Japan Chosen as the Global Economic Model!?
"There is essentially no difference between one administration and another, no matter what the platform." ~ Ron Paul, on CNBC Futures Now; he also stated that "They haven't the vaguest idea what Austrian free-market hard-money economics is"...
I am writing this commentary in the morning of October 16th. For tonight, the world holds high expectations in the second show-debate of incumbent President Obama and his challenger, Mitt Romney. Much spectacle is expected for that once again.
Personally, I am somewhat concerned that Ron Paul might be absolutely correct in his assessment: "There is essentially no difference between one administration and another, no matter what the platform." The global context, economically and politically, is one that leaves little room for impact at this point. But then, what would a Swiss know about US politics? I do have to say, though, that I have been impressed with Romney's Vice President Candidate, Mr. Paul Ryan. We've included in the News Briefs a recent article on Ryan's budget, published in the Wall Street Journal and written by Daniel Mitchell.
As of late, several wondrous elections have been in the news. Certainly, the US presidential election is at the very top of sensationalist news coverage. Then, of course, the European Union's win of the Nobel Peace Prize has risen a few eyebrows at least. But then, in this context, another "election" should be given much more attention. Implicitly, at least, it appears that the Japanese "20-year success story" and economic model of muddle-through stagflation has been given first prize.
The Global Economy is Decelerating
Irrespective of whether Mr. Obama is re-elected, or whether Mitt Romney takes the presidency, clearly the global economy is decelerating. This is particularly sobering in consideration of all the printing and pumping of central banks everywhere. The current picture is one of weakness across the board.
So far, the focus is still on the eurozone and its weakening periphery economies. They have been in recession for several quarters now, with little sign of improvement. Stricter austerity measures will further weaken these economies for some time. Dramatic unemployment rates and rapidly falling consumption numbers raise grave concerns, particularly in regard to the Spanish economy.
Italy, too, has its problems, although I am far more concerned about the developments in France. Under Hollande's socialist "leadership" it appears that every possible decision is being taken to further destroy the country. Even in the German economy, Europe's growth driver until now, which has so far appeared somewhat immune to the economic slowdown elsewhere, a considerable slowing if not negative growth is expected in the next few months.
Even in Asia, and China in particular, hope of a soft landing are being challenged. A recent spate of disappointing economic data has appeared. Results for industrial output, retail sales and foreign trade were all lower than analysts had expected.
Of course, further easing of monetary and fiscal policy is expected. By definition, and based on the laws of decreasing incremental returns, the results should be expected to have less and less impact. And this is where Japan comes to mind.
Is Japan the Best-Case Scenario?
Have the world's leading elite chosen this model, ugly as it is, because in their eyes this is the best scenario available? Politicians certainly don't want the next big crash to be accounted on their time of duty. A "soft and never ending landing" might appear as a better choice to them than a hard and abrupt landing, one that obviously would be much more visible.
The last 20 years of Japanese economic history illustrate clearly that a "muddling along" scenario can last for a very long time. The question is whether the same kind of timeline could evolve for the rest of the global economy. It is sobering to see how long governments and central banks are able to "kick that can down the road" for yet a little longer again and again.
At the end of 1989, the Nikkei stock index climbed to an all-time high of nearly 39,000 points. Then the speculative bubbles in the equity and real estate markets burst. The Japanese central bank lowered interest rates to zero and shored up inefficient economic structures with a policy of cheap money. Despite numerous government stimulus programs, Japan plunged into recession and was sucked into a deflationary spiral. The NIKKEI index as of today stands at 8,701 points.
Today, Japan holds the dubious distinction of having the world's highest government debt − over 230% of GDP. The structural problems plaguing the economy continue to be deferred into the future with cheap money and endless borrowing.
I have strong doubts that this "model" will achieve a similar longitude for the global economy. However, the timeline might not be as critical for your investment decisions as the mere recognition and acceptance that, in terms of monetary policies, we have entered a one-way road.
Frank Suess is CEO and Chairman of BFI Capital Group. To subscribe to BFI's weekly Mountain Vision Update, in which this column appeared, click here.
Posted by Col on 10/22/12 11:18 AM
the only thing that will get us out of this mess is a world wide zombie apocalypse :o ... ... .. did I just say that out loud :\
Posted by Danny B on 10/21/12 06:31 PM
"should be tossed out or categorically ignored."
I goofed on that one. It should read,, "should NOT be tossed out or categorically ignored".
On the main subject of Japan and the economy.
This paper from the "Automatic Earth" shows conclusively that we won't have hyperinflation for many years. The current deflation will only get worse.
Click to view link
Bernanke THOUGHT that he could print money and force people to spend. It just doesn't work that way. The velocity of money and the money multiplier are still crashing.
Lots of writers conjecture about the coming hyperinflation that will occur when all the excess reserves come flooding out of the banks. It simply isn't going to happen.
This will continue to be a deflationary depression until the debt is gone.
The future is looking SO bleak that there is even more talk about a jubilee.
Click to view link
Apparently, there is an idea that a jubilee would be better than an outright debt crash.
I sure don't know.
It is worthwhile to look at the reparations inflicted after WW I on Germany compared to the punishment after WW II. The draconian treaty of Versailles created a far worse situation.
Posted by Danny B on 10/21/12 12:26 PM
Japan is dragging along the bottom and the rest of the West will soon be there.
A change to a strict gold standard won't really change anything.
