AP's Kurtenbach Seems Perplexed That Japan's Economy Shrank Again, Despite 'Lavish' Stimulus

February 17th, 2016 3:26 PM

It seems that no degree of exposure to the real world can destroy journalists' belief in Keynesian economic — not even the two decades-plus calamity in Japan.

The Japanese economy has contracted again. According to a report at the Associated Press early Monday morning by an apparently perplexed Elaine Kurtenbach, this occurred despite — not because of — Prime Minister Shinzo Abe's "lavish stimulus policies." Kurtenbach also seemed oblivious the implications of the government's deliberate strategy of "reviving the economy through inflation," i.e., stealing citizens' purchasing power, even as wages remain flat.

The Japanese economy originally reported a contraction in last year's third quarter. That downturn, if it had remained in revisions, would have given the Land of the Rising Sun and Falling Hopes its fifth recession since 2008.

The third quarter's upward revision to an annualized 1.3 percent provided only a temporary reprieve. A sixth downturn of one quarter or more since 2010 commenced in the fourth quarter (graphic via Zero Hedge):

Japan GDP 2008 to present

Readers will note a "blame the people and blame the corporations" undercurrent in Kurtenbach's AP coverage — because, after all, it couldn't possibly have anything to do with Keynesian poicies. (bolds and numbered tags are mine):


Japan's economy contracted at a worse than expected 1.4 percent annual pace last quarter as Prime Minister Shinzo Abe's lavish stimulus policies [1] failed to counter anemic consumer demand and sluggish exports.

The preliminary data released Friday, which may be revised, shows the world's third-largest economy stumbling again after a 1.3 percent expansion in the July-September quarter. The economy shrank 0.4 percent in the October-December quarter from the previous quarter. [2]

Despite the lackluster report, Tokyo's main share index, the Nikkei 225, vaulted 7.1 percent to 16,017.94 helped by a weakening in the Japanese yen, hopes of more stimulus [3] and Friday's rally on Wall Street.

The latest contraction, the second in 2015, adds to worries that Abe's strategy for reviving the economy through inflation [4] fueled by massive monetary easing is failing. The slowdown in China, one of Japan's biggest export markets, has been a further hindrance.

... Growth also has been stunted by slow increases in wages, which leave households less inclined to spend. Companies are still drawing down excess capacity built up during decades of fast growth, and have held back on domestic investments, viewing their shrinking and aging home market as less attractive than other faster growing economies in Southeast Asia and elsewhere. [5]

Consumer demand fell more than expected in the last quarter, dipping to a four-year low, offsetting moderate growth in business investment, said Marcel Thieliant of Capital Economics. He expects consumer demand to perk up in coming months, in anticipation of a sales tax hike, to 10 percent from 8 percent, in April 2017. [6]

"However, this should be short-lived, as activity will almost certainly slump once the tax has been raised," Thieliant said. "The upshot is that the Bank of Japan still has plenty of work to do to boost price pressures." [7]


[1] — "Lavish"? Try "excessive" — and ineffective.

[2] — Since there's no "annualized" modifier, this sloppy paragraph will cause some readers to believe that the economy grew at an annual rate of over 5 percent in the third quarter (1.3 percent times four). That misinterpretation is reinforced in next sentence, which describes actual (i.e., not annualized) growth of 0.4 percent.

[3] — The stock markets will love "more stimulus," since the money created out of thin air will in many cases be invested in stocks. As we have seen for seven years, this artificially drives their prices up. The fact that the stock markets like the results in teh relative short-term doesn't mean that "more stimulus" is a good long-term strategy. Instead, it's a recipe for disaster which compounds on itself the longer it's carried out.

[4] — This is a direct admission that the government intends to reduce the purchasing power of Japanese citizens' saving and investments. In a very real sense, this is a quiet form of daily theft by stealth. Since when did making inflation happen become a good idea? What's in the world is wrong with prices not going up?

[5] — Those darned companies won't invest in Japanese productive capacity or other ventures. The AP's Kurtenbach almost seems to believe that's unpatriotic. No, it just means that the government has created a low-opporunity, high-cost environment, and won't do anything about it. Having, at 33 percent, one of the world's highest corporate income tax rates certainly doesn't help.

[6] — The last time Japan hiked its sales tax, aggressive buying to beat the tax was followed, to the surprise of no one with common sense, by a bigger slump in overall consumption. But tax-and-spend governments either never learn, or don't care.

[7] — Here we go again. The Bank of Japan is trying to create purchasing power-robbing inflation, as if that's a good thing.

Japan's economy still hasn't recovered in real terms from the 2008-2009 worldwide recession:


Yet the only answer allowed is doing more of what hasn't worked, and doing it more aggressively.

Here's the worst element of the news: Much of the rest of the world, including the United States, has been mimicking the Japanese model. The fact that it has failed and continues to fail in Japan, leading to ever more misery in a country whose hard-working people deserve far better, does not seem to be deterring other nations from marching towards the same cliff.

A somewhat delayed version of what Japan has experienced awaits those who don't get their act together. A worldwide financial calamity even the press is beginning to grudgingly recognize — without, of course, recognizing that a course reversal is the only way out.

Cross-posted at BizzyBlog.com.