Category Archives: Japan

BOJ Shirakawa Warns Japan Economic Outlook ‘Very Severe’

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After all these years they are still threatening to use policy tools that have no effect on the real economy, and little if any effect on finance.

And with the rest of world seemingly thinking the same way as well risks of a global double dip are increasing.

BOJ Shirakawa Warns Japan Economic Outlook ‘Very Severe’

By Leika Kihara

April 30 (Reuters) — Bank of Japan Governor Masaaki Shirakawa said on Saturday that the country’s economic outlook was very severe and that the central bank would take appropriate action to support the economy.
But he offered few clues on whether and when the BOJ would expand its asset-buying scheme, only saying that its next policy step would depend on economic conditions at the time.

“The BOJ sees the outlook for Japan’s economy as very severe,” Shirakawa told a financial committee meeting in the lower house of parliament. “We’d like to take appropriate policy steps as needed while monitoring the economy and prices, taking into account that uncertainty over the outlook is high,” he said.

Asked by a lawmaker whether the BOJ would consider buying more government bonds to support the economy, Shirakawa said only: “We’d like to consider in earnest what would be the desirable step to take.”

The BOJ kept monetary policy unchanged on Thursday even as it lowered its growth forecast for the current fiscal year, which began in April, and warned of uncertainties over the extent of damage that last month’s devastating earthquake would inflict on the economy.

Shirakawa reiterated that having just expanded its asset purchasing scheme days after the March 11 quake, the BOJ preferred to spend more time examining the impact the step would have on the economy.

But he also left open the possibility of easing monetary policy further if damage from the quake proved bigger than expected, stressing that the central bank was focusing on downside risks to growth for the time being.

In a sign some in the BOJ were more cautious about the economic outlook than Shirakawa, Deputy Governor Kiyohiko Nishimura proposed on Thursday expanding the central bank’s asset buying scheme by 5 trillion yen ($62 billion).

While the proposal was outvoted by the board, some market players said it may be a sign the BOJ may loosen policy as early as next month.

Japan is facing its worst crisis since World War Two after the 9.0 magnitude earthquake and subsequent tsunami devastated its northeast coast last month.

Reflecting the economic impact, factory output fell at a record monthly pace in March, household spending declined at a record annual rate and another private survey showed manufacturing activity languishing at a two-year low.

The BOJ eased policy days after the quake by doubling to 10 trillion yen the funds it sets aside for purchases of a range of financial assets, such as government bonds and corporate debt.

If the central bank were to next ease policy, the most likely step would be to expand the scheme again, sources familiar with the BOJ’s thinking say.

Aside from the government bonds it purchases under the asset buying scheme, the central bank buys 21.6 trillion yen worth of long-term government bonds from the market each year.

Some lawmakers have called on the BOJ to buy more government bonds from the market, or even underwrite them directly, to help the government fund the huge costs for reconstruction.

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More indications Japan will ‘pay for’ the earthquake reconstruction

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Seems to be the way of the world right now.

On Mon, Apr 25, 2011 at 12:26 AM, sean wrote:

looks like japan will raise tax to destroy the demand that the quake couldn’t

JAPAN RULING PARTY’S NAKAGAWA: THINK BEST TO SEEK PUBLIC UNDERSTANDING FOR SALES TAX HIKE TO FUND RECONSTRUCTION

JAPAN RULING PARTY’S NAKAGAWA: RECONSTRUCTION BILL WILL CALL FOR GOVT TO MAINTAIN FISCAL DISCIPLINE

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U.S. Consumer Spending/Credit

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This is a good sign top line growth was continuing it’s modest growth in March.

Federal deficit spending continues to work to add the income and savings that allows consumers to both reduce their credit card debt and expand their consumption.

Deficit spending continues to be sufficient to support the modest GDP growth and employment growth we’ve been experiencing.

However, the risks remain as discussed at year end:

US deficit reduction efforts, with both sides agreeing that the deficit is THE problem, with some of the proposed cuts more than sufficient to trigger negative GDP growth and rising unemployment.

China’s fight against inflation leading to a hard landing.

UK and euro zone austerity measures passing the tipping point where further austerity measures slow growth sufficiently to increase national govt deficits.

Saudi crude oil price hikes both slowing world demand and triggering anti inflation responses that remove demand.

Additionally, world growth should slow by an unknown amount due to supply disruptions form the earthquake in Japan.

