-founded IMF (governance aligned to world interests) for investment in 2 priorities: 1) Climate change (especially, but not only, for Developed economies) and 2) Infrastructure (especially for Developing economies), allocated to public or private projects from any country considering also their impact in employment.
The bonds would be of 20 or 30 year maturity, with 10-year non-interest/non-principal repayment (to give time to public balance-sheets to recover, helped hopefully for the newly generated growth from the investments).
Countries whose projects receive investment, will note off-balance-sheet the amounts for future repayments against new taxes starting in yr. 10 onwards, corporate ones for climate change footprint (past, present & future), and personal ones for inequality reduction.
Ultimately, bonds would be payed back and QE ultimately amortized out (thus eliminating the artificial monetary base initially created) over a 20-30 year horizon.

Clearly, the level of global political coordination required for this effort would be unprecedented (surely beyond Breton Woods), and precisely the political climate has gone in the opposite direction since 2016,... so I would understand the more than justified skepticism.

Last year, an European Commission/McKinsey Global Institute crowdsourcing initiative to gather "out-of-the-box" ideas to cut through current secular stagnation selected this modest contribution within the top-20 ... but yes, obviously nothing has been done since... unfortunately.
Just food for thought, for what it is worth, that perhaps other would like to build upon in their efforts.
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Thaomas H Jul 3, 2017

" particularly for the Federal Reserve, which has pulled out all the stops to get inflation back to its 2% target."
What?
QE ended a long time go and since December 2015 the Fed has been raising ST interest rates. That does not look like a central bank trying to raise inflation to me, much less like one trying to restore the price level to trend
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Peter Ellis Jul 2, 2017

Roach is perpetuating the stupidity of standard economics - why on earth does the world need expanding growth? It is unsustainable. Economics needs to be turned on its head - we should be grateful for less demand and alter the world of work such that we are not endlessly plundering the planet but ensuring that we use technology to harness renewables and, at the very least, encourage recycling. I despair when I read these standard economic deliberations.
- kiers sohn Jul 3, 2017
  
  @peterEllis: no growth = zero market capitalization of all the equity outstanding. a pretty big loss.
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Andrew (Andy) Crow Jul 2, 2017

" For a US economy that is widely presumed to be nearing the hallowed ground of full employment" Well, if anybody (Janet Yellen for instance) is working out her sums with the current published unemployment figure as an input the answer is going to be awry. Unemployment stats are massaged and manipulated for political ends. Also the whole nature of employment in the national economy has changed since many of these models, such as the Phillips Curve, were dreamed-up. Not to mention that the entire global financial system (something new in itself because of its close interrelations) is operating according to rules which are being made up as we go along. Is there any wonder the economic models don't work?

There is no lack of demand. This is a nonsense. The demand is there right enough , but the demand is from people who can't afford to pay because all the cash is going into the wrong end of the economy and for the past forty years we have had monetary and fiscal policies that have kept it moving in that direction. Money doesn't trickle down. It flows up. Anyone who can't see that is an idiot or choses to avert their eyes.
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Bernard Fudim Jul 2, 2017

Employment is up, but those newly employed had incurred debts which they are now beginning to pay off, so that reduces their speculative purchases and reduces inflation. That should be observed as a time lag before new discretionary purchases increase again, and inflation resumes at a slow pace.
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Stephane Genilloud Jul 2, 2017

Helicopter Money is the easy solution.
It's got to be inflationary. And if by any chance it is not, then there is no reason not to do it.
But the ECB is prevented by law to do it and the other central banks, even the most progressive ones, fear to open the Pandora box.
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B Wilds Jun 30, 2017

The ECB and other central banks often claim deflation drives or allows their QE policy to remain and is central to their ability to stimulate. The moment inflation begins to take root or becomes apparent much of their flexibility in policy is lost. The 2% inflation target central banks have deemed optimum is not valid.

