Thursday, April 11, 2013

The Purpose Of "Abeonomics" Is To Rip Off Japanese Savers To Bail Out Its Government

Often Keynesians asserts that they're not always for a more inflationary policy, they're only that when there is  "an output gap" as manifested mainly by a high unemployment rate. So why are they so enthusiastic about Japanese PM Shinzo Abe's massive "shock and awe" inflationary surge?

They might try to justify it by pointing out that growth has been weak in Japan in recent years. But that is basically entirely a result of its demographic implosion-over 40 years of birth rates well below the replacement rate in combination with a "no gaijins allowed"-immigration policy means that the number of Japanese younger than 65 declines by nearly 1% per year. Set in relation to its working age population, Japan has actually had stronger GDP- and employment growth than most Western countries. And as it happens the employment to population ratio for 15 to 64-year olds is at an all time high, while the unemployment rate is only 4.3%, lower than in all EU countries and also lower than in New Zealand, Australia, the United States and Canada.

Even assuming that Asian countries have a naturally structurally lower unemployment rate (in Singapore, Hong Kong and South Korea, the unemployment rate is about one percentage point or somewhat more lower), the "natural" Japanese unemployment rate is likely at most only about a percentage point below the current rate.

This means that even using Keynesian models, Abe's policies will only have a very modest effect on output and employment. So why are Keynesians so enthusiastic about it, and perhaps more importantly, why is Shinzo Abe so eager to implement it?

The secret is that they all want to confiscate money from Japanese savers to bail out the highly indebted Japanese government. Japan as a nation have a positive net international investment position, but the Japanese government is extremely indebted. Total government debt is 245% of GDP, significantly higher than even Greece. And as we all know, Greece isn't exactly a nation with a low government debt burden.

So the plan is basically to bail out the highly indebted Japanese government by ripping of its private savers. Strangely, this hasn't caused anyone of those outraged at the alleged confiscation of Cypriot savers' holdings.


Blogger Kapitalist said...

Concernig your Swedish blog, I recommend
We don't make enough fun of the Danes. They understand us pefectly, but we... I see why there were so many wars and why the scanians (originialy danes) was forcefully made speak Swedish, or die.

Swedes almost understand Danes, but not really. That's very frustrating. Every danish word has two or three possible similar synonyms in Swedish, so every danish sentence exponentially grows into a djungle in the swedish mind.

Finns on the other hand, are hopeless from the very first letter, so the idea to swedify them never occured. We Swedes just occupied those incomprehensible creatures and let them be.

2:32 PM  
Blogger Vegard said...

The difference is that Japan has no choice and we are not talking about an outright confiscation.

Cyprus did have a choice as their situation was more similar to Iceland, but they didn't choose the same solution. Their debt level is significantly below Japan.

I don't see any reason why they couldn't have done the same as Iceland, meaning default on foreign deposits, leave the euro and save domestic deposits.

2:57 AM  
Blogger stefankarlsson said...

Of course Japan had a choice, they could have chosen to continue the present course, or better yet finish deficit spending.

And there was no confiscation in Cyprus, since that concept presumes that there is something that is taken by the state. But the thing is that since the banks had no money left, nothing was taken from the banks and the people who deposited their money there.

As for the Icelandic solution, how can it be "confiscation" if it is a domestic depositor, but not confiscation if it is a foreign one. This distinction makes no sense from a property rights perspective.

8:52 AM  

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