Groundhog Day
Like out of a scene from ‘Groundhog Day,’ Japan announced that they will unveil another stimulus plan, their 3rd in this down cycle and I don’t have enough fingers or toes to count how many stimulus plans the 2nd biggest economy in the world has had since 1990. My point is that there is no precedent whatsoever of a country’s government printing money and spending its way to prosperity, especially in the face of a massive deleveraging.
The FTSE is gaining back most of what it lost yesterday after Marks and Spencer had better than expected sales and UK consumer confidence was 5 pts higher than forecasts and rose to the most since May ’08. Mar Euro Zone CPI rose .1% less than estimated and likely clinches an ECB rate cut on Thurs. Germany’s March jobs data was weaker than expected. Case/Shiller HPI, Chicago PMI and Confidence are out today.
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March 31st, 2009 at 9:46 am
There’s no precedent? Really? Not the New Deal era of 1933-1936 (Note: it would be more correct to call the period from 1936-1938 the “New Hoover” era because that was when FDR cut spending to the bone and provoked a second wave of recession). Not the massive rearmament spending of 1939-1945? Government spent massive amounts of printed money and put millions of Americans to work in government jobs (the Army is a government job). Unemployment plummeted to 1-2%, GDP soared, and America dominated the international economic order for the next 35 years.
Do we really have such short memories, or did we all just sleep through American History 101?
March 31st, 2009 at 9:49 am
Peter,
what keeps being repeated is the Myopia, evinced by intrepid ‘reporters, such as yourself, that fails to note the Pachyderm parked on the Persian, rug, that is..
“Geithner’s Dirty Little Secret
By F. William Engdahl, 30 March 2009
US Treasury Secretary Tim Geithner has unveiled his long-awaited plan to put the US banking system back in order. In doing so, he has refused to tell the ‘dirty little secret’ of the present financial crisis. By refusing to do so, he is trying to save de facto bankrupt US banks that threaten to bring the entire global system down in a new more devastating phase of wealth destruction.
The Geithner Plan, his so-called Public-Private Partnership Investment Program or PPPIP, as we have noted previously
(In German: Obamas Rettungsplan für die Banken: keine Lösung, sondern legaler Diebstahl), is designed not to restore a healthy lending system which would funnel credit to business and consumers. Rather it is yet another intricate scheme to pour even more hundreds of billions directly to the leading banks and Wall Street firms responsible for the current mess in world credit markets without demanding they change their business model. Yet, one might say, won’t this eventually help the problem by getting the banks back to health?
Not the way the Obama Administration is proceeding. In defending his plan on US TV recently, Geithner, a protégé of Henry Kissinger who previously was President of the New York Federal Reserve Bank, argued that his intent was ‘not to sustain weak banks at the expense of strong.’ Yet this is precisely what the PPPIP does. The weak banks are the five largest banks in the system.
The ‘dirty little secret’ which Geithner is going to great degrees to obscure from the public is very simple. There are only at most perhaps five US banks which are the source of the toxic poison that is causing such dislocation in the world financial system. What Geithner is desperately trying to protect is that reality. The heart of the present problem and the reason ordinary loan losses as in prior bank crises are not the problem, is a variety of exotic financial derivatives, most especially so-called Credit Default Swaps. …”
http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/Geithner_Secret/geithner_secret.html
~
http://www.african-elephant.org/
March 31st, 2009 at 9:51 am
Neither has an economy ever sustainably grown that has a declining population. I hate to keep harping on it, but demography is destiny. Print all the Yen you want. Unless it reverses the birth rate, Japan will soon enough (by the next century) be rapidly fading away into oblivion.
March 31st, 2009 at 9:55 am
franklin,
“…Herbert Hoover — only nine months into his presidency — assembled leaders from the public and private sectors to create an economic-stimulus package. Among the measures, Time magazine reported at the time, was a promise from Congress to offer bipartisan support for a tax-cut package. The proposal called for $160 million in tax relief — only about $22 billion if adjusted against the gross domestic product at the time, and therefore much smaller than the plan under consideration here in 2008. Read Time’s original coverage of the plan.
Also on the table was an assurance from the Federal Reserve that it would provide cheaper credit.