In the past, I have put forth the idea that inflation could rule the day even if central banks are unable to keep the wheels on the bus and the economy collapses. This powerful force also known as stagflation can devastate those improperly invested. The article below explores the basis of this theory.

http://brucewilds.blogspot.com/2016/03/inflation-or-deflation-debate-continues.html
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jagjeet sinha Jun 27, 2017

ENLARGEMENT IS ENLIGHTENMENT
Real Demand always exists and exceeds Supplies - MYOPIA prevents Central Banks capacity to envision Enlargement as the Real Solution.
Britain achieved is prime position in World Economic Architecture 300 years ago - then The Enlargement that created The Anglosphere.
The Enlargement enabled Real Demand for World's Economics - until 500 million in The Anglosphere had GDP per capita same as Britain.
Germany and France achieved their Reconstruction post 1945 within The Marshall Plan - then The Enlargement that created The EU.
The European Union Enlargement has created One Single Market of 500 million - the design needs reforms, but SIZE is what matters most.
China understood the limitations of Bretton Woods - and without A Marshall Plan - achieved Global Capital Flows to create Growth.
With One Billion domestic Size, the rest was Crystal clear - the Enlargement needed Auckland Brisbane Calgary Denver to be built in China.
Twenty MegaCities later, China's Economic Architecture has achieved Size that matters.
Japan and Korea are handicapped by their inability so far to achieve what Britain/America and Germany/France achieved - Enlargement.
APEC and ASEAN are attempted initiatives to create SIZE - however, Japan and Korea will have to SHARE THE SIZE unlike Germany n France.
India, blinkered by Dynastic Sycophants, is unable to build Another China - despite SIZE, masterminded by "Economic Gurus" into chaos.
End of Dynasty's Democracy may yet usher Real Democracy where Real Economic Enlightenment leverages Enlargement India already has.
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Mauricio Duran-Loriga Jun 27, 2017

It's demographics, stupid !

What got America out of the hole of 1930's Depression was that its client base was measurably enlarged by Europeans. America needed that solution,hence it went to war.

What got Germany out of the hole of its one in a lifetime malinvestments (Year 2000) was that its client base was measurably enlarged by Euro-prisoners. Germany needed that solution, hence they ordered ECB to launch a credit orgy.

Japan sinking demographics will keep the country in deflation for decades. No matter how much the BOJ prints currency.

Until just recently, all crisis were solved thanks to demographics, as a rising population meant automatically a rising aggregate demand. In addition to longer life expectancy.

Never a central bank got a country out of any economic hole. Much less any keynesian foolish policy.

But the demographic thrust has reversed globally, Aggregate demand will not grow enough as it did in the past. The world needs a huge population increase to create enough aggregate demand as to lit inflation (PCE, not the monetary phenomenon).

Against faltering demographics, Central Bans are totally useless.
Counterfeiting endless means of payment is not equal to increasing aggregate demand. Their complete inability will be of huge concern for central bankers themselves. Very very soon.

The growth rate of the technological progress needed to feed the world population has outpaced the growth rate of the world population. However, the growth rate of the aggregate demand resulting from the rising population is not large enough to rebalance previous economic imbalances (deflation, over indebtedness, over supply).

This is a first in history. Pain is on the way.
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M M Jun 26, 2017

There are many lessons to learn and not only from Japan. Have the problems that caused the 2008 financial crisis gone away? Anyone who believes that the causes of the 2008 financial crisis have been dealt with or have gone away needs a reality check. The Italian, Greek, Spanish, Portuguese, Irish, some American, French, etc. are all in trouble. There must be a re-distribution of the wealth that is in the hands of the very few, through an adjustment of the asset prices , as one solution, the cancer (being the NPLs' , the meddlers, the corrupt politicians and their cronies, the incompetent bankers, etc.) should be quarantined until a new and fair financial system is put in place, which for the known reasons, will never happen unless through a rebellion from the bottom - up. This shall also require the introduction of true democratic mechanisms in the G20 economies, and the removal of all forms of monopolies from the global financial system such as the global financial institutions and their backers ( like breaking up the IMF as an example). Under the current governance system, one can never exclude the possibility of a financial crisis occurring that is by far worst than the 2008 crisis.
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Philip Ralli Jun 26, 2017

Japan also teaches us that low interest rates press down on retirees' income and their discretionary spending. Central bank policies and higher life expectancy are affecting annuity rates everywhere. Central banks replay the 1930s and 1970s focusing too much on unemployment and not enough on 21st-century retirement incomes. Even workers in their 50s who are targeting a given retirement income need to increase savings to reach their goal. Finally, I am not sure that retirees are convinced that inflation will be so tame for the services they will be needing; these are not so easy to trade globally…
- Diana McCoy Jul 4, 2017
  