Consumers borrow more for student loans, new cars

April 7 (AP) — U.S. consumers borrowed more money in February to buy new cars and attend school, but they cut back on using their credit cards to make purchases. Borrowing increased by $7.6 billion, or 3.8 percent, in February. It was the fifth consecutive monthly gain. The category that includes car loans and student loans increased 7.7 percent. Borrowing in the category that covers credit cards fell 4.1 percent. That has risen only once in the more than two years since the 2008 financial crisis peaked. The gains pushed total borrowing up to a seasonally adjusted annual rate of $2.42 trillion in February. That’s 1 percent from the three-year low hit in September.

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Japan Weighs Scrapping Company-Tax Cut, Lifting Sales Levies

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More talk on ‘paying for’ the reconstruction.

Fearing they could be the next Greece will ensure they remain in the rut they’ve been in for most of the last two decades.

Global austerity continues to push Europe towards the tipping point of where cutting spending and increasing taxes starts raising deficits though economic weakness/automatic fiscal stabilizers.

China appears to be continuing to ‘tighten’ to fight inflation, even though growth has already slowed considerably.

The US govt seems heck bent on cutting spending even in this fragile recover, and with risks to overseas demand for our exports at risk from global austerity measures.

Crude went up very little with the NATO action in Libya, and seems to have stabilized at current levels of Brent. That means at some point (when delivery issues get sorted out) WTI converges to Brent.

It remains to be seen how much the earthquake in Japan will slow down world gdp in Q2 due to parts shortages.

It’s starting to look to me like the US needs current levels of federal deficit spending just to muddle through without a pickup in private sector credit expansion, which historically means housing and cars. I don’t see any signs of life in housing yet, and cars could soften some for Q2 due to parts issues.

The lack of understanding of monetary operations (along with burning up our food supply for motor fuel) is now driving global unemployment to the point of social unrest.

Another setback can only make things worse.

Japan Weighs Scrapping Company-Tax Cut, Lifting Sales Levies

By Kyoko Shimodoi and Toru Fujioka

March 29 (Bloomberg) — Japan’s ruling party is considering
abandoning a proposed corporate-tax cut and boosting levies on
individuals to help pay for earthquake reconstruction and reduce
the need to step up bond sales.

Vice Finance Minister Fumihiko Igarashi said yesterday the
government may scrap the planned 5 percentage-point reduction in
company tax rates, a step that the head of the nation’s largest
business lobby endorsed. The deputy chairman of the Democratic
Party of Japan’s tax committee, Ikkou Nakatsuka, said separately
in an interview: “We can’t avoid raising taxes as the great
earthquake may worsen an already dangerous fiscal situation.”


Increasing taxes would risk deepening the hit to economic
growth in the aftermath of the nation’s record earthquake and
ensuing tsunami on March 11. Some legislators have instead
advocated that the Bank of Japan buy debt directly from the
government to pay for the reconstruction.

“A tax increase will likely dampen personal consumption
when household sentiment has already cooled,” said Norio
Miyagawa, senior economist at Mizuho Securities Research and
Consulting Co. in Tokyo. He also said that “if the government
totally calls off a corporate tax cut, not temporarily abandons
it, it could accelerate the risk of the hollowing out of Japan”
as manufacturers shift operations abroad.

Toyota, Sony

Company earnings are likely to be impaired by the
catastrophe, which forced firms from Toyota Motor Corp. to Sony
Corp. to suspend factories in the devastated northeast and
elsewhere as supply chain and power disruptions spread. The
Nikkei 225 Stock Average fell 1.6 percent to 9,330.12 at 9:54
a.m. in Tokyo. It has lost about 11 percent since the temblor.


Prime Minister Naoto Kan may avoid a political cost from
the tax measures, as 67.5 percent of the public support higher
levies to fund reconstruction, according to an opinion poll
released by Kyodo News two days ago. A tax increase may help to
push back the possibility of a future fiscal crisis with public
debt already about twice the size of the $5 trillion economy.


The government estimates damage from the disaster, which
left more than 27,000 people dead or missing, at as high as 25
trillion yen ($306 billion).

Sales Tax Increase

Japanese government data released today suggested that the
economy was recovering in February before the quake struck this
month. The unemployment rate unexpectedly fell to 4.6 percent
from January’s 4.9 percent, according to the statistics bureau
in Tokyo. The number of available jobs rose to the highest level
in two years, and retail sales increased last month, the data
showed.


Goldman Sachs Group Inc. today said Japan’s economy will
shrink next quarter and lowered its growth forecast for the year
starting April 1 to 0.7 percent from 1.3 percent.


