Economics

Le problème comptable du Japon

Mar 16, 2015 Adair Turner

TOKYO – Dans quelques années, il deviendra évident que la Banque centrale du Japon (BCJ) a converti en espèces sonnantes plusieurs billions de dollars d’obligations souveraines. Les craintes de l’orthodoxie monétariste voulant que la presse à billets pour financer des déficits actuels et passés mène inévitablement à une inflation dangereusement élevée. Le résultat au Japon sera fort probablement une légère hausse de l’inflation et de la croissance. Et la réaction des marchés financiers risque fort de ressembler à un simple bâillement.

La dette publique du Japon se situe maintenant au-dessus de 230 % du PIB, et à environ 140 % même après avoir défalqué les actifs détenus par les différentes entités contrôlées par l’État, comme le fonds de sécurité sociale. Cette montagne de dettes est le résultat inévitable des déficits budgétaires élevés que le Japon a enregistrés depuis 1990. Mais c’est le genre de dette qui ne sera jamais « remboursée » au sens usuel du terme.

Les statistiques publiées par le Fonds monétaire international aident à comprendre pourquoi. Pour que le Japon parvienne à rembourser sa dette nette à un raisonnable 80 % du PIB d’ici 2030, il faudrait faire passer le déficit primaire du budget de 6 % du PIB (avant les paiements d’intérêt sur la dette courante) de 2014 à un surplus de 5,6 % du PIB d’ici 2020 et maintenir le surplus jusque dans les années 2020.

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0 Comments on this paragraph, 17 Comments on this article

Fernando Saldanha May 7, 2015

It's magic! The government runs a deficit of 10% of GDP forever with absolutely no real-world consequences. The idea that there is a real world where GDP is shared by government and the private sector is obsolete! Why not increase deficits to 20%, 50%, or maybe even above 100% of GDP? I suspect Mr. Turner is one of these austerity fanatics since he does not propose a huge expansion of deficits given that it would have no negative consequences.
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Avraam Dectis Mar 27, 2015

.
Great column, and, may I suggest that it does not go far enough.

As stated, the only risk of QE is inflation, and we can control inflation through interest rates, reserve requirements and the like.

Once you get to that point, it is a valid question to ask if income taxes are necessary or merely a vestige of gold standard practices. If we went to a Bond Funded Government model, where governments were financed primarily by bonds, no corporate or personal income taxes and inflation controlled through economic activity reducing measures such as dynamically adjusting interest rates, reserve requirements and possibly the addition of national real estate taxes for a progressive economy cooling effect,( or even sales taxes), there is a very strong possibility that we would end up with a far more robust economy. In addition, the lack of income taxes would eliminate a huge income tracking and deducting beauraucracy and negate the need for tax avoiding behavior. It would be very freeing.

I think most people would risk higher interest rates and maybe a harder time getting a loan if it meant no income tax.

Avraam Jack Dectis
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Marc Laventurier Mar 22, 2015

For background on just how fishy all this is, consider viewing the quite good documentary 'Princes of the Yen' .(https://www.youtube.com/watch?v=p5Ac7ap_MAY)
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Peter Campbell Mar 17, 2015

Who are you and how did your gross misunderstanding of economics ever put you in a position of leadership and regulation of financial markets. As you can see, the only thing that QE increases is uncertainty for real economic output and certainty for financial product output, QE reduces purchasing power of a currency and theoretically influences for a short time imports at the expense of increased purchasing power from somewhere else but this only occurs for a short time as normal business and people with normal skills are not currency traders. Monetizing debt in such a way forces non-trading skill sets to attempt to modify their behaviour to address uncertainty of normal economic transaction - which results often in high leverage application of short term techniques such as buying back highly inflated shares or of holding risky securities such as JGB's without the ability to focus on the long-term. QE and monetization force rational and productive people to focus on shorter and shorter term objectives and less and less productive pursuits. HOW YOU CAN SEE THIS PATTERN as positive is WHY THE WORLD IS AT RISK OF WAR and ECONOMIC CALAMITY. High leverage is not good for traders and its not good for productive output. It is not good for governments especially ones who distort GDP to keep astronomical debt to GDP ratios looking somewhat palatable. In the case of the US there has been virtually NO GROWTH AT ALL in real economic transactions reported in GDP but $4+ trillion of growth in non-financial hednically adjusted or imputed transactions. Without these distortions the US Debt to GDP and Japan's too would be double what they are...I am sure you would consider that healthy, productive and sustainable, but herein is the problem of a bunch of financial theorists playing with badly constructed models of how they think things should work - without having any experience with an actual activity called "WORK" and experience with productive output.

