Ambrose Evans-Pritchard: Worry About Japan, Not America
“Markets are worried that Japan is going to hit a brick wall: the sums are gargantuan.”
-Albert Edwards, a Japan-veteran at Société Générale.
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One of the major complaints I have had about the bailouts and faux regulatory reform has been that it spurned the proven solution — the Swedish model — and instead embraced the worst example on the planet: The Japanese model.
The refusal to force insolvent banking entities into bankruptcy is a large part of the reason, but its not the only one. Their savings rate has crashed — it was 15% in 1990, and now its 2% — half of America’s savings rate. Their decade plus long recession and an ongoing 70% fall from the Nikkei’s 1989 peak is an ugly foreshadowing of what could come to pass here.
Indeed, Japan has been drifting towards a deeper malaise. The world’s 2nd largest economy has more debt than the world’s largest, per capita or as a percentage of GDP. Ambrose Evans-Pritchard notes that “For 20 years the world’s second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending – and allowing it to push public debt beyond the point of no return.”
That’s a devastatingly accurate indictment from a piece he published in the Sunday Telegraph: It is Japan we should be worrying about, not America.
Here is an excerpt:
“No one knows exactly when a country tips into a debt compound trap. But Japan must be close, even allowing for the fact that liabilities of the state Loan Programme (FILP) have fallen by 40pc of GDP since 2000.
Mr Hatoyama inherited a country that was already hurtling into sovereign “Chapter 11″. . .
The Bank of Japan seems oddly insouciant. It will end its (feeble) quantitative easing in December by suspending purchases of corporate debt, much to the fury of the Finance Ministry.
Japan’s terrible errors are by now well known. It failed to jettison its mercantilist export model in time. It resisted the feminist revolution, leading to a baby strike by young women. It acquiesced in a mad investment bubble (like China now) in the 1980s, stealing growth from the future.
It wasted its immense fiscal firepower, scattering money for 20 years on half-baked spending projects to keep the economy afloat. QE was too little, too late, and this is the lesson for the West. We must cut borrowing drastically over the next decade, and offset this with ultra-easy monetary policy.
Does Downing Street understand this? Does the White House? Does the European Central Bank? Clearly not.”
The plight of Japan is well worth paying attention to — they are one possible future the United States is facing.
Killer stuff . . .
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Previously:
Time to Get Swedish (January 23rd, 2009)
http://www.ritholtz.com/blog/2009/01/time-to-get-swedish/
Source:
It is Japan we should be worrying about, not America
Ambrose Evans-Pritchard
Telegraph, 01 Nov 2009
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/6480289/It-is-Japan-we-should-be-worrying-about-not-America.html
See also:
Cracks Appearing Among China’s Banks
ANDREW PEAPLE
WSJ, NOVEMBER 2, 2009
http://online.wsj.com/article/SB125715792577822561.html
November 2nd, 2009 at 7:05 am
Here’s the data via Pierce:
November 2nd, 2009 at 7:27 am
http://www.hussmanfunds.com/wmc/wmc091102.htm
“The alternate possibility, which is the one that I personally subscribe to, is that the recent downturn was the initial phase of a more prolonged deleveraging cycle; that the advance we’ve observed in recent months most likely represents mean-reversion – qualitatively and quantitatively similar to the large and often abruptly terminated “clearing rallies” of past post-crash markets; that major credit losses are continuing quietly but are going unreported thanks to changes in accounting rules by the FASB this past spring, which allowed for “substantial discretion” in accounting for loan losses and deterioration in the value of securitized mortgages; that a huge second-wave of mortgage losses can be expected from a reset schedule on Alt-A and Option-ARMs that has just started (following a lull in the reset schedule since March) and will continue into 2010 and 2011; that intrinsic economic activity remains abysmal; that recent GDP growth is an artifact of massive fiscal stimulus that is unlikely to have sustained follow-through; and that recent market valuations are not representative of those observed at the end of most post-war recessions, but are instead similar to those observed at major market peaks prior to the mid-1990’s.”
…You read Barry’s post, you read Hussman’s post this morning…maybe we should be more worried about Japan, but if you mull it over for a minute with your morning cup of coffee, you may just be seeing the same book on a little different timeline….
…The Hussman-Ritholtz Global Law of Deleveraging……
November 2nd, 2009 at 7:35 am
http://www.newsweek.com/id/220163
Up Against a Wall of Debt
How much can governments borrow?
“The same logic applies to exploding government debt. We have moved into uncharted territory and are prisoners of psychology. Consider Japan. In 2009, its budget deficit—the gap between spending and taxes—amounts to about 10 percent or more of gross domestic product (GDP). Its total government debt—the borrowing to cover all past deficits—is approaching 200 percent of GDP. That’s twice the size of the economy. The mountainous debt reflects years of slow economic growth, many “stimulus” plans, an aging society, and the impact of the global recession. By 2019, the debt-to-GDP ratio could hit 300 percent, says a report from JPMorgan Chase.”
