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.
Tags: Abenomics, barter, currency, deflation, devalue, devalue their money, devaluing, devaluing your currency, energy, export, imports, inflation, Japan, Keynesian, market, money, prices, raise prices, raw materials, recession, search, search costs, temporary storage of value, trade, value
Week in Review
If President Obama and the Democrats had their way do you know what they would do? All out Keynesian economics. To the max. Huge government stimulus upon huge government stimulus. Keeping interest rates at or below zero so they can borrow as much as they’d like to pay for their deficit spending. Or just printing the money to spend. That’s what they’d love to do. Because they don’t understand economics. All they know is the politics of Keynesian economics. Power. It allows the government to spend far more than any other economic system. And that lets them buy a lot of votes.
President Obama and the Democrats look at the Chinese with awe and reverence. They would love to have the power the Chinese communists have. So they could do whatever they wanted to do. Just like the Chinese communists do. And when Prime Minister Shinzo Abe revealed his three arrows of Abenomics the left was impressed. Large-scale government spending. Aggressive monetary easing (like all that quantitative easing Ben Bernanke was doing with the Federal Reserve). And structural reforms. Government just taking over the economy to fix it and correct all the failings of the free market. This is what the Democrats want to do in the United States. Because they are so conceited that only they are smart enough to fix the problems in the economy. So how has this Keynesian assault worked in Japan? Not so good (see Blow for Abenomics as Japan’s economy grows less than expected by Rebecca Clancy posted 3/10/2014 on The Telegraph).
Revised data from the government showed that gross domestic product growth was 0.2pc in the three months to December 31 and 1.5pc for 2013…
While the data still marked Japan’s best annual performance in three years, attention will now turn to the Bank of Japan’s monetary policy statement on Tuesday, as weakening growth before next month’s tax hike may push the central bank into a fresh batch of monetary easing measures.
“With Japanese data weaker than expected and their April consumption tax hike imminent, the state of the Japanese economy is cause for significant concern,” said Rebecca O’Keeffe, head of investment at stockbroker Interactive Investor…
Mr Abe swept into power in 2012 on a promise to catapult the Japanese economy out of a decades-long slump, but his policies have met with mixed success.
The weak data hit markets in Asia, with Japan’s Nikkei closing down 1pc at 15,120.14, while China’s Shanghai Composite plunged 2.9pc and the Hang Seng dropped 1.8pc…
While authorities blame the country’s holiday season for the weak results, they add to growing worries about the Chinese economy, with the latest surveys on its key manufacturing sector showing weakness.
Abenomics didn’t work. Because Keynesian economics doesn’t work. Government spending and artificially low interest rates just don’t create robust economic activity. All they create are cronyism. Malinvestments. Asset bubbles. And more painful and longer lasting recessions. As history has shown. Especially the deflationary spiral of Japan’s Lost Decade that they’re still trying to recover from. And the Chinese may follow suit. For they have nothing but exports. And you cannot build robust economic activity on exports alone. You need a thriving middle class. Which China doesn’t have.
History has shown over and over never to vote for Keynesians. For their policies never help the people. They only help those in power. And their crony friends. Who get richer while the people get poorer. The ruling Chinese communists are doing well but the majority of Chinese are still impoverished rural peasants living on subsistence farming. And President Obama and his crony friends (especially those on Wall Street) have all been doing very well thanks to a booming stock market. While median family income has fallen during his presidency. Proving yet again the mistake it is to vote for a Keynesian.
Tags: Abenomics, Democrats, government spending, government stimulus, interest rates, Japan, Keynesian, Keynesian economics, President Obama, quantitative easing, stimulus
Week in Review
The Keynesians were applauding Shinzō Abe’s economic plans for Japan. To end the never-ending deflationary spiral they’ve been in since the late Nineties. His Abenomics included all the things Keynesians love to do. And want to do in the United States. Expand the money supply through inflationary monetary policy. Devalue the yen to make their exports cheaper. Lower interest rates into negative territory. Quantitative easing. And lots of government spending. The kinds of things that just makes a Keynesian’s heart go pitter pat.
