Abenomics is based on the idea that if you give rich people a lot of money, they’ll spend it and the economy will get better. There are a few minor flaws to the theory, however, like the fact that it doesn’t work. While trickle down has greatly impacted the sales of Gucci handbags, Farragamo scarves, Ferrari sports cars and other luxury items; it’s done zilch for the broader economy where workers have seen their wages drop for 16 months straight and where the prices on food and fuel have steadily climbed higher.
Even so, Japan’s financial media can barley contain their enthusiasm for Japan’s Prime Minister Shinzo Abe’s “radical reflationary policy”. And it’s easy to see why. Stock prices are up sharply, corporate profits are soaring, and Japan’s Robber Barons are making money hand-over-fist. What’s not to like? Just look at this from Bloomberg:
“Japan’s three biggest banks reported a surge in first-half profits this week that they said means the year will turn out better than expected…
Mitsubishi UFJ Financial Group Inc. (8306), Sumitomo Mitsui Financial Group Inc. (8316) and Mizuho Financial Group Inc. (8411) increased their combined net income target by 23 percent to 2.26 trillion yen (\$23 billion) for the year ending March, company statements showed. …
The higher profit targets at the three Tokyo-based banks exceeded the estimates of analysts surveyed by Bloomberg as the equity-market revival spurred sales of investment products and boosted the value of the lenders’ stakes in other companies. Fees and commissions climbed at least 20 percent in the first half from a year earlier, the reports showed.” (“Japan’s Biggest Banks See Profit Declining in Second Half“, Bloomberg)
So the banks are making out like bandits while wages keep falling and the economy remains mired in a long-term Depression? What a surprise. Here’s more from Bloomberg:
“Toyota’s …. analysts estimate it will post record profit this fiscal year — illustrates how Prime Minister Shinzo Abe’s policies that have weakened the yen are benefiting Japan’s exporters and helping revive an economy that’s been through three recessions in five years. Large manufacturers are more confident than they’ve been since 2007, and share prices are near the highest in half a decade.
“In the past few months, Abenomics has pushed up sales of Japanese carmakers by weakening the yen,” said Yuuki Sakurai, President of Fukoku Capital Management Inc….
Toyota shares have gained 58 percent this year, compared with GM’s 23 percent. Volkswagen’s stock has been little changed.” (“Toyota Outsells GM in Quarter as Abe Gives Edge to Japan“, Bloomberg)
Yipee! Another windfall for big business while the workerbees get a pat on the head. This explains why the financial media wet themselves everytime they talk about Shifty Shinzo’s monetary elixir. (aka–Abenomics) What’s good for Toyota, is good for the country, right?
Now get a load of this from Testosterone Pit:
“The 1,280 largest publically traded Japanese companies, excluding financial firms, reported outright glorious earnings. Their combined net income doubled to ¥5.5 trillion (\$55 billion), from ¥2.25 trillion last year, according to a Bloomberg report. Translating earnings from operations overseas into weaker yen beautified the results of many companies.” (“Here Is Proof (Provided By Japan Inc.) Why Abenomics Fails The Real Economy“, Testosterone Pit)
You betcha. The Bank of Japan’s colossal money printing operation has sent the yen reeling which has boosted profits on Japanese exports. The only drawback is that rising import prices have put more pressure on household incomes. Gasoline is currently over \$6 per gallon which is forcing ordinary working people to cut back on the basic necessities. Droopy personal consumption is why 3rd Quarter GDP clocked in at a measly 0.5% (1.9% annualized), which is a sharp drop from the previous quarter of 3.8%. And–here’s the corker–the lion’s share of 3Q GDP was inventory buildup and government spending, which means that the Japanese consumer is even more on the ropes than we thought.
But, hey, at least profits are up, right? And that’s what counts. Here ‘s more from Testosterone Pit:
“Deeply troubled Panasonic has cut 71,000 jobs since 2011. It’s cutting, dumping, and shedding…
Sharp has been implementing a multi-year restructuring plan of drastic cost cuts, selling assets, and shuttering facilities…
Toyota, announced in May that it would limit its capital expenditures for fiscal 2014 to ¥910 billion, …
Mazda….started chopping workers, offshoring production to Mexico…
Cutting costs at home, offshoring production, restructuring operations, shuttering plants, reducing the workforce, halting plant construction…. These companies are cutting back in Japan, instead of investing in Japan.” (Testosterone Pit)
Can you see the pattern here? The companies that are raking in the biggest profits are dumping workers, cutting costs, and shifting their industries to cheaper locations. Is that why Paul Krugman is so jazzed about Abenomics, because he wants to speed up the process that’s reducing workers in developed countries to Third World poverty?