November 2nd, 2009 at 8:49 am
As with universal healthcare for our population, we’re too full of hubris to look to other countries to see examples of what works and what doesn’t. Oh, the frustrating idiocy of it all.
November 2nd, 2009 at 9:17 am
BR, Chris Whalen would point out that it’s not the “Swedish model,” it’s the *American* model.;)
November 2nd, 2009 at 9:17 am
Ritholtz, this is uber-typical British Tory hogwash, attempting to curry favor with Americans by bashing Asiatics and anything non-Anglo. This has been the MO of British conservatives since they realized that Germany would surpass Britain as the power of Europe in the middle 19th Century. Never forget that Winston Churchill started the Cold War by demonizing the Russians, the result of which was the destruction of two empires, the Soviet Empire in the 1980s, and the ongoing decay of the American Empire that continues to this day and may culminate in some truly nasty stuff sometime in our lifetimes.
I am all in favor of managing public-sector spending and debt everywhere, not only in America. But this liar’s true agenda is the continued manipulation of currencies to preserve the global status quo of trade imbalances. He wants to preserve his investments and those of his Tory friends in the City, not through genuine, sustainable economic drivers and prudent rebalancing of the world economy — more innovation and production coupled with less consumption in the West and steadily greater consumption in the East — but instead through maintaining the Keynesian monetary shell-game of central bankers everywhere. The man ironically and cynically bashes Keynes, then betrays his true allegiance to Keynes by promoting “ultra-easy monetary policy”. My fellow Americans, do not forget: ALL BRITISH ARE KEYNESIANS.
All Japan is doing is taking some gradual action to reckon with the reality that the Japanese are not as rich as they once thought they were, without descending into the chaos of deflation. We must do the same, without descending into the chaos of deflation (in things like housing) AND inflation (in things like food). Do not pay attention anymore to the British seeds of your own destruction.
November 2nd, 2009 at 12:27 pm
“My fellow Americans, do not forget: ALL BRITISH ARE KEYNESIANS.”
you must be joking. Where the hell did that come from? It’s not true. We have as many rabid libertarians to contend with as you yanks do.
In any case the japanese are not only keynsians, they are full on chartalists, who are simply keynsians on steroids and with access to a printing press.
November 2nd, 2009 at 1:00 pm
“without descending into the chaos of deflation (in things like housing) AND inflation (in things like food).”
I take it the Fed now has magical powers to accomplish this goal?
Regards,
TDL
November 2nd, 2009 at 1:21 pm
As usual I read another biased report on the greatness of america.
What mr evans completely ignores is that the Japanese economy is an export oriented economy and ( evans got it correct this part) it is a highly leveraged economy. Now any analyst will tell you that if the world (specifically BRICS) recovers and starts importing technology, the economy that is the most leveraged will bounce the fastest and its currency will appreciate like a rocket. That is why you have seen the YEN smash all records as it hit 88 a few weeks back and now is destined to go below 85.
And just another small matter: The Japanese engineers are far superior when it comes to technology and the new world we enter is going to be a technology super house. Now unfortunately US is consumer import economy and when such an economy takes on debt levels (100% of GDP) there is no recourse but a complete shutdown of the system and systemic crash. You are already seeing the makings of a massive crisis developing on the horizon with 109 bank failures and with another 2000 banks set to fail (GS report), now let me ask if Mr Evans can spot even 5 bank failures in Japan ?
Journalists need to be a little more circumspect before they publish stuff like “You need to worried of Japan….” It is almost the voice of biased and partisan Mr. Buffet who has been fooling not just americans but investors around the world “Am american. Buy American” even if it means you lose your shirt in teh process.
Fresbee
GA Alpha Fund
November 2nd, 2009 at 1:58 pm
@ scepticus
Are you a British Schumpeterian progressive? Outside of my characterization that “ALL BRITISH ARE KEYNESIANS” (for good cheer, I will concede that you have a FEW “rabid Libertarian” exceptions, even if your Libertarians are S*cialists by our standards), you do not seem to be objecting to anything else I wrote!
November 2nd, 2009 at 10:37 pm
C’mon now, credit where credit is due. Pretty much everything that Evans-Pritchard wrote here was said by David Einhorn 2 weeks ago in his speech to the VIC. And it’s no coincidence that the day after Einhorn’s speech was the day when the Japanese Sovereign CDS began to spike. Evans-Pritchard is right, but he’s a bit late to the ballgame.
November 5th, 2009 at 10:17 pm
[...] Japan Era). But let me leave with this, where didn’t the money printing philisophy get Japan? HintI keep hearing about a V-Shape recovery, perhaps this nothing more then government induced drunken [...]