Has someone been reading Rothbard? [Thanks Digg]
http://blog.mises.org/archives/007710.asp
~
facts are a stubborn thing..
March 31st, 2009 at 9:56 am
It is not how much money they spend, it’s what they spend it on. When you spend money subsidizing money losing businesses (like GM), that just temporarily eases the pain. If you spend money on worker training for new industries, that is an investment that will return dividends in future years. If you give money to oligarchies to expand broadband access (like we did in 1996), you get fat oligarchies. If you give money to start-ups to deliver the killer application that will make people want to get broadband, 9 out of 10 will fail but the one that succeeds will have a big impact.
March 31st, 2009 at 10:04 am
franklin411:
How can you blame Hoover (bad) for Roosevelt’s (good) actions in 1937? Did Hoover come back and bitch-slap ol’ Rosie, sitting there defenseless in his wheelchair, to make him tarry down a fiscally conservative path?
It’s why you really shouldn’t look at things through your politically-biased blinders.
There is a big difference between borrowing money to save a decrepit system that has failed, and borrowing money to enhance security such that economic activity can flourish. Comparing QE in Japan (or the US) to investments necessary to defeat an existential threat to the country and world is a bit daft.
March 31st, 2009 at 10:14 am
How can you blame Hoover (bad) for Roosevelt’s (good) actions in 1937?
—————-
When are people going to stop admiring puppets.
March 31st, 2009 at 10:18 am
Despite all the printing and spending of yen over the past 20 years, there’s been no inflation! This is a warning to all you inflation scare mongers out there :) Now, I do agree with The Curmudgeon that population growth is a vital factor, but the point is the same nonetheless. Our policies(which are effectively the same as Japan’s) in and of themselves are not predestined to cause inflation.
March 31st, 2009 at 10:27 am
“My point is that there is no precedent whatsoever of a country’s government printing money and spending its way to prosperity, especially in the face of a massive deleveraging.”
So we’re good, right? (Oh shit!)
March 31st, 2009 at 10:36 am
The Earth is not safe from catastrophe until a socio-economic system is devised that proffers prosperity without growth. Nor are humans.
How many billions more of us must there be for capitalism to continue? And the Earth can support how many?
Japan has been the bleeding edge of the Asian dragon evolution where successive countries see huge spurts in investment and foreign business opportunities as they consecutively become the “low-cost producer of choice”. For a brief while. Even as Japan was swimming in so much prosperity they were “throwing money off the Tokyo Tower”, the seeds of their competitive decline were being sown. Taiwan, I believe.
Competition becomes more ferocious daily. The Japanese govt is doing what they can to cushion the true impact of this competition. But Japan has not bottomed out yet.
Nor have we.
March 31st, 2009 at 10:48 am
Myr,
see: http://news.bbc.co.uk/2/hi/business/7953609.stm
if you don’t think the Japanese are suffering declines in their standard of living/the flip-side of ‘Inflation’, maybe it’s time to recalibrate..
as a two-fer, the quick-ad prefacing the vid, shows, vividly, the type of Propaganda arm that natgeo is turning into..
March 31st, 2009 at 10:52 am
Despite all the printing and spending of yen over the past 20 years, there’s been no inflation
————–
There was. It was in housing and markets. Boomers were going to use this “wealth” to live grandly during their retirement.
March 31st, 2009 at 10:56 am
us phx,
you give rise to the Proof that ‘fickle Finance’ severs the thinking-head of Economics.
LSS: we need not tread the ever-steepening parabolic curve, we, just, need a unit of account/financial system that doesn’t..
that realization, made long ago, led to the first instance of Economy Ramp n’Crash, c. late ’20s
~
“I would rather earn 1% off a 100 people’s efforts than 100% of my own efforts.”
“Competition is a sin.”
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Rockefeller+quote+on+competition
March 31st, 2009 at 11:07 am
Currently you have 5 workers per retiree.
In a couple of decades, it will be 2 to 2.5 workers per retiree.
If we keep on printing money and making sure these non GDP producing retirees get their services, I can’t see how we won’t have inflation.
We need inflation anyway to get young people to buy overvalued houses from the boomers.
