The Keynesian Abenomics is Raising Prices in Japan

Posted by PITHOCRATES - April 14th, 2014

Week in Review

Money is a temporary storage of value.  We created money to make trade easier.  We once bartered.  We looked for people to trade with.  But trying to find someone with something you wanted (say, a bottle of wine) that wanted what you had (say olive oil) could take a lot of time.  Time that could be better spent making wine or olive oil.  So the longer it took to search to find someone to trade with the more it cost in lost wine and olive oil production.  Which is why we call this looking for people to trade goods with ‘search costs’.

Money changed that.  Winemakers could sell their wine for money.  And take that money to the supermarket and buy olive oil.  And the olive oil maker could do likewise.  Greatly increasing the efficiency of the market.  There is a very important point here.  Money facilitated trade between people who created value.  Creating something of value is key.  Because if people were just given money without producing anything of value they couldn’t trade that money for anything.  For if people didn’t create things of value to buy what good was that money?

Today, thanks to Keynesian economics, governments everywhere believe they can create economic activity with money.  And use their monetary powers to try and manipulate things in the economy to favor them.  And one of their favorite things to do is to devalue their money.  Make it worth less.  So governments that borrow a lot of money can repay that money later with devalued money.  Money that is worth less.  So they are in effect paying back less than they borrowed.  And governments love doing that.  Of course, people who loan money are none too keen with this.  Because they are getting less back than they loaned out originally.  And there is another reason why governments love to devalue their money.  Especially if they have a large export economy.

Before anyone can buy from another country they have to exchange their money first.  And the more money they get in exchange the more they can buy from the exporting country.  This is the same reason why you can enjoy a five-star vacation in a tropical resort in some foreign country for about $25.  I’m exaggerating here but the point is that if you vacation in a country with a very devalued currency your money will buy a lot there.  But the problem with making your exports cheap by devaluing your currency is that it has a down side.  For a country to buy imports they, too, first have to exchange their currency.  And when they exchange it for a much stronger currency it takes a lot more of it to buy those imports.  Which is why when you devalue your currency you raise prices.  Because it takes more of a devalued currency to buy things that a stronger currency can buy.  Something the good people in Japan are currently experiencing under Abenomics (see Japan Risks Public Souring on Abenomics as Prices Surge by Toru Fujioka and Masahiro Hidaka posted 4/14/2014 on Bloomberg).

Prime Minister Shinzo Abe’s bid to vault Japan out of 15 years of deflation risks losing public support by spurring too much inflation too quickly as companies add extra price increases to this month’s sales-tax bump.

Businesses from Suntory Beverage and Food Ltd. to beef bowl chain Yoshinoya Holdings Co. have raised costs more than the 3 percentage point levy increase. This month’s inflation rate could be 3.5 percent, the fastest since 1982, according to Yoshiki Shinke, the most accurate forecaster of Japan’s economy for two years running in data compiled by Bloomberg…

“Households are already seeing their real incomes eroding and it will get worse with faster inflation,” said Taro Saito, director of economic research at NLI Research Institute, who says he’s seen prices of Chinese food and coffee rising more than the sales levy. “Consumer spending will weaken and a rebound in the economy will lack strength, putting Abe in a difficult position…”

Abe’s attack on deflation — spearheaded by unprecedented easing by the central bank — has helped weaken the yen by 23 percent against the dollar over the past year and a half, boosting the cost of imported goods and energy for Japanese companies.

Japan is an island nation with few raw materials.  They have to import a lot.  Including much of their energy.  Especially since shutting down their nuclear reactors.  Japan has a lot of manufacturing.  But that manufacturing needs raw materials.  And energy.  Which are more costly with a devalued yen.  Increasing their costs.  Which they, of course, have to pay for when they sell their products.  So their higher costs increase the prices their customers pay.  Leaving the people of Japan with less money to buy their other household goods that are also rising in price.  Which is why economies with high rates of inflation go into recession.  As the recession will correct those high prices.  With, of course, deflation.

Keynesians all think they can manipulate the market place to their favor by playing with monetary policy.  But they are losing sight of a fundamental concept in a free market economy.  Money doesn’t have value.  It only holds value temporarily.  It’s the things the factories produce that have value.  And whenever you make it more difficult (i.e., raise their costs by devaluing the currency) for them to create value they will create less value.  And the economy as a whole will suffer.


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Carbon Emissions in the United States fall to levels not seen since 1963

Posted by PITHOCRATES - April 14th, 2014

Week in Review

The United Nations Intergovernmental Panel on Climate Change (IPCC) recently released a new climate report.  And it contained some of the most alarmist language yet used by the IPCC.  So alarmist that an author removed his name from the report.  Not because he disagrees with the underlying science.  But because the “inflammatory and alarmist claims delegitimize the IPCC as a credible and neutral institution.”  And why was the language so alarmist?  Because the fury of global warming was going to rain hellfire down upon us unless we acted immediately to curb our carbon emissions.  For the level of our carbon emissions was growing ever more perilous.  Taking us to the point of no return. Again.  So immediate action was required.  Hence the alarmist nature of the report.