They kicked off Abenomics in 2013. And how are things about a year later? Not good (see Japan’s deficit hits record as economic growth slows posted 3/9/2014 on BBC News Business).
Japan’s current account deficit widened to a record 1.5tn yen ($15bn; £8.7bn) in January, the largest since records began in 1985.
In further bad news, the country’s economic growth figures were also revised downwards…
The sluggish growth and growing deficit come just before a planned sales tax increase, scheduled to take effect in April.
They did weaken the yen. Making it worth less than other currencies so those currencies could get more yen when they exchanged their currencies to buy those Japanese exports. Of course, when Japanese exchanged their yen for those other currencies they got less of those other currencies in return. Requiring more yen to buy those now more expensive imports. Thus increasing their trade deficit.
Japan is an island with a lot of people. They have to import a lot of their food, energy and natural resources as they have little on their island. So the weaker yen just made everything more expensive in Japan. Which, of course, lowered GDP. As those higher prices reduced the amount of buying their consumers could do.
Japan’s greatest problem is her aging population. And they have just about the oldest population in the world. As the youth have slammed the brakes on having children. So you have massive waves of people leaving the workforce the government is supporting in retirement. And fewer people entering the workforce to pay the taxes that support those retirees. Which, of course, forces higher tax rates on those remaining in the workforce. Further reducing the amount of buying their consumers can do. And no amount of Abenomics can change that.
Abenomics did not deliver what the Keynesians thought it would. Because Keynesian economics (aka demand-side economics) just doesn’t work. If it did Japan never would have had a Lost Decade to begin with. For it was Keynesian economics that gave Japan that asset price bubble in the first place. Which burst and deflated into the Lost Decade.
What Japan needs is a return to classical economic principles. Focusing more on the supply side. Lower tax rates and reduce regulation. Let the market set interest rates. Restore the policies that introduced ‘Made in Japan’ to the world. They need to make their capitalism more laissez-faire. If they do they can create the kind of economic activity that just might be able to support the generation who created the ‘Made in Japan’ label in their retirement. But you must have robust economic activity. So robust that lower tax rates can produce greater tax revenue. The supply-side economics way.
Tags: Abenomics, aging population, Consumers, currencies, deficit, exports, government spending, imports, interest rates, Japan, Japanese exports, Keynesian, Keynesian economics, lost decade, quantitative easing, retirees, Supply-side economics, taxes, trade deficit, workforce, yen
Week in Review
Japan shows how easy it is to go green after the Fukushima Nuclear Power Plant meltdown. Nuclear power is unsafe. Coal-fired power plants are too dirty. So what to do? Why, go solar, of course (see Kyocera launches 70-megawatt solar plant, largest in Japan by Tim Hornyak posted 11/8/2013 on CNET).
Smartphone maker Kyocera recently launched the Kagoshima Nanatsujima Mega Solar Power Plant, a 70-megawatt facility that can generate enough electricity to power about 22,000 homes.
The move comes as Japan struggles with energy sources as nuclear power plants were shut down after meltdowns hit Tokyo Electric Power Co.’s Fukushima plant in 2011.
Set on Kagoshima Bay, the sprawling Nanatsujima plant commands sweeping views of Sakurajima, an active stratovolcano that soars to 3,665 feet.
It has 290,000 solar panels and takes up about 314 acres, roughly three times the total area of Vatican City.
Wow, 70 megawatts. Sounds big, doesn’t it? With 290,000 solar panels on 314 acres. An installed capacity of 0.22 megawatts per acre. It must have cost a fortune to build. And they built it on a bay. At sea level. In the shadow of an active volcano. It would be a shame if that volcano erupts and covers those solar panels in a layer of ash. Or if another typhoon hits Japan. An earthquake. Or a storm surge. For if any of these things happen those 22,000 homes will lose their electric power.