  I appreciate reading your comments regarding the effects of extraordinarily low interest income on the purchasing capabilities of seniors / retirees. It has been a totally unexpected blow to the careful, long term planning of conservative savers to be receiving virtually no income on their retirement savings. This loss of purchasing power has greatly curtailed once planned travels, property improvements, gifting to the younger generations and so forth. The inaccurate measure of increases in costs for essential expenditures has also led to anemic increases in social security benefits. It's really beginning to feel as though everything that could possibly go wrong (regarding financial planning / fiscal management) HAS gone wrong. And, our so-called leaders seem not to have anticipated any of these current conditions.
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Paul Friesen Jun 26, 2017

I think you are exactly right. Creating money and putting it in excess reserves at the banks has not worked. Creating money and putting it in the hands of people who will spend it is the answer.

I think part of the problem is automation putting people out of work and forcing more and more into precarious employment. That is beginning to act together with hold-over effects of 2008, which were never addressed properly. We need a basic income or negative income tax which could be financed partly by borrowing from central banks at first, just to get us out of the slump, and by environmental taxes for the long term.
- Marc Sargen Jun 26, 2017
  
  There is the postulations that the only solution that will work is Fiscal Stimulus aka top down central central government directed projects & spending either funded by an increase in federal debt, a direct or indirect softening of the money base or an assessment (tax) on the productive element of the economy.
  Instead of say whether this is good or bad think of this. Federal governments will be attempting to make decisions for L-T stability but they will be weakening & distorting the long term tends & pattern of the economy in which all the economic models they us to make these decisions are base on. How can L-T stability be achieved when your every action distorts the information you need to make you next decision?
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G. A. Pakela Jun 26, 2017

The bulk of unconventional monetary policy was implemented well after the crisis had passed and the recovery, however halting had already begun. Unconventional monetary policy did not increase money supply growth and velocity actually decreased. And so, what was the point? To increase bank reserves held at the Fed and lower interest rates? Unconventional monetary policy has become the new monetary standard, although the Ph.D. economists/central bank chairs who promulgated this policy have never properly described the underlying economic theory which justifies the departure from conventional monetary policy, let alone engage in a reasoned debate over its effectiveness.
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barry stanley Jun 26, 2017

If you want to understand the power and influence globalization gives to international industries look at the growth of the alcohol industries and the corresponding lack of attention to the world wide issue of fetal alcohol spectrum disorder.
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barry stanley Jun 26, 2017

Inflation may be a way of reducing government debt, but for the growing number of the poor and disenfranchised it is a disaster.
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Paul Daley Jun 26, 2017

Really not that complicated. You treat over-supply by squeezing supply and boosting demand. From a central bank perspective that should mean sales of bonds to raise interest rates at the long end, and new lending against earned income, funded by the bond sales, to provide income supplements.

Of course, central banks do not have a channel to provide income supplements or lend independently against earned income. So, they wring their hands, as Steven Roach is doing here. It would make far more sense simply to gather the tools they need to manage the economy independently and effectively.
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Steve Hurst Jun 26, 2017

Economic models have broken down. Who would of believed it. Perhaps its because the whole game has changed, gone global from national. Yup that must be it.

Globalisation has flooded the market with labour and in most of the developing economies most of the available labour has not yet turned up at the market place. Only 20% of China has industrialised for example. And that is without the synthetic labour of AI.

The UK is an outlier on inflation, sure, but this is because of a currency drop and it wont last,it will soon work thru.

The world is awash with supply chains... Yes, it is running out of consumers, a bit of a problem for a consumer society model. The next - Oh Dear - the model isn't working is due soon.

Is anybody surprised Joe Public has lost faith in the establishment and moved short term in outlook in a short term environment. The most catastrophic thing you can do with your customers is totally disrupt their behaviour so it resets in a new domain. That is exactly what was achieved by the Crunch

The old model, or more correctly the current model is just garbage but nobody wants to admit it. The consequences are too huge and too disruptive
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Henry Rech Jun 26, 2017

Globalized labour markets have driven down wage incomes and costs, underwriting a powerful shift in the concentration of wealth and income. Only a return to a fair distribution of income and wealth will restore prosperity. All that massive QE has done is cause asset bubbles and illusory unsustainable gains.
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Marc Laventurier Jun 26, 2017

As Stephen knows perfectly well, the Fed's 2% annual inflation rate target set in 2012 is "measured by the annual change in the price index for personal consumption expenditures, or PCE", which has a different structure than the CPI index, and sensibly includes health care inputs. See: https://www.federalreserve.gov/faqs/economy_14400.htm