Finance Minister Yoshihiko Noda said today he believes
taxpayers are willing to help pay for the rebuilding.


To raise about 5 trillion yen a year for the reconstruction,
Nakatsuka has suggested a two-percentage point increase in the
sales tax rate, currently at 5 percent.


It would be the first increase since 1997, when the sales
levy was raised from 3 percent. The economy fell into a
recession after the increase and the then ruling Liberal
Democratic Party lost an election as a result. Mentioning a
possible increase in the tax was one reason Kan’s DPJ lost
control of the upper house in a national ballot last year.

Corporate Tax

Shinichiro Furumoto, a DPJ member and director-general of
the party’s fiscal committee, said a sales tax would be the
desirable option.


“Only the consumption tax imposes the burden equally among
citizens, from young to old and from men to women,” he said in
an interview last week.


To secure more funds, the government may forego the planned
reduction in the corporate tax rate, Igarashi told reporters
yesterday. The levy cut, which was supposed to begin in the year
starting April 1, would have decreased revenue by between 1.4
trillion yen and 2.1 trillion yen, according to calculations by
the Ministry of Finance.


The company tax rate in Tokyo is 40.69 percent, compared
with 28 percent in the U.K. and 25 percent in China, according
to the ministry’s data.


“If this will lead to a speedy reconstruction, personally
it’s fine with me if the tax reduction is scrapped,” Hiromasa
Yonekura, chairman of the business lobby Keidanren, told a news
conference yesterday

Budget Overhaul

The government will need to review its entire budgetary
spending and revenue plans when examining how to fund
reconstruction, Katsuya Okada, the No. 2 official of the DPJ
said yesterday.


Some other lawmakers in both the ruling and opposition
parties are against tax increases, saying such steps would
damage private demand already depressed by the disaster.


“There’s no way that taxes can be increased when there’s
deflation,” Kozo Yamamoto, a member of parliament with the
opposition Liberal Democratic Party, said in an interview last
week.


He instead called for a 20 trillion yen rebuilding program
financed by Bank of Japan debt purchases. A group of ruling-
party lawmakers submitted a similar proposal to Noda this month,
DPJ member Yoichi Kaneko said in a blog post.


The LDP’s leader, Sadakazu Tanigaki, appears to disagree
with Yamamoto’s views, as he said this month that he proposed to
Kan a temporary tax to help fund the relief effort.


Moody’s Investors Service said after the quake that Japan
may eventually reach a fiscal “tipping point” if investors
lose confidence in the soundness of public finances and demand a
risk premium on government bonds.


Japanese Economic and Fiscal Policy Minister Kaoru Yosano
said today the country is close to its limit in terms of the
amount of bonds it can sell.

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BoJ Gov Shirakawa – Japan’s Fiscal Situation “Very Severe”

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Because they think they could be the next Greece they *are* Japan.

BOJ’s Shirakawa Says Japan’s Fiscal Situation Is ’Very Severe’

By Mayumi Otsuma

March 23 (Bloomberg) — Bank of Japan Governor Masaaki Shirakawa said that while Japan’s fiscal situation is “very severe,” investors’ trust in the country’s policy makers is keeping bond yields low. He spoke in parliament today in Tokyo.

Japan Mulls Postwar-Style Reconstruction Agency, Adds Cash

By Takashi Hirokawa and Keiko Ujikane

March 23 (Bloomberg) — Japan may set up a reconstruction agency to oversee earthquake repairs, while data showed the central bank pumped record liquidity into lenders, as the nation grappled with its worst disaster since World War II.

Underwriting Bonds

“If a central bank starts to underwrite government bonds, there may be no problems at first, but it would lead to a limitless expansion of currency issuance, spur sharp inflation and yield a big blow to people’s lives and economic activities,” as has happened in the past, Shirakawa said.

By law, the central bank can directly buy JGBs only in extraordinary circumstances with the permission of the Diet. Vice Finance Minister Fumihiko Igarashi said in parliament that the government needed to be “cautious” in considering whether to have the BOJ make direct purchases.

Bond sales, cuts to other spending and tax measures could pay for reconstruction, Economic and Fiscal Policy Minister Kaoru Yosano said yesterday. Morgan Stanley MUFG Securities Co. analysts led by Robert Feldman in Tokyo wrote in a note this week that policy makers will likely implement “several” spending packages of 10 trillion yen or more.