In the case of your reference to data from IMF - that convenience is similar to the US data quality - irrelevant. IMF also stated that the commodity price drops were accretive for economies of the world - and any analyst with a 30 year old calculator in less than an hours can conclude that this is NOT the case. Funny that people feel so conformable making claims they do not really understand based on numbers and facts that are inaccurate and unverifiable.

Please go back to Oxford or some other elite university and continue your clearly useless studies and thank you for your contributions to making the financial system and more risk sensitive place
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Peter Campbell Mar 17, 2015

Who are you and how did you gross misunderstanding of economics ever put you in a position of leadership and regulation of financial markets. As you can see, the only thing that QE increases is uncertainty for real economic output and certainty for financial product output, QE reducing purchasing power of a currency theoretically influence for a short time imports but this only occurs for a short time as normal business and people with normal skills are not currency traders. Monetizing debt in such a way forces non-trading skill sets to attempt to modify their behaviour to address uncertainty of normal economic transaction - which results often in high leverage application of short term techniques such as buying back highly inflated shares or of holding risky securities such as JGB's without the ability to focus on the long-term. QE and monetization force rational and productive people to focus on shorter and shorter term objectives and less and less productive pursuits. HOW YOU CAN SEE THIS PATTERN as positive is WHY THE WORLD IS AT RISK OF WAR and ECONOMIC CALAMITY. High leverage is not good for traders and its not good for productive output. It is not good for governments especially ones who distort GDP to keep astronomical debt to GDP ratios looking somewhat palatable. In the case of the US there has been virtually NO GROWTH AT ALL in real economic transactions but 4 trillion of growth in non-financial hednically adjusted or imputed transactions. Without these distortions the US Debt to GDP and Japan's too would be double what they are...I am sure you would consider that healthy, productive and sustainable. But this is the problem a bunch of financial theorists playing with badly constructed models of how they think things should work - without having any experience with a thing called "WORK".

In the case of your reference to data from IMF - that convenience is similar to the US data quality - irrelevant. IMF also stated that the commodity price drops were accretive for economies of the world - and any analyst with a 30 year old calculator in less than an hours can conclude that this is NOT the case. Funny that people feel so conformable making claims they do not really understand based on numbers and facts that are inaccurate and unverifiable.

Please go back to Oxford or some other elite university and continue your clearly useless studies and thank you for your contributions to making the financial system and more risk sensitive place
A new reply to this comment has been posted.
jagjeet sinha Mar 17, 2015

Creating Demand Mountains by achieving Asset Prices is the panacea that Permanent Monetization delivers - offsetting Private Deleveraging through Quantitative Easing. Enhanced Asset Prices is the key - it's democratization by Infrastructure Investment in diverse geographies is essential if unbridled Migration is to be defused. Britain perhaps has been practicing what Lord Turner has articulated using Japan's Accounting paradigm. The East India Company created enhanced Asset Prices in distant geographies that have served as Perpetual Demand Mountains. Japan unfortunately does not have the geographic space to replicate - unless like China it can create its own Asian Infrastructure Investment Bank. Europe on the other hand has the geographical diversity - where Enhanced Asset Prices can deliver the Demand Mountains that the ECB finds elusive. Japan has a mind so strikingly similar to Britain perhaps due to Island Nations that the two are. Governor Mike Carney often displays an identical mindset where he visualizes perpetual growth - via Asset Prices. The lessons for Europe seem to get lost in the political litany and incoherent dogma that characterizes its imperfections. Europe needs The East India Company template that built The Anglosphere - but by having chosen to challenge its economic dominance, European deliverance from disaster seems to remain perpetually elusive.
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Peter Golovatscheff Mar 17, 2015