Here’s how the Princeton Professor summed it up in a recent NYT article:
“…the overall verdict on Japan’s effort to turn its economy around is so far, so good. And let’s hope that this verdict both stands and strengthens over time. For if Abenomics works, it will serve a dual purpose, giving Japan itself a much-needed boost and the rest of us an even more-needed antidote to policy lethargy.
As I said at the beginning, at this point the Western world has seemingly succumbed to a severe case of economic defeatism; we’re not even trying to solve our problems. That needs to change — and maybe, just maybe, Japan can be the instrument of that change.” (“Japan the Model“, Paul Krugman, New York Times)
What the heck is Krugman talking about?
Japan is “the Model” all right; the model of structural adjustment, the model of shock therapy, and the model of wacky monetarist theories which further exacerbate the gaping chasm between rich and poor.
But maybe we’re being too hard on old Krugie, after all, who could have known that doubling the money supply and buying 70 percent of all newly-issued Japanese Government Bonds (JGBs) wouldn’t ignite a flurry of activity that would boost investment, increase hiring, and send GDP to the moon?
But that hasn’t been the case, has it? Take a look at this from Bloomberg:
“Corporate investment declined from 4.4% last quarter to just .7% this time around. Consumer spending contributed 0.1% and business investment 0.2% to third quarter GDP….In addition, industrial production figures for September were revised lower from 1.5% to 1.3%.” (Bloomberg)
Just look at the data. Abenomics is a fraud. Japan’s economy is in a state of near-terminal sluggishness bordering on complete inertia. In fact, the only reason GDP rose to nearly 4 percent in Q2 was because Abe frontloaded his program with a sizable chunk of fiscal stimulus (\$100 bil) which generated some much-needed activity via government spending. Unfortunately, the fiscal component was a one-shot deal that will run out sometime in 2014 clearing the way for another bout of severe stagnation.
Adding to the problem, Abe has just passed a regressive consumption tax that will go into effect on April 1, 2014, and which will likely push the economy back into recession. So, expect a brief uptick in spending for a month or two as consumers try to make their big-item purchases before the deadline, followed by a sharp drop-off immediately afterwards. (We saw the same thing take place in the US during the “cash-for-clunkers” fiasco and the “Firsttime Homebuyers” tax credit, both of which pulled demand forward, leaving a big hole in subsequent sales.)
Another headwind facing Abenomics is that –as the Japan Times notes–“There is no demand for funds on the part of businesses. That’s why the monetary easing is not working.”
More from the Japan Times:
“Since April, the BOJ has been gobbling up JGBs from banks and the open market. Its purchases amount to roughly 70 percent of the value of all new JGBs issued. But the banks are just stowing that money in their accounts at the BOJ because they can’t find any companies interested in borrowing it.
“There is no demand for funds on the part of businesses. That’s why the monetary easing is not working,” Noguchi said…
This means banks are just depositing the massive funds provided by the BOJ in their own accounts at the central bank. The unloaned cash is thus having little affect on the real economy…” (“BOJ’s money mountain growing but debt may explode“, Japan Times)
Businesses aren’t borrowing, because there’s nothing to invest in. And there’s nothing to invest in because there’s no demand. And there’s no demand because people’s wages are dropping, they have to set aside more money for their daily expenses and retirement, and because the outlook for the future has never been more bleak. So they’re not borrowing, the economy is not growing and the prospects for a strong recovery–or even an end to deflation–are minimal to none.
And on top of it all, Japan’s fiscal situation continues to deteriorate. The debts are piling up, “the trade balance has turned into a deficit and the current account surplus has shrunk.”
No matter. Shifty Shinzo would rather shower his crony carpetbagging friends with filthy profits than worry about anything so incidental as the economy, the people or the nation.
What difference do they make?
MIKE WHITNEY lives in Washington state. He is a contributor to Hopeless: Barack Obama and the Politics of Illusion (AK Press). Hopeless is also available in a Kindle edition. He can be reached at [email protected].