So how does this compare to the Fukushima Daiichi Nuclear Power Plant? Well, that plant sits on 860 acres. And has an installed capacity of 4700 megawatts. Or the installed capacity of 67 Kagoshima Nanatsujima Mega Solar Power Plants. And an installed capacity of 5.47 megawatts per acre. Which is perhaps why they built this on the bay. Because it is such an inefficient use of real estate in a nation that has one of the highest population densities that they put it on the water. To save the land for something that has value.
We used the term ‘installed capacity’ for a reason. That reason being the capacity factor. Which is the actual amount of power produced over a given amount of time divided by the maximum amount of power that could have been produced (i.e., the installed capacity). Nuclear plants can produce power day or night. Covered in volcanic ash or not. On a sunny day or when it’s pouring rain. Which is why a nuclear power plant has a much higher capacity factor (about 90%) than a solar plant (about 15%). So the actual power people consume from the Kagoshima Nanatsujima Mega Solar Power Plant will be far less than its 70 megawatts of installed capacity.
So in other words, solar power is not a replacement for nuclear power. Or any other baseload power such as coal-fired power plants. Power demand will far exceed power supply. Leading to higher costs as they try to ration electric power. And a lot of power outages. Some longer than others. Especially when powerful typhoons and/or storm surges blow in. As they often do in the Pacific Ocean.
Tags: capacity factor, electric power, Fukushima, Japan, Kagoshima Nanatsujima, meltdown, Nanatsujima Mega Solar Power Plant, nuclear power, nuclear power plant, power plant, solar panels, solar plant
Week in Review
During the Eighties Japan was an economic powerhouse. The government partnered with business. Creating what became known as Japan Inc. It was the way of the future. Way better than free market capitalism. Because smart government people were tweaking the free market. Making it better. Or so they thought. All that tweaking came in the form of a credit expansion. Which created a huge asset bubble. And when it burst Japan fell into a deflationary spiral. Through their Lost Decade. The Nineties. And beyond.
Tired of sluggish economic growth since their Lost Decade their prime minister, Shinzō Abe, returned to the ways of their past. And starting pumping yen into the economy like there is no tomorrow. And the economy has turned. Of course, the economy was going gangbusters before it collapsed into its deflationary spiral. So this spurt of economic activity may be nothing but that. A spurt. And sluggish economic growth will return. With more inflation to wring out of the economy. And this will probably not make things better (see Hopes Japan’s win to host Olympics could kickstart the economy by Bill Birtles posted 9/10/2013 on Radio Australia).
Japan could get an economic boost from hosting the 2020 Olympics in Tokyo…
As Japan begins its largest project in 42 years in preparation for the Olympics, there is still plenty left to do.
Just last week, Abe’s government pledged $US500 million to fix Fukushima.
In addition, Japan faces the problem of massive debt and an ageing population.
Prime Minister Shinzo Abe will also need to take a call on raising the country’s sales tax.
The Chief Economist at RBS Securities, Junko Nishioka, says for now though, keeping spending under control will be a priority for the country of about 130 million.
Greece was talking the same way in the run-up to the 2004 Summer Games. Where Greece went on an expansionary binge. Then came the Great Recession. Greek economic activity fell. As did their tax revenue. All the while they had a new boatload of debt on the books from the Olympics. They had to borrow money to pay for what their tax revenue did not. Borrowing more and more increased their debt. And their borrowing costs. Until they could borrow no more. Kicking off the Eurozone sovereign debt crisis. And an economic malaise that continues to this day.
So with Japan’s past history and Greece’s past history a surge in more spending to get ready for the Olympics is not likely to solve any problems. Or bring back Japan Inc. As this kind of spending has a history of causing problems more than solving problems.