To Stamatis Kavvadias:

You say that Turner suggests that bonds held by central bank could be replaced with perpetual, non-interest-bearing bonds. What would be the consequence?

This would lead to a situation where the deposits created during QE operations, held by the public, will lose the ultimate *demand* (for those same deposits) which arises from bond repayment. They would never be "called in" in the form of taxes. Note, that it doesn't matter if the debt is rolled over or not, as long as taxes reflect this demand for deposits rising from repayment obligation. If you don't even need to roll over the debt, then there will be lower taxes -- right?

Replacing bonds held by central bank with perpetual, non-interest-bearing bonds would thus lead to a significant change in our monetary system. For a good reason, people would lose their trust in government promises-to-pay -- after all, the government would be saying that many of those promises are now void. There is no chance that anyone could control the volatile inflation which would follow this kind of change. Why? Because inflation is not a monetary phenomenon only -- it is very much a psychological phenomenon.
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dan baur Mar 16, 2015

Debt makes the Japanese society poor and less relevant in this world. Let's say a Japanese worked for $40,000 /yr out of which s/he lent to the government $10,000/yr. The government pays basically nothing, then takes the money and wastes it on bridges to nowhere. BOJ now buys that debt so the money mass keeps growing, but Japanese citizens don't get a higher standard of living. The only offsetting benefit to the individual Japanese comes from the unrelated population decrease that lowers overall costs anyway. Lower yen value also ensures full employment, but anyone could have that by lowering their hourly payment demand.
- Stamatis Kavvadias Mar 17, 2015
  
  Japanese bond yields are very low so, BoJ purchases of government bonds does not increase the money stock significantly. It is mostly debt roll-over, lord Turner claims. Nevertheless, Japan has a *primary* budget deficit, as well. I do not know the exact numbers, though...
  A new reply to this comment has been posted.
- dan baur Mar 16, 2015
  
  In this example, If the Japanese gets paid $40k but enjoys only $30k with basically no benefit from the additional $10k lent to the state is he/she really paid $40k or only $30k?
  A new reply to this comment has been posted.
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Jose araujo Mar 16, 2015

With an healthy 2% inflation, it will take Japan 20 years to reduce its debt in half...

I also don't understand the monetizing the deficit issue. If you hold your own currency there is very litle difference in printing money or issuing zero cupon debt.

I also think by now we should stop comparing flows (GDP) to stocks (debt), it has never made any sense.

We have to compare flows with flows - GDP to interest paid, and stocks with stocks - debt to assets
- Jose araujo Mar 17, 2015
  
  Stamatis,
  
  Central Bank can simply burn the debt it bought. Central Banks and treasuries are usually the same entity, just separated because they have different functions, but in fact are kind like the right and left pocket.
  
  I also think there is emprirical evidence to question the assumption on constant speed of circulation, first because of the current form of money, namely plastic money, and digital money.
  
  Second because we have been experiencing a general preference for liquidity which translates into the decrease of speed in circulation and makes it possible for the central banks to print money without generating inflation. Fisher's equation is an equality so it allways holds true, and sice M is increasing, Y and P are decreasing or stable , V must be decreasing so that MV=PY
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- Stamatis Kavvadias Mar 17, 2015
  
  The difference is significant, in the general case. It is that if you print money with debt attached, i.e., if the central bank buys government debt, this has to be perpetually rolled-over (unless money circulation speed increases, which is traditionally taken as constant in macroeconomics). If the central bank "prints" a perpetual non-interest-bearing bond, it effectively issues public money, with no debt attached. This allows for the decrease in privately created debt burden (held either by the public or the private sectors).
  A new reply to this comment has been posted.
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Tomas Kurian Mar 16, 2015

QE by central bank can work, but still has it consequences.

