Japan is deep in the grips of ZIRP policies. Led by economist Paul Krugman whose recent trips to Japan pushed Abenomics even further, Abe is convinced that he can spend Japan out of deflationary chaos and depression of its economy.
A full 43% of Japan’s taxes go to debt service. Is that so different in the US where 25% goes to debt service and 50% goes to fund a police whermact terror state against its own people? Both nations are on a dire path to extinction.
Krugman in 2014 says “The answer to the first question, I think, is that responding effectively to depression conditions requires abandoning conventional respectability. Policies that would ordinarily be prudent and virtuous, like balancing the budget or taking a firm stand against inflation, become recipes for a deeper slump. And it’s very hard to persuade influential people to make that adjustment — just look at the Washington establishment’s inability to give up on its deficit obsession.”
So Krugman is saying deficit doesn’t matter. So then what has gone wrong in Japan as it shifted from a nation of SAVERS to a nation of Hara Kiri suicide jumpers? Without true CAPITAL capitalism does not flourish. The problem is one of bankers intelligence. Banks more and more make their money not from loaning capital to prudent OR intelligent businesses. Instead they play in derivative markets as gamblers which the ZIRP makes easy to do with low rates for bets. The returns and horrors are much worse. The problem is NOT that money is not being injected into the economy, the problem is that money is being STUPIDLY injected into the economy. And this is true of all ZIRP nations.
Entrepreneurship is one of the most efficient places to inject money into an economy as long as it is done focused on real business plans, real innovation and real breakthroughs. The venture capital model and market simply does not allow this for many many businesses focusing only on looking for massive winners with billion dollar exit potentials. Stated simply, there is a capital gap for businesses which may be quite profitable, but on a smaller scale simply employing a few dozen people or a few hundred. Yet it is these smaller enterprises which produce the majority of new jobs. And they are starved in ZIRP. Worse, ZIRP forces a environment where charlatans and big talkers seem to get the dollars, while conservative business folk get ignored. What is needed is an investment environment with oversight, prudence, and real business creation, flowing capital to the new hungry generation yet avoiding dot com boom insanity where the dumb get funded. It’s a tricky act but really not hard with seasoned leadership.
Where is the boom that all of Japan’s ZIRP spending was supposed to effect? It cannot, because of monetary efficiency and money flow. ZIRP places money into speculative markets enriching bankers and financiers and hedge funds, and devastates the regular main street economy. Bankers love it but daddy comes home and strings up a noose after losing his job at the office.
Even worse, ZIRP exposes whole nations to speculative risk in derivative markets. In America banks have been quick to get their derivative bets protected by FDIC depositor insurance dollars, a system already tested and running low. Because these funds have been co-mingled as one the first act of congress in 2014 America now faces complete financial chaos on Main Street for the excesses of financial big whigs who have been shitting into gold toilets the past ten years.
ZIRP Japan is especially horrific because of their aging population and their inflationary policies to inflate away debt will destroy retirements for their people or pension plans will get sapped with low returns and not be enough forcing corporate bankruptcy.
And we ask, what to do what to do? Even if the consequence is to increase the cost of debt, interest rates must rise, capital and saving must be rewarded, and it must return to prudent investment not speculation. So if raising interest rates in Japan cause the payment on the debt to raise to 70% of taxes, it may be a required first step out of madness. That, along with a money printing scheme to print away the deficit over ten years and a plan to reduce government spending by 50% will eventually re-structure the economy away from the bankers rule and back to real business. It’s something no banker would ever endorse. IT’s Austerity! they scream. Raising interest rates is a mistake screams Krugman.
It will be a painful hiccup. But there is some evidence that this restructuring can be bourne look at Iceland now emerging from downturn with a new vibrant economy. Japan could do the same. ZIRP enslaves to the point that the fear of doing anything else forces leaders to continue the stranglehold of ZIRP until a nation bursts. That burst is a utter collapse in international monetary value. And woe to any nation that bursts and lets bankers regain charge yet again in the rebuilding.
Japan stupidly looked to the WEST for a model for prosperity instead they should have followed their own culture of sacrifice and prudent fiscal responsibility. In Krugman, they saw a nobel annointed messiah, and in Abenomics they found the ultimate expression of faith in a policy doomed to failure. Next year 50% of taxes will go to ZIRP debt service. If they try to re-inflate their currency back from a dessicated corpse with normal interest rates of even 4%, that debt service will go so much higher.
Debt restructuring must be taken away and SEPARATED from the regular economy and banking and taxes. Which is why repayment through money creation is the only way out of ZIRP. Done slowly the effect is less catastrophic than ZIRP. Money goes NOT into inefficient government spending, but rather, into restoring normal capitalism. Maybe someday we will hear of Japan adopting Giavellinomics. That would be a happy day for the nation I think.
It isn’t enough to simply restructure without criminal prosecution of bankers. If only as a warning to keep them in line while the restructuring goes through. Otherwise, the same power brokers will corrupt any system. They need to be taken down, their systems dismantled, their large entities broken up investigated endlessly for corruption. This parallel activity is key for emergence from ZIRP. Ultimately they cannot be defeated, but it would buy time for the restructuring out of ZIRP to be possible. In America, there is enough criminal prosecution to last two decades. The re-separation of banking and finance must occur in every nation wishing to emerge from ZIRP.
The sad thing is that while we look at the 43% number and feel somehow that Japan is in deeper than America, the truth is both Nations are about equally cooked at this time. America is simply better able to hide the inefficient government spending. What good is having 75% of its tax base remaining if 35% of that goes to the war on terror against American citizens and patriots? That is a much more sinister current state than anything happening in Japan. You don’t see them sticking gloved hands up the sphincters of octogenarians at airports in Japan.
America is in Post-ZIRP. ZIRP + WERMACT. ZIRP plus the war machine. America is spending like it is in world war II yet there is no real war. It is a nearly impossible thing to comprehend. To foment endless war, America has turned to war against its own citizens. This is a nation about to tear itself apart.