During Great Depression I, we saw that all the factories were still there but, nobody had purchasing power. The same is true now. The bankers inflate THEIR part of the economy but, left everyone else flat.
In the deranged, demented world view of the bankers, great destruction had to be wrought to bring things back into balance. Great Depression II is shaping up to be a repeat.
Marxism is once again offered as a solution. We need a departure from boom and bust. Where does it lay? Pure democracy is a bust. Fascism is a bust.
China is experimenting with capitalism, MINUS democracy. The world has become far to complex for a pure, unregulated free market to work.
The unrestrained,destructive greed of psychopaths is given form, motivation and protection by the removal of liability from corporations and governments. That shows us what to expect in a completely unregulated market.
Click to view link
Add in the factor of the ever-declining utilization of human resources. The problems of distribution and consumption will become even more acute.
I sent quotes from Thomas Sowell to a blogger named Wallace Klinck.
Click to view link
Here is his reply. He DOES make good points.
I am not overly impressed by Sowell's Libertarian comments in general, Dan. He is moralizing without understanding the underlying financial factors affecting economic and social conditions. He has an entirely conventional conception about the source of wealth being exclusively human effort, which is demonstrably and increasingly false. There is a vast difference between distribution and redistribution--something of which he would appear to have no awareness whatsoever. People should indeed be rewarded in proportion to their contribution but that contribution in terms of energy input is diminishing rapidly with the exponential advances in technological efficiency. Citizens should be rewarded not only in proportion to their shrinking contribution to the processes of production but should also be paid additionally what might generally be described as "the wages of the machine." Today society can only access current production for current consumption by distraining upon future incomes earned via the production of goods in future production cycles. This is irrational, inequitable, unnatural (i.e., in violation of natural law) and self-defefating because it is increasingly unworkable inasmuch as it forces the economy to proceed only on condition of progressive inflation of the currency, wasteful activity and exponentially expanding financial debt. With their ultra-Puritan views with regard to production and distribution the Libertarian element is ideologically incapable of accepting the Social Credit solution to the problem which they find to be anathema. I find the philosophy underpinning Libertarian advocacy and policy to be arrogant, divorced from reality and the ultimate elevation of individual selfishness to the pinnacle of false virtue and absurdity. Because they can make some seemingly valid criticisms of certain attitudes and policies as they operate under the existing defective financial regime does not mean that their beliefs would be valid in a properly functioning society operating with the advantage of an honest monetary policy.
In spite of the negative associations with "social credit", I don't believe that Wallace's claims about "using claims on future production to pay for today's goods being unsustainable" should be tossed out or categorically ignored.
Posted by Merridth80 on 10/20/12 08:42 AM
With so many more intelligent scenarios out there, I frankly don't see how the American people can Tolerate the dog & pony show's! It is unfathonable to understand how our country could have arrived at this point? Whoever wrote this column is correct, it makes no difference who takes office! The American people will suffer!
Did our gov't pull a Ross Perot on Ron Paul?
Why don't we have any "Hero's" now?
Are we literally in "The Police State" of Hitler?
I can not see why we America is not in a revolition!
Lastly,Why hasen't barry/barrack been impeached?
Posted by taxesbyanyothername on 10/20/12 07:05 AM
Everybody sure that Frank Suess wrote this?
Posted by laceja on 10/19/12 05:39 PM
With so many now pushing the buttons to move to a gold standard, because all the paper money has become worthless, I expect we may very well get it. But, I think we'll be very sorry, because only the rich will have enough gold to survive. Barter seems to be a good alternative, but I expect the PTB will insure that anything we can grow or make will be confiscated. Just taking away one's land will be accomplish much of that.
It also appears the PTB has indeed discovered a way to take away our guns. All they need to do is make sure most of us have been convicted of a felony crime and they can deny us the "license" to possess one. Once they've neutralized the gun problem, taking away everything else will be easy.
Posted by laceja on 10/19/12 05:33 PM
You can print and give all the money you want to the banks. But, if they don't see a way to lend it out and make profits, they will not lend. If they don't lend, the actual money supply falls. We live in a fractional reserve credit world. Making loans creates new money out of thin air. If the loans aren't made, the money supply doesn't expand. Even with the Fed printing trillions in "new money", the money supply has actually contracted, since 2007.
However, when interest rates begin to rise and the banks see an opportunity to make a profit lending, all those trillions will be multiplied by a thousand fold. Then just watch the price of everything to begin to skyrocket. You'll also see massive shortages of just about everything you need to live.
But, until interest rates begin to rise, it will be very easy for the Fed to say "there is no inflation".
It appears to me, Mr. Suess is more than a little naive!
Posted by Optout on 10/19/12 12:35 PM
I quit reading when I came to:
"I do have to say, though, that I have been impressed with Romney's Vice President Candidate, Mr. Paul Ryan."
Ryan is just another politician looking to ride the gravy train at the expense of the producers.
Posted by scarlett on 10/19/12 10:20 AM
"... A "soft and never ending landing" might appear as a better choice to them than a hard and abrupt landing, one that obviously would be much more visible... ."
A hard landing it will be. With the suppression of gold and silver now in full effect, the criminals do not want the assencion of the PM's to show the world the lies they have perpetrated. The PM's will destroy the paper criminals. The battle is on now and they will lose. The sheeple have no idea as to the struggle now ensuing around them, very interesting times indeed.