Loan Programs

Fiscal spending won’t be the only channel for stimulus, according to Chotaro Morita, chief strategist at Barclays Capital Japan Ltd. in Tokyo.

“We expect the utilization of government lending” vehicles such as the Government Housing Loan Corporation and Finance Corporation for Municipal Governments, as was done in the wake of the 1995 Kobe earthquake, Morita wrote in a report to clients yesterday. This would help reduce the increase in government-bond issuance, he said.

In the wake of the devastation of World War II, Japan’s government set up the Economic Stabilization Board in August 1946. Among its duties was to ration commodities and oversee the revival of the nation’s industries.

To maintain short-term financial stability, BOJ policy makers have added emergency cash every business day since the quake. Lenders’ current-account balances at the central bank yesterday exceeded the 36.4 trillion yen record set in March 2004, when officials were implementing so-called quantitative easing measures to counter deflation. Deposits have climbed from about 17.6 trillion yen on March 10.

Japan Forecasts Earthquake Damage May Swell to $309 Billion

By Keiko Ujikane

March 23 (Bloomberg) — Japan’s government estimated the damage from this month’s record earthquake and tsunami at as much as 25 trillion yen ($309 billion), an amount almost four times the hit imposed by Hurricane Katrina on the U.S.

The destruction will push down gross domestic product by as much as 2.75 trillion yen for the year starting April 1, today’s report showed. The figure, about 0.5 percent of the 530 trillion yen economy, reflects a decline in production from supply disruptions and damage to corporate facilities without taking into account the effects of possible power outages.

The figures are the first gauge of the scale of rebuilding Prime Minister Naoto Kan’s government will face after the quake killed more than 9,000 people. Japan may set up a reconstruction agency to oversee the rebuilding effort and the central bank has injected record cash to stabilize financial markets.

Damages will probably amount to between 16 trillion yen and 25 trillion yen, today’s report said. It covers destruction to infrastructure in seven prefectures affected by the disaster, including damages to nuclear power facilities north of Tokyo.

Wider implications on the economy, including how radiation will affect food and water supply, are not included in the estimate.

Bank of Japan board member Ryuzo Miyao said today that it may take more time to overcome the damage of the quake than it did after the 1995 disaster in Kobe, western Japan.

Power Shortage

Tokyo’s power supply may fall 20,500 megawatts short of summer demand, or 34 percent less than the peak consumption last year, according to figures from Tokyo Electric Power Co. The utility is capable of supplying 37,500-megawatts and plans to add about 2,000 megawatts of thermal generation by the end of this month, company spokesman Naoyuki Matsumoto said by telephone today.

The government had previously projected growth of 1.5 percent for the year starting April 1 after growing an estimated 3.1 percent this year.

Bank of America Merrill Lynch cut its GDP projection for fiscal 2011 to 1 percent from 1.7 percent. RBS Securities and Nomura Securities Co. have also cut their forecasts while noting that the economy will still expand because the rebuilding will spur demand and help offset damage on growth in the period.

Rebuilding efforts in fiscal 2011 could push up GDP by 5 trillion yen to 7.75 trillion yen, the government said today.

Japan’s growth will return to normal “very soon” as reconstruction work starts, Justin Lin, the World Bank’s chief economist, said in Hong Kong today. At the same time, some are worried the boost won’t come soon enough.

Biggest Concern

“My biggest concern is that a positive impact from reconstruction may take a while to materialize,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “This earthquake and tsunami destroyed infrastructure and that will delay a recovery in production, a major driving force for the economy.”

The government maintained its assessment of the economy for March as the economic indicators released before the earthquake showed exports and production rebounding, while also voicing “concern” about the impact of the temblor on the economy.

“Although the Japanese economy is turning to pick up, its ability to self-sustain itself is weak,” the Cabinet Office said in a monthly report.

The U.S. National Hurricane Center in August 2006 calculated the damage of Hurricane Katrina, which slammed into New Orleans the year before, at $81 billion.

Future assessments will need to address damage to much of the northeast’s economy, and the disruptions to electricity and distribution systems that’s spread south to Tokyo and beyond.

Toyota Motor Corp. said yesterday it will halt car assembly in Japan through March 26. Sony Corp. said it shut five more plants.

Export Decline

Koji Miyahara, president of the Japanese Shipowners’ Association, said today exports may decline for six to 12 months after the earthquake, adding that the disaster won’t affect the industry in the longer term as reconstruction efforts take hold.

