February 20, 2018 - Latest: In the wake of Carillion – how can investors avoid a ‘value trap’ and which fund managers do it best by Darius McDermott
23rd May 2012
Shaun, very interesting (I see your time in Japan was well worth it!).
I know that you abhor politics, but I think that this article shows that politics and economics are a deadly duo, because:
1. The politicians have never told anyone how bad things are
2. They always spend more than they tax
3. It takes an unstoppable force from outside the country (eg Greece and the troika) to change things radically
4. They would rather have any number of lost decades than admit the scale of the problem and deal with it
5. They are right to behave this way because they still get re-elected, whereas those who impose big cuts do not
Meanwhile, the economy goes to pot, just imperceptibly and slowly
surely, with this level of debt, there must come some sort of tipping point where a disaster happens to Japan. If not, why should it change behaviour?
Politicians get re elected because the vast majority of the population have no idea of basic economics, the economic situation of the country they live in nor do they care. Jam today is preferable to a feast tomorrow and the politicians know it. As Winston Churchill said: ‘The greatest argument against democracy is a five minute conversation with the average voter’ and that equally applies to economic policy. Most folk haven’t got a clue – including those who join in anti austerity marches.
Agree on every point – particularly the last one.
It would be irrational for politicians to behave otherwise
Democratic capitalism is doomed to fail but its the best system we have invented so far. Perhaps we will need a new one soon.
Unfortunately we could get a new one even if we don’t want it. Do we think the EU is going to sit back and let one of its major contributors leave? Especially at a time when hefty funds are going to be needed in Europe.
Stalin : How many divisions does the pope have ?
The EU relies on member state’s armies, few of which are well equipped to project power over the sea, by comparison Britain has nukes ….
In the early 1990s Canada had a financial crisis. The Liberal (center left) govt told the truth and harshly cut govt spending. The electorate believed them and re-elected them. The big reward came during the US crash of 2008 – low govt debt and a sensible budget insulated Canadians from the worst of the crisis. Sadly the examples of good honest and courageous politicians are very few and far between, but your statement 1 – “never” isn’t correct.
Statement 2 – Ken Clarke delivered a surplus (note Tony and Gordon promised to abide by Tory spending limits for their first 5 year term). Clinton & Gingrich managed a surplus.
I agree the vast majority of politicians are badly mismanaging budgets and finances. Prioritizing re-election (to personally benefit) over the nation’s long term economic stability -> I call this corruption.
I see that you have plenty of responses but just wanted to add something to this bit “surely, with this level of debt, there must come some sort of tipping point where a disaster happens to Japan”. The catch here is that the ordinary person/voter mostly only realises at the tipping point i.e too late to do anything…
Its all inevitable isn’t it? With Ben at the Fed going for QE infinity, the new man at the BoE shortly going to follow suit, Japan, ECB have to get into step. With the swissie hard-wired to the Euro and renminbi hard-wired to the dollar, national debts disappear, along with any value in the fiats , pensions, savings etc etc. Whats the common factor guiding this synchronised ‘dive’? the tentacles of the vampire squid are in every central bank.
Increasingly comments in the MSM are beginning the process of rationalising the monetisation of debt, with QE never being exposed to the market. Only a few brave ( foolhardy?) souls mention the extreme shift of value within this process.
With all these things, it creates its own momentum, that proves next to impossible to stop, my original estimate of a reduction of 30% in average living standards in the West may prove to be optimistic.
A further thought on Japan. Some population estimates have it falling lower than the UK within the next generation. The ONLY thing that can save this society is robotics.
The most aggressive I have seen was a forecast that Japan’s population could fall to 50 million by the turn of the next century. Whilst that may be much more aligned with her natural resources that the current 127 million it gives a very unreassuring trajectory for national debt per capita…….
On QE the rationalisations are getting ever more bizarre and some are pure fantasy.
Interesting point JW – hadn’t considered the currency pegs – the fiat dive is indeed largely synchronised. It suggests to me that oil is headed to nominal dollar levels that probably aren’t imaginable – although few imagined $100 dollar oil now.
“Only a few brave ( foolhardy?) souls mention the extreme shift of value within this process”.
I’m not one of the few – whats the difference between QE and monetisation ? Thought it was only words…..
One helpful point from the government’s point of view is that fiscal drag will bring more and more people into the direct taxation net, and at higher and higher rates. Add in a nice pinch of inflation and stir gently…
I hope you will forgive me but it seems to me that your blog today is essentially Political, but I understood that “you do not do politics”? It seems to me as if you are slowly coming around to the realization, as I have mentioned before hereon, that it is now impossible in the modern world to separate politics and economics? The two are now so interdependent that they are almost one and the same thing, because politics is now all about how the real wealth shall be manipulated and distributed, and in most Western nations that means how much can be sequestered to prop up failing Socialist welfare states. So economics has become no longer about how we can best run any economy to prosper and grow, but how we can run it and plunder it to maintain a false ideology which has already failed.
“If we consider this a type of Keynesianism then the crucial issue is
time. Actually for Keynesian type policies this is always true but for
Japan right now this is particularly true.” Yes of course! Socialism always tries to use supposed Keynesianism to attempt to keep it going, because it is Socialism and the welfare state which tends to destroy the real wealth creating processes. That is why the inevitable outcome in the West will be, and already is, away from democracy back to dictatorship as occurred after the Wiemar Republic in Germany.
I have covered the significance of elections before as I covered ours in the UK back in May 2010, but as you say sometimes politics and economics come hand in hand! However for me it is the economics which matters and what now seems likely in Japan will be a new adventure both for her and the world.
The cathc is that it is a repetition in many ways of what the LDP tried there before with some “More,more,more”…
Please could you be a little more specific in what you feel the outcomes of all this might be? E.g. you wrote, “I wonder how many of her citizens understand the risks being taken with their future”. What risks do you mean, exactly (hyper-inflation?) and what might realistically / conceivably happen in your view? Also, “…I think that negative interest rates are coming but am not a supporter…”. Why not? What might happen?
I see that Abe san is proposing vast printing in order to buy foreign assets. Hmmm, why not print a few hundred quadrillion yen and buy up half the land in America? Lol, where will it end…?
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