Tags: Abe, debt, deflationary spiral, free market, Greece, Japan, Japan Inc., lost decade, Nineties, Olympics, sluggish economic growth, spending
Week in Review
The former Soviet Union, the People’s Republic of China (back in the days of Mao), North Vietnam, North Korea and Cuba all have great police states. Not to keep people out of their countries. But to prevent the people inside their countries from escaping to the capitalist West. Why? Life was better in the capitalist West than in the communist East. Where nations in the capitalist West didn’t need a secret police to keep their people from escaping. But needed strong immigration controls to keep their countries from being overwhelmed by refugees trying to escape to their lands. Yet despite this history of communist failures there are still communist parties in countries trying to attract voters. Preferably the ones who don’t know about that history of failure (see Communist Party makes a comeback … in Japan by Gavin Blair, The Christian Science Monitor, posted 8/5/2013 on Yahoo! News).
Founded in 1922, the JCP is the oldest political party in Japan, and has enjoyed constant representation in parliament for longer than any other. But until recently, its image was one of older activists and it struggled to attract younger voters.
July’s elections were the first in Japan where online campaigning was permitted, and it was the JCP that is widely seen as having made best use of it. As well as savvy leveraging of social networks and video streaming platforms, the party created a series of online mascot characters that addressed individual issues such as the planned consumption tax hike, shady business practices, the heavy US military presence on Okinawa, and constitutional change.
“We were able to use the Net to reach out to younger people, many of whom don’t read newspapers or watch TV much. Through the characters, we could communicate issues simply and appeal to young voters,” says party spokesperson Toshio Ueki, who reports that the characters’ webpages got 1.5 million hits in the weeks before the poll.
Sound familiar? That’s how President Obama won election twice. By reaching out to younger people. The people who probably know the least about economics. And history. That’s how people who want to change a country do it. By getting people who don’t have the foggiest idea about what happened in the world in the last century or so. Who simply don’t know of what people tried. And what has failed. With communism pretty much at the top of the list of things NOT to do based on past history.
If we did take power, the JCP wouldn’t try to implement a Communist economy immediately. It would require huge changes and we would seek the support of the people for each step,” Kira says. “And we would want to use the best parts of the current economic system, too.”
Japan is pretty close geographically to some of the great communist failures. The former Soviet Union. The People’s Republic of China (PRC) back in the days of Mao. Vietnam. And, of course, North Korea. Places that have all gotten better with a move away from communism and towards capitalism. Except North Korea. Which is pretty much unchanged. And the former Soviet Union. Which is no more. But the biggest part of the Soviet Union lives on. Russia. Which had moved towards capitalism. But now is drifting back a bit.
History has shown where there is unfettered free markets life is better. For this is the direction of all immigration. From countries with highly fettered markets to countries with less fettered markets. Older people know this. People who read history know this. Or lived it. People who understand classical economics know this. But young people? They haven’t a clue. Which is why all candidates who want to expand the power of the state over the people target young people. For with them all they have to do is to promise more stuff and more freedom. Even if they promise to deliver these with policies that have throughout history done anything but.
Tags: capitalist West, Communism, communist East, communist failures, communist party, East, free markets, Japan, JCP, Mao, markets, North Korea, North Vietnam, People's Republic of China, secret police, Soviet Union, West, young voters, younger voters
Week in Review
The United States debt as a percentage of GDP is approaching 100%. Meaning that we owe as much as we produce in goods and services each year. A frightening prospect. For imagine if you earn $50,000 a year and were $50,000 in debt. How easy do you think it would be to repay your debt? Chances are that you will never be able to repay your debt. But here we are. Our government borrowing more than ever. Without any concern of that rising debt. They say it isn’t that bad. Just look at Japan. Their debt is about 200% of their GDP. And they seem to be doing just fine (see Elderly shoplifters outstrip teenagers in Tokyo by AFP posted 7/8/2013 on France 24).
The number of elderly people caught shoplifting in Japan’s capital city has outstripped that of teenagers for the first time since records began, a report said.
A quarter of the people arrested on suspicion of the crime in Tokyo last year were at least 65 years old, figures showed, amid warnings of increasing isolation in the age group…
Around a quarter of Japan’s 128 million population is aged 65 or older, and the country has a far-below replacement birthrate of an average 1.39 children for every woman.