All you need to do is socialize healthcare and have a huge percentage of the population working in that industry to get inflation. Imagine that… you can throw your entire GDP at healthcare and people will still die!
As the government keeps on propping up the deadweight, it’s going to corner the market for private investment. Business people will not be willing to invest and capacity will dwindle.. surely creating more inflation.
Then you have your workforce… a huge group that will be getting less productive becaude of age and because of disillusionment.
In my mind, if we don’t get inflation it’s because we’ll have suffered a systemic collapse.
March 31st, 2009 at 11:11 am
“I would rather earn 1% off a 100 people’s efforts than 100% of my own efforts.”
“Competition is a sin.”
—————
Who wouldn’t? Unfortunately, it only works for 1% of the population over the long run.
When you have 100% expecting their neighbors to do the heavy lifting, you’ve got a problem. And that’s where the Western world is now.
March 31st, 2009 at 11:14 am
The current fiscal crisis is not a problem of economics, it’s a problem of politics.
@franklin411: “Government spent massive amounts of printed money and put millions of Americans to work in government jobs (the Army is a government job). Unemployment plummeted to 1-2%”
Show me how many government jobs Obama has created and with whom do you recommend we start a world war? FDR created more than 10 million civilian jobs in the 1930s, I believe–in a nation with fewer than 150 million people! Peacetime unemployment was halved to about 10-12%.
@Myr: Have you accounted for the fact that in a time of globalized financing it is likely that only the printing presses of world’s largest economy could actually generate money-based inflation since you have to be able to devalue the world’s reserve currency (dollars), which Japan cannot do (Yen)?
March 31st, 2009 at 11:15 am
re the FTSE,
I think it might see 3500 before it sees 4500.
March 31st, 2009 at 11:41 am
@tenacious
I’m not saying Obama has done everything perfectly, but this just belies the right’s assertion that the President is trying to be a dictator. If he could, I think he would gladly hire millions of people by executive order. The fact that he hasn’t is proof that democracy still exists in America (and I’m not one to see democracy as flawless…the slowness with which it responds to crisis is both a blessing and a curse).
@curmudgeon
I didn’t say all spending was the same. A recent study by the Society of American Civil Engineers showed that the US needs to spend $3 trillion over 5 years just to catch up with deferred maintenance on our crumbling transportation network! Imagine what it would do for our economy if we just fixed our roads, sent every kid to a good school, invested in R+D, broke our addiction to oil, and fixed our broken health care system. Plenty of things that need investment, and if we’re going to be a great nation again, we need to take the risk and invest now.
No risk, no reward.
March 31st, 2009 at 12:39 pm
The latest Japanese stimulus includes the buying of equities…this is wrong in so many ways…
Government will buy the equities of?….the biggest contributors?? Or the companies with the greatest need? Who determines that?
Will this be like a 24/7 Plunge Protection Team….? When and who decides now is the time to buy equities? Who will be advising the government?
When do you decide to sell, and if you don’t is this going to be a buy and hold until the economy improves?
Look, this didn’t even make a splash here when the news came out last night..and until last September this sort of thing here in the USA would have been a non-starter…
Buying treasuries…buying equities….giving money to a company that hasn’t a hoot in hell chance of paying the money back..
Where are we going with this thing?
March 31st, 2009 at 2:19 pm
@ Bruce: The Japanese have no choice. The economy is Tankan…
This is going to get ugly in the long run, my friend.
March 31st, 2009 at 2:41 pm
lb,
for those slower on the uptake:
http://www.boj.or.jp/en/theme/research/stat/tk/index.htm
March 31st, 2009 at 7:44 pm
@ Bruce in TN: ” The latest Japanese stimulus includes the buying of equities” . For Japan that’s an extreme shift. Kind of.
So exactly how much of AIG do we (collective taxpayers) own.
Someplace earlier today I made a comment about Japan. Forgot where it was.
The Asian countries have this notion of …. ( and the only word that comes to mind is “kereitsu” or something like that).
Military-industrial complex, or worse, or better.
And we used to think we, with our all-powerful Democracy, were so much better, different and smarter.
Personally, I am starting to think we’d be a lot better off being run by Samurai, chosen by their personal strength, mental and physical, than by their connections, network, or media magic.