Kan is now faced with the challenge of finding ways to pay for the damage to the economy. BOJ Governor Masaaki Shirakawa has reiterated a reluctance to underwrite debt from the government and said today that nation’s fiscal situation is “very severe.”

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Nikkei story

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>   
>   For those who think that Japan will pull out all the stops and throw a lot of money at the
>   recovery effort:
>   

Thanks,

Also, the highest numbers I’ve seen are maybe 5% of GDP spread out over maybe 5 years.

Y2.5tln In Pension Funding May Go To Recovery Effort

March 22 (Nikkei)— The government is entertaining a proposal to divert money supposed to cover its underfunded contributions to the basic national pension into a supplementary budget for recovering from the disaster in eastern Japan.

The draft fiscal 2011 budget contains about 2.5 trillion yen for maintaining the government’s 50% share of the pension program’s cost. This money is to be drawn from the special-account funds that have become known as the buried treasure of Kasumigaseki, the seat of Japan’s bureaucracy.

This buried treasure is under consideration in the government as a solution to the problem of paying for the recovery efforts. Cutbacks to a monthly child care subsidy and other banner policies of the ruling Democratic Party of Japan appear unlikely to free up the necessary funding, which some put at 10 trillion yen.

The proportion of the government’s annual pension contributions that can be paid out of tax revenues has risen incrementally and now stands at 36.5%. Buried treasure has been used to make up the difference since fiscal 2009.

The fiscal 2011 spending plan follows this pattern with a roughly 2.5 trillion yen top-up. About 1.2 trillion yen will come from surplus funds held by the Japan Railway Construction, Transport and Technology Agency and another 1.1 trillion yen or so from the surplus in the fiscal investment and loan program special account.

The deficit bond authorization legislation needed to use the buried treasure faces an uncertain future in the Diet. Opposition to diverting money supposed to go to the pension program is strong within the ruling coalition.

The government will consider tapping into pension fund assets to cover its fiscal 2011 contribution — something that, in the absence of a clear direction for tax reform, could weaken the program’s fiscal base.

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Japan’s NODA SAYS COORDINATED INTERVENTION TOOK PLACE 9 A.M.*G7 INT

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In case you thought any one of these nations understood its monetary systems:

*NODA SAYS COORDINATED INTERVENTION TOOK PLACE 9 A.M.
*G7 INTERVENTION TO START TODAY, NODA SAYS
*TREASURIES FALL; JAPAN SAYS G-7 TO COORDINATE ON INTERVENTION
*NODA: U.S., U.K., ECB, CANADA PARTICIPATING IN INTERVENTION
*EACH COUNTRY TO INTERVENE WHEN THEIR MARKET OPENS: NODA

>   
>   (email exchange)
>   
>   Other nations only executing on behalf of Boj ie it all goes on Boj bal sheet
>   

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Japan- G-7 Statement on Currencies, ‘Concerted Intervention’

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In the context of this ‘everyone’s out of paradigm’ world, it makes sense for Japan’s MOF (Ministry of Finance) to buy dollars vs yen.

But it makes no sense to do this as a coordinated effort with other nations also buying dollars vs yen.

It does make sense for the MOF to ask the G7 for permission to buy dollars, as the ‘out of paradigm’ world considers that kind of thing ‘currency manipulation,’ and brands those nations that do buy fx as currency manipulators and outlaws. And they consider this kind of ‘competitive devaluation’ as a ‘beggar thy neighbor’ policy that robs others of aggregate demand. The last thing they all want to happen is a trade war, where each nation buys the other’s currency trying to weaken his own.

So it’s interesting that the rest of world has agreed to allow Japan to conduct this kind of ’emergency measure.’ It probably means it will be short term and limited.

However the strong yen itself may have only been an initial, temporary phenomena as Japan’s domestic households and businesses move to hoard yen liquidity in anticipation of looming yen expenses. That includes reduced borrowing for the likes of cars and homes as well as widely discussed converting of dollar and other fx deposits to yen deposits. This all works to make the yen ‘harder to get’ and keep it firmly bid.

What follows the initial flight to yen liquidity, however, is the spending of the yen, which makes yen ‘easier to get’. And with that comes more spending on imports, which means those yen spent on net imports are likely to get sold for dollars and other fx by the exporters selling to Japan, to meet their own ongoing liquidity needs.