There are regular reports of bodies lying unfound for weeks or even months after a single, elderly person has died alone. Commentators say the phenomenon is a result of the fraying of familial ties as Japan has modernised.
When you have a replacement birth rate of 1.39 you have an aging population. One that is growing so old that the rate of people leaving the workforce will soar while the rate of those entering the workforce will plummet. So just as these elderly people start consuming their pensions and health care benefits the tax base that pays for them will be disappearing. Perhaps explaining why these people are shoplifting. As the burden to care for an aging population eventually becomes too great for a government to sustain. So they cut back. And leave the elderly to fend for themselves.
When people are having only 1.39 kids on average that means couples are not just having one child. But a lot of them are having no children. This is what birth control and abortion have given advanced nations. The ability to wipe themselves off the map. Either by a negative population growth rate. Or by throwing open your borders to try and offset the population decline with new immigration. Transforming the nation from the native population to the immigrant population. Replacing the native culture and traditions with the immigrant culture and traditions. Just like when the Americans moved west and replaced the culture and traditions of the Native Americans.
Two things that just don’t go together are an expanding welfare state and a declining replacement birthrate. As you have a shrinking tax base paying for that expanding welfare state. If you want an expansive welfare state you have to have more babies. Plain and simple. You have to stop using birth control. And stop having abortions. So you can grow the population. To always have more people in the base of the pyramid than you do at the top. Like any good Ponzi scheme should. It’s either that or you have to reduce the size of the welfare state. So you can live within your means. That is, what your tax base can afford to pay.
Or you can keep borrowing and printing money like Japan. And wonder when the deflation and recession of the Lost Decade of the Nineties will ever end.
Tags: abortion, aging population, birth control, culture, debt, elderly, immigration, Japan, population, replacement birthrate, tax base, Tokyo, traditions, welfare state, workforce
Week in Review
In the Eighties Japan Inc. was going strong. The Japanese economy roared. And the Nikkei soared. The Japanese had more money than they knew what to do with it. So they started buying U.S. assets. People feared that Japan would one day own America. And urged that we had to follow their lead before it was too late. The American government should partner with business like in Japan. So smart bureaucrats could maximize economic output. Instead of leaving it to inefficient market forces.
But Japan Inc. was state capitalism at its worse. Instead of letting the market determine the allocations of scarce resources that have alternate uses the government stepped in with their crony capitalist friends. Leading to corruption. And a lot of malinvestments. Money invested poorly. Causing great asset bubbles. That burst in the Nineties. Where Japan Inc. was replaced by the Lost Decade. A decade or more of deflation. To wring out all the inflation the government fueled with their artificially low interest rates that caused all of that malinvestment. And those asset bubbles. If you’re too young to have lived during this you can still see it in action. This time in the United States (see The U.S. looks like Japan: Investors rejoice by Paul R. La Monica posted 5/16/2013 on CNNMoney).
The U.S. economy is still not close to being fully recovered from the Great Recession, but investors could give a mouse’s posterior about this sad fact…
…Consumer prices fell for the second straight month. The absence of runaway inflation is of course a good thing, especially when you consider that the Federal Reserve has pumped an inordinate amount of money into the system with its asset purchase programs. But if prices continue to dip, that’s a big problem. Deflation is much worse than mild inflation. Just ask Japan.
Ah yes, Japan! It has taken steps to combat deflation with a vengeance this year. The Bank of Japan’s stimulus, dubbed Abenomics in honor of the country’s prime minister, is like the Fed’s quantitative easing…on steroids.