Some of those in the alarmist camp even want to go as far as jailing climate change deniers.  Because it is these people that are allowing the carbon polluters to pollute with abandon.  Because people believe them and their science.  That man isn’t causing global warming.  It’s because of these people that America never signed the Kyoto Protocol.  And because they have not implemented economic strangling carbon reduction policies (such as a carbon tax) the United States is one of the driving forces of manmade global warming.  Because of their carbon emissions.  Of course, the data doesn’t agree with this (see US CO2 Emissions Per Capita Are At Their Lowest Levels In 50 Years by Rob Wile posted 4/14/2014 on Business Insider).

And the following chart from AEI’s Mark Perry shows the U.S. has been making significant gains in carbon dioxide reduction: At about 17 tons per capita, we are at a level not seen in half a century. Perry writes:

CO2 emissions per capita in the US increased slightly last year, but were back to the same level as in 1963 (50 years ago), and 23% below the peak in the early 1970s, thanks to the boom in shale gas, which has displaced coal for electricity generation.

Back to what it was in 1963?  You know what that means?  We are at risk of another ice age.  For on Earth Day in 1970 the climate scientists were warning us to store food to survive the coming ice age.  Which was coming.  For the planet had been cooling for some 20 years.  And if those present trends continued it was death by cold.  Just like they are saying now that if present trends continue it will be death by warm.  Even though there is less carbon in the atmosphere than when they were predicting death by cold.  Which is why there are a lot of climate change deniers.

Then again, perhaps man is causing global warming.  By removing so much carbon from the atmosphere.  For it was cooler when there was more carbon floating around up there.  It would explain why that when a volcano throws up the same stuff a coal-fired power plant does it causes cooling.  While the coal-fired power plant causes warming.  Even though it’s pretty much the same stuff they’re putting into the atmosphere.  Which is another reason why there are so many climate change deniers.  For it appears whether carbon will cause warming or cooling depends on the day that carbon is having.  For it appears carbon has attitude.  And is moody.  Which is the only way it can support such contradicting conclusions.


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A Large Majority of People polled want Tax Reform to make Tax Code Simpler and Fairer

Posted by PITHOCRATES - April 14th, 2014

Week in Review

People fear the IRS.  (Oh, by the way, happy tax day.)  The IRS targeting of conservative groups to silence the opposition has been chilling to say the least.  But the tax code is so convoluted that it takes an army of accountants and tax lawyers to comply.  Easy for the big corporations.  But a nightmare for small business.  For complying is costly.  And tax audits are about as enjoyable as a colonoscopy the hard way.  Without anesthetic.  Creating a great disincentive for people to become small business owners.  Which hurts us all.  For small businesses are the number one job creator in the country.

So a simpler and friendlier tax code would go a long way to create economic growth.  And an IRS less like the Gestapo or KGB would make a lot of small business owners sleep easier at night.  And encourage more people to take the plunge and start a small business.  A majority of people polled in a NAM poll agree.  And believe the time for serious tax reform is now (see New NAM Poll Says Voters Want Candidates Who Support a Simpler Tax Code posted 4/14/2014 on National Association of Manufacturers).

•Over 76 percent of voters will be more likely to favor a candidate who supports comprehensive tax reform.

•Nearly 73 percent of respondents support comprehensive reform to make the tax code simpler and fairer, even if their personal tax burden remains the same.

•An overwhelming majority, 85 percent, believe it is important that Congress and the President put aside partisanship to enact comprehensive tax reform.

We know why the Democrats don’t want to reform the tax code.  For having that power did wonders to silence the opposition during the 2012 presidential campaign.  Allowing President Obama to win reelection with 4 dead Americans in Benghazi.  And having the worst economic recovery since that following the Great Depression.  So when their only campaign strategy is to attack and intimidate the opposition because their policies have failed it comes in handy to have a political force at your disposal to put the fear of God into your opponents.  Especially when you can place that political force above the law.  Which it apparently is based on no one being punished for said targeting of conservative groups.

But the people may be tiring of the same failed Democrat policies.  It’s been over 5 years and the economy is still horrible.  Some 10 million people have left the labor force since President Obama took office.  If you add these people to those the BLS counts as unemployed the unemployment rate (at the end of February) would be 13.7%.  Not 6.7% as officially reported.  So there is a lot of dissatisfaction out there.  At least among those who want a job.  And those who do and are paying ever more taxes with nothing to show for it.  So they may vote for the candidate promising tax reform this fall.  Even if it means voting Republican.  As the oppressive IRS is now forever tied to the Democrat Party thanks to their targeting of conservative groups.


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