And such inflation targeting is just another of the book-cooking tricks that include those that Stephen denounces that are deployed to keep capitalism nominally afloat. Such manipulation of a beleaguered and ignorant public through the 'money illusion' and notions like 'inadequate demand' are employed to maintain the profit motive and the pattern of social relations so impelled, while current consumption is maximized by the promise of vital social and medical services in the future. Paging Dr. Ponzi...
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ROHIT CHANDAVARKER Jun 26, 2017

The US Fed has raised rates & is likely to do so once more during the year. The BoJ is grappling with a stubborn economy & ECB is set to end its quantitative easing gradually. Britain displayed surprising strength in the first quarter post the Brexit referendum but is now caught in uncertainty given May's diminished influence. Hence the hypothesis explained here seems at variance with what the central banks are setting out to do. Given the fact that oil prices have hit recent lows & gold is trending down, one wonders what is in store for the remainder of the year.
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Michael Public Jun 26, 2017

Demand is driven by inequality. As Bill Gates says (quote from memory) "I have yet to find at any price, a better burger than the BigMac:. Small measures, like a changing the tax scale, will do very little. What is needed is a major change, like anyone who dies with over $10 million must donate the excess to a list of possible social causes - e.g. scientific research, startup entrepreneurs, poor people, education and so on. This will keep the money flowing. Currently it is damned up because those who have it don't need to spend it.
- Andrew (Andy) Crow Jul 2, 2017
  
  Hank Bones. Straight out of the orthodox right wing textbook ten out of ten for perfect repetition of garbage.
  
  The whole lovely hypothesis breaks apart when you start to consider who actually does any useful and or productive work in society and who gets paid bucketsful for doing doodley squat.
  
  The standard myth is that governments rob the rich. Closer to the truth is that the rich rob the government - which means the taxpayers, because governments don't have their own money they have ours to dispense. Nobody makes a fortune without the physical and social infrastructure that makes it possible. Without that basis of a functional society even a seam of pure gold in your backyard ain't worth a hill of beans. You could at least eat the beans.
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- Hank Bones Jul 2, 2017
  
  Your mistake is in assuming that amassing wealth comes as a result of individuals taking and hoarding a "piece of the pie." And that the more individuals accumulate and save, the less "pie" there is to go around for everyone. Therefore, we must make the people divest themselves of their property, either through enticement (more things for them to buy) or by force (legislated redistribution).
  
  But if wealth is a pie, and there is only so much of it to go around, how did we create any in the first place? How did we go from tribals with sticks and spears to billions of humans in skyscrapers and mansions?
  
  The answer is simple. Wealth is not a limited pie. It is created when individuals underconsume to create new wealth.
  
  The answer is not to seize wealth from those who have it, like thieves in the night. Whenever this is tried, it collapses the economies of the nations its tried in, and everyone ends up with far LESS wealth. Which might seem odd, if you think of wealth as a pie - after all, shouldn't redistributing the wealth of the wealthy lead to the same amount of wealth, except shared by all? But it never works this way. To understand why, take a look at Rhodesia, the breadbasket of Africa. When Mugabe came to power, he seized vast amounts of wealth - in the form of farms - and gave this to his friends, who did not know how to farm, certainly not as well as the prior owners of those farms. Within a few years, the farms were overgrown. The country fell into famine. And all the wealth of those once-great farms had become worthless. The pie vanished, right into thin air.
  
  Wealth is tied to the men who generate it, because it is not a pie. While swords and shields and suits of armor can be looted by invading armies, and not lose their value, if businesses and bank accounts and properties are looted en masse, those things lose the people who know how to run them, lose their ability to continue to generate wealth, and soon become worthless instead.
  
  If we want greater wealth, we must teach our citizens to produce wealth. That means they must learn to understand markets. To identify unmet needs. To race toward gaps and opportunities. To think creatively and produce products and services others need. And we must excite them about the pursuit of opportunity and the ability to strike it rich through building something great. This is how all great economies are born. The seizure of assets and redistribution of them, sadly, is how such economies die.
  - Matthew Roberts Dec 30, 2017
    
    So its Mugabe or Ayn Rand? The real solution, of course, lies somewhere in the middle. Since we're at the extreme end of neo-liberal polarisation at present then inevitably some redistribution is needed. Live with it. Your solution is demonstrable failure.
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