There’s the rub. The longer that the U.S. stays in tepid growth mode — what I’ve been calling the “low and slow barbecue recovery” since 2010 — the comparisons to Japan will only increase. After all, the U.S. also has an aging population and a large government debt load. The Great Recession ended in June 2009 and here we are in May 2013 still with a lackluster recovery. So we’re almost halfway to our own Lost Decade…
The problem here is Keynesian economics. It was Keynesian economics that got Japan into the mess they’re in by playing with interest rates to stimulate artificial economic activity. But Keynesians are like drunks. They think a little hair of the dog can cure their hangover. So they binge again on artificially low interest rates to create more artificial economic activity. Which will end the same way. As it ended in the Nineties. A long painful deflation to wring out all of that inflation they pumped into the economy. Just as the Americans will go through. Because Keynesians dominate their monetary policy, too.
Even though there are many smart people, including members of the Fed, who are worried that QE ∞ will eventually cause a huge inflation headache and create more nasty asset bubbles down the road, the market doesn’t expect the Fed to pull back on its easing anytime soon…
That’s why stocks could keep climbing. It doesn’t matter that the economy is not healthy enough to make most average consumers feel better. Wall Street only cares about the Fed.
This can’t last forever, of course. Sooner or later, the economy is either going to slow so much that we have to start worrying about another recession (and no amount of stimulus will help prevent a market pullback if that happens) or the economy will start showing signs of a legitimate, sustainable and robust recovery. In that latter case, the Fed will have no choice but to end QE and start raising interest rates.
But for now, at least, investors can enjoy the fact that the United States is basically morphing into Japan Lite. Who cares about the health of the economy as long as central banks keep those printing presses running 24/7/365? Joy.
The selling point of Keynesian economics was eliminating the recessionary side of the business cycle. So it is interesting that some of our worse recessions have been in the era of Keynesian economics. I mean, that’s what the New Deal was. Keynesian. And what did it give us? The Great Depression. Why? Why are the recessions so painful in the era when they were supposed to be less painful? Because all Keynesian economics does is to delay economic corrections. By delaying the onset of recessions. And because it delays the correction it allows a bubble to grow greater. So when the correction comes prices have farther to fall. Which makes a recovery in the Keynesian era more drawn out. And more painful. Unless you like your recessions to last a decade. Or more.
So while Main Street America continues to suffer under President Obama’s Keynesian policies Wall Street is doing just fine. As rich people always do when partnering with government. Only Main Street suffers the fallout of their Lost Decades.
Tags: asset bubble, correction, crony capitalist, deflation, inflation, interest rates, Japan, Japan Inc., Japanese economy, Keynesian, Keynesian economics, lost decade, Main Street, malinvestment, partner with business, President Obama, QE, recession, state capitalism, Wall Street
Week in Review
In the Eighties Japan kept interest rates artificially low. Creating a lot of artificial economic activity. Businesses borrowed money because it was cheap. And banks loaned money because there was so much of it to loan. Unfortunately, this led to a bubble. A big one. Asset prices soared. And when that bubble burst those prices fell back to earth like a rock. Sending the Japanese economy free falling into a deflationary spiral as it tried to wring out all of that inflation from those low interest rates. And some 30 years later they’re still suffering from the affects of that deflation (see G20 defuses talk of “currency war”, no accord on debt by Randall Palmer and Lidia Kelly posted 2/16/2013 on Reuters).
Japan’s expansive policies, which have driven down the yen, escaped direct criticism in a statement thrashed out in Moscow by policymakers from the G20, which spans developed and emerging markets and accounts for 90 percent of the world economy.
Analysts said the yen, which has dropped 20 percent as a result of aggressive monetary and fiscal policies to reflate the Japanese economy, may now continue to fall.
“The market will take the G20 statement as an approval for what it has been doing — selling of the yen,” said Neil Mellor, currency strategist at Bank of New York Mellon in London. “No censure of Japan means they will be off to the money printing presses.”
This is how they got into so much trouble in the first place. This is why they have a Lost Decade in Japan. Because of those low interest rates that blew up great asset bubbles. That burst. Sending prices into a freefall. A little hair of the dog that bit you MAY alleviate the discomforts of a hangover. But when that dog is a 150-pound French Mastiff with your throat in its mouth you’d be better off finding another cure for your inflationary hangover. For nothing good can possibly come from another round of inflation that will only create more asset bubbles. Their Lost Decade turned into Lost Decades because they kept trying to fix things before the market undid all their previous fixing. As painful as it may be they need to let the market complete its correction. Had they let the market do this in the Nineties the pain would be over with. And they would be enjoying real economic growth today.