Methods of capital redistribution – inevitability of state debt
http://www.genomofcapitalism.com/index.php/11-1-methods-of-capital-redistribution-inevitability-of-state-debt
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Peter Golovatscheff Mar 16, 2015

I'm indebted to Mr Turner in many ways. For instance, his already legendary "Stockholm Speech" is full of relevant points about the "big picture" around our global debt overhang.

Still, when it comes to this article and "overt monetary finance", I must strongly disagree with him. As "money" itself is just an IOU, government debt cannot be monetized in the way he suggests.

As a consequence of Quantitative Easing, reserves/deposits (IOUs) replace bonds (IOUs) in the hands of the public. The total nominal value of IOUs, again in the hands of the public, remains more or less intact. Where the repayment of bonds in the hands of public (Case 1) leads to deposit/cash transfers from taxpayers to bondholders, the repayment of bonds -- as they come due -- in hands of the central bank (Case 2) leads to deposit/cash transfers from taxpayers to the government/central bank.

In Case 1 (see above), the consequence is reduced total (aggregate) nominal value of bonds in the hands of public, while the aggregate value, or amount, of deposits/cash (remember, these are IOUs too) in the hands of the public remains intact.

In Case 2, the consequence is reduced aggregate value of deposits/cash in the hands of the public. This reduction is equal to the reduction of aggregate nominal value of all bonds in the hands of the public in Case 1.

Thus, what is important is not the type of IOUs in the hands of public, but the overall budget deficits and their ultimate, eventual effect on agents' inflation expectations (through their effect on agents' trust in government promises -- which is always *non-linear*). Whether these deficits lead to an increasing amount of bonds in the hands of the public, or to an increasing amount of deposits in the hands of the public, is close to irrelevant. This is especially true now that bonds yield close to zero.

This "overt monetary finance" (a term Mr Turner uses for "helicopter money") offers, unfortunately, no easy solution to our government debt problems. In my blog, "Clumsy Statements", I go through all this in more detail.

What I say here is based on a new credit theory I have built. It is somewhat connected to Wicksell's "pure credit economy", Mitchell-Innes's "Credit Theory of Money" and "Chartalism". If you're interested in hearing more about it, please contact me through my blog (e-mail is there, under details) or Twitter.
- Stamatis Kavvadias Mar 17, 2015
  
  Lord Turner speaks of a de facto government debt roll-over from the BoJ, which could be replaced with "a perpetual non-interest-bearing bond," i.e., *namely* with overt money finance; but it is already overt money finance, he claims...
  
  In this case, your case 2 never occurs. Your case 2 would amount to removing money from the economy. Adair Turner argues for a different mix of debt-based money with non debt-based, perpetual money, issued by the central bank and the public sector, instead of private banks.
  
  Your deficit/surplus approach removes money from the economy, in the name of inflation expectations of "agents". Adair turner says that "agents" are likely to accept unsustainable levels of debt and point to this direction by the current level of Japanese bond yields. Reversely, your approach, of focusing on turning deficits to surplus, would encourage a rise in bond yields by "agents" and the inescapable verification of the principal that what is unsustainable will not be sustained.
  
  I do not know if Lord Turner has any mistake in his data on Japanese debt roll-over, but his reasoning makes perfect sense.
  A new reply to this comment has been posted.
- Peter Golovatscheff Mar 16, 2015
  
  I have written a reply to Adair Turner (in it I, hopefully, clarify my previous comment here):
  
  http://clumsystatements.blogspot.com/2015/03/whats-wrong-with-helicopter-money.html
  A new reply to this comment has been posted.
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Le problème comptable du Japon

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