Additionally, Japan”s budget deficit will rise, which makes yen easier to get by adding yen income and net financial assets to the economy, all of which contributes to a weaker yen. The deficit can rise either proactively, as may be happening with the (relatively modest, but a good start)10 trillion yen govt. rebuilding initiative just now announced, or reactively via increased transfer payments and falling tax revenues due to the fall off in economic activity.

And if they try to contain their deficit spending by implementing the consumption tax hike recently discussed, that will only make things worse, and further increase the reactive deficit spending.

Also, weaker exports and a smaller trade surplus due to supply issues likewise weaken the yen.

As for the BOJ, nothing they do with regards to ‘liquidity injections’ will matter, apart from keeping rates about where they are.

And not to forget that what’s happening in the Middle East, where that pot is still boiling as well.

In my humble opinion this remains a good time to be on the sidelines.

G-7 Statement on Currencies, ‘Concerted Intervention’

March 18 (Bloomberg) — The following is a joint statement
released today by officials from the Group of Seven industrial
nations. The G-7 includes the U.S., Japan, Germany, France, the
U.K., Italy and Canada.

“We, the G-7 Finance Ministers and Central Bank Governors,
discussed the recent dramatic events in Japan and were briefed
by our Japanese colleagues on the current situation and the
economic and financial response put in place by the authorities.


“We express our solidarity with the Japanese people in
these difficult times, our readiness to provide any needed
cooperation and our confidence in the resilience of the Japanese
economy and financial sector.

“In response to recent movements in the exchange rate of
the yen associated with the tragic events in Japan, and at the
request of the Japanese authorities, the authorities of the
United States, the United Kingdom, Canada, and the European
Central Bank will join with Japan, on March 18, 2011, in
concerted intervention in exchange markets. As we have long
stated, excess volatility and disorderly movements in exchange
rates have adverse implications for economic and financial
stability. We will monitor exchange markets closely and will
cooperate as appropriate.”

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Welcome to the 7th US depression, Mr. bond market

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Looks to me like the lack of noises out of Japan means there won’t be a sufficient fiscal response to restore demand.

If anything, the talk is about how to pay for the rebuilding, with a consumption tax at the top of the list.

That means they aren’t going to inflate.
More likely they are going to further deflate.
Yes, the yen will go down by what looks like a lot, maybe even helped by the MOF, but I doubt it will be enough to inflate.

In fact, all the evidence indicates that Japan doesn’t don’t know how to inflate, nor does anyone else.

Worse, what they all think inflates, more likely actually deflates.

0 rate policies mean deficits can be that much higher without causing ‘inflation’ due to income channels and supply side effects.
There is no such thing as a debt trap springing to life.
Debt monetization is a meaningless expression with non convertible currency and floating fx.
QE mainly serves to further remove precious income from an already income starved economy.

Only excess deficit spending can directly support prices, output, and employment from the demand side, as it directly adds to incomes, spending, and net savings of financial assets.

The international fear mongering surrounding deficits and debt issues is entirely a chicken little story that’s keeping us in this depression (unemployment over 10% the way it was measured when the term was defined) that’s now taking a turn for the worse.

The euro zone is methodically weakening it’s ‘engines of growth’- its own (weaker) members being subjected to austerity measures that are reducing their deficit spending that paid for their imports from Germany. And now China, Japan, the US and others will be cutting imports as well.

UK fiscal austerity measures are accelerating on schedule.

The US is also working to tighten fiscal policy, particularly now that both sides agree that deficit reduction is in order, beaming as they make progress towards agreeing on the cuts.

The US had 6 depressions while on the gold standard, which followed the only 6 periods of budget surpluses.
And now, even with a floating fx policy and non convertible currency that allows for immediate and unlimited fiscal adjustments,
we have allowed the deflationary forces unleashed by the Clinton budget surpluses to result in this 7th depression.

We were muddling through with modest real growth and a far too high output gap and may have continued to do so all else equal.

But all else isn’t equal.

Collective, self inflicted proactive austerity has been working against growth, including China’s ‘fight against inflation.’

And now Japan’s massive disaster will be deflationary shock that, in the absence of a proactive fiscal adjustment, is highly likely to further reduce world demand.

Hopefully, the Saudis capitulate and follow the price of crude lower, easing the burden somewhat on the world’s struggling populations.
If so, watch for a strong dollar as well.

And watch for a lot more global civil unrest as no answers emerge to the mass unemployment that will likely get even worse. Not to mention food prices that may come down some, but will remain very high at the consumer level as we continue to burn up our food supply for motor fuel.

And it’s all only likely to get worse until the world figures out how its monetary system actually works.

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