Tags: asset bubbles, bubble, deflation, deflationary spiral, G2O, inflation, interest rates, lost decade, low interest rates, yen
Week in Review
Japan suffered a close call in 2012. The nuclear power plant at Fukushima survived the massive earthquake. But the resulting tsunami led to electric problems in the backup power systems. Which led to the core meltdown. Something that never happened before. And is not likely to happen again. Because they saw what that tsunami did. And now can prepare these plants to handle future tsunamis. Still, the Japanese are turning their back on nuclear power. After it served them so well all these many years (see Japan to build world’s largest offshore wind farm by Rob Gilhooly posted 1/16/2013 on New Scientist).
By 2020, the plan is to build a total of 143 wind turbines on platforms 16 kilometres off the coast of Fukushima, home to the stricken Daiichi nuclear reactor that hit the headlines in March 2011 when it was damaged by an earthquake and tsunami.
The wind farm, which will generate 1 gigawatt of power once completed, is part of a national plan to increase renewable energy resources following the post-tsunami shutdown of the nation’s 54 nuclear reactors. Only two have since come back online…
The first stage of the Fukushima project will be the construction of a 2-megawatt turbine, a substation and undersea cable installation. The turbine will stand 200 metres high. If successful, further turbines will be built subject to the availability of funding.
To get around the cost of anchoring the turbines to the sea bed, they will be built on buoyant steel frames which will be stabilised with ballast and anchored to the 200-metre-deep continental shelf that surrounds the Japanese coast via mooring lines…
Another contentious issue is the facility’s impact on the fishing industry, which has already been rocked by the nuclear accident. Ishihara insists it is possible to turn the farm into a “marine pasture” that would attract fish.
The earthquake didn’t hurt the Daiichi nuclear reactor. It was the tsunami. Which flooded the electrical gear in the basement that powered the cooling pumps. That same tidal wave that swept whole buildings out to sea. Which it will probably do the same to those buoyant steel frames. Which means instead of replacing downed power lines after another tsunami they will be replacing windmills. Making the resulting power outage longer. And more costly.
The wind farm will not generate 1 gigawatt. It may have the potential to generate 1 gigawatt. But that will be only when the winds cooperate. They have to blow hard enough to spin the windmills fast enough to produce electric power. But not too fast that they damage the windmills. Which typically lock down in high winds. Providing a narrow band of winds for power generation.
Buoyant windmills and underwater power cabling in fishing waters? Sure, that shouldn’t be a problem. What are the odds that a boat will run into a windmill? Or snag an underwater power cable? The odds of that happening are probably greater than another Fukushima-like accident. And yet they’re shutting down their nuclear power. To use floating windmills.
Incidentally, 143 windmills at 2 megawatt each only comes to 286 megawatts. Not 1 gigawatt. No, to get 1 gigawatt you’ll need 500 windmills. Three and half times more than the 143 they’re planning to build. If the one they start with works. And they have the money for more windmills after they install the first one.
India has more wind and solar power than anyone else. Yet they’re adding nuclear capacity because their wind and solar just can’t meet their power needs. The Japanese should probably reconsider their position on nuclear power. For even though wind power is green power and it will provide a lot of jobs it will result in massive debt. And unreliable power. That money would probably be better spent making improvements to their nuclear power. Such as getting electric gear out of basements. And providing a more failsafe power source for their cooling pumps. For their nuclear plants can survive earthquakes. And with these improvements they’ll be able to survive a tsunami. All while providing reliable electric power. Something windmills just can’t do.
Tags: Daiichi, Daiichi nuclear reactor, Earthquake, Fukushima, Japan, nuclear power, nuclear power plant, Tsunami, wind farm, wind turbines, windmill
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