From Testosterone Pit:
Kudos to
the Bank of Japan. Its heroic campaign to water down the yen has borne fruit.
The Japanese may not have noticed it because it is not indicated in bold red
kanji on their bank and brokerage statements, and so they might not give their
Bank of Japandemonium full credit for it, but about 20% of their magnificent
wealth has gone up in smoke in 2013. And in 2014, more of it will go up in
smoke – according to the plan of Abenomics.
What
folks do notice is that goods and services keep getting more expensive.
Inflation has become reality. The scourge that has so successfully hallowed out
the American middle class has arrived in Japan. The consumer price index rose 1.6% in December from a year earlier. While prices of
services edged up 0.6%, prices of goods jumped 2.6%.
It’s
hitting households. In December, their average income was up 0.3% in nominal terms from a year earlier. But
adjusted for inflation – this is where the full benefits of Abenomics kick in –
average income dropped 1.7%. Real disposable income dropped 2.1%.
In 2014,
the hangover will be even worse than in 1997. Businesses and consumers are
dodging a hike of three percentage points, not two percentage points. Hence,
the motivation to front-load is even stronger, the payoff greater, and the
subsequent falloff steeper. This, on top of the already toxic concoction of
stagnant wages and rising prices. Oh, and the plight of the retirees, whose
savings and income streams are gradually getting eaten up by inflation. The
glories of Abenomics.
But there
are beneficiaries. Japan Inc. benefits from lower cost of labor. The
government, without having to reform its drunken ways, might somehow be able to
keep its out-of-control deficits and its mountain of debt from blowing up in
the immediate
future. Throughout, the Bank of Japan, which is buying up enough government
bonds to monetize the entire deficit plus part of the mountain of existing
debt, will remain in control of the government bond market, what little is left
of it – even if it has to buy the last bond that isn’t totally nailed down. But
for the real economy the party is now ending, and by spring, a pounding
hangover will set in.
According
to Japan’s state religion of Abenomics, devaluing the yen would boost exports
and cut imports. The resulting trade surplus would jumpstart the economy and
induce Japan Inc. to invest at home. It would save Japan. But the opposite is
happening. Read.... Why
Japan’s Trade Fiasco Worries Me So Much
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