Given the 4.1% increase in GDP in the first quarter of 2013, Japan is outpacing economies in North America and Europe. The Wall Street Journal reported: “Nearly three months after it began purchasing bonds on an unprecedented scale to pull the economy out of deflation, the Bank of Japan’s Deputy Gov. Hiroshi Nakaso expressed confidence that the measures had improved economic conditions, and ruled out the need for further easing for now.
In an interview, Deputy BOJ Governor Hiroshi Nakaso declared: “The Japanese economy is on track to recovery, with a virtuous cycle of production, income and spending expected to be maintained. The policy seems to be working. We think no additional measure is necessary at this point.”
The New York Times’ Hiroko Tabuchi subsequently reported: “Three months into Japan’s bid to reinflate its economy after years of falling prices, the country’s central bank said...that economic conditions were starting to recover, signaling its confidence that the world’s third-largest economy was on the cusp of a long-awaited turnaround.”
Tabuchi noted that “Japan is now growing faster than any of the Group of 7 leading economies, logging an annualized G.D.P. growth of 4.1 percent in the first three months of the year. This week, the International Monetary Fund raised its growth outlook for Japan to 2 percent for 2013, putting it well ahead of its G-7 peers. The Tokyo stock market has gained 40 percent this year.”
Meanwhile, the government of Japanese Prime Minister Shinzo Abe prepared to increase the governing majority of the Liberal Democratic Party by taking over the upper house as well as the lower house of the Diet
The Economist reported: “Mr Abe refers to his monetary, fiscal and growth strategies as his ‘three arrows’. The reference, understood by all, is to an old legend from Yamaguchi, the southern part of Honshu and the region from which Mr Abe hails.”
So far, Abe’s arrows are hitting their mark. But arrows are always a dangerous weapon.
And not all arrows are sharp. As the Wall Street Journal has reported, “one of the key challenges for Prime Minister Shinzo Abe’s ambitious growth plan [is] persuading Japan’s famously stingy companies to stop stashing their earnings in the bank, and putting the money to more productive use, helping complete – rather than short-circuit – the virtuous economic cycle.”
For so-called Abenomics to create a sustainable recovery, companies need to use the gains they’ve enjoyed from market movements – rising stocks, and a weaker yen than has boosted export profits – to start spending, on capital expenditure or higher worker wages, so the money moves further through the economy.
Be forewarned: Economic war has been declared and is spreading around the world. In early February, the Venezuela government devaluated the Bolivar by 46.5 percent Venezuela’s actions reflected actions being taken elsewhere.
Fortune’s Allan Sloan wrote recently about the side effects of the Fed’s QE1,2,3, policies: “The first Fed side effect, currency wars, is an example of how something good – stimulating our economy by lowering interest rates – can have a downside. Cutting interest rates faster and more deeply than most other central banks has weakened the dollar against the currencies of many of our major trading partners. The Fed doesn’t exactly run around telling the public that it’s happy to see this happen. But that’s the case, because a gradually declining dollar encourages job growth in our country by making our exports cheaper and our imports more expensive.”
Sloan noted: “The new Japanese Prime Minister, Shinzo Abe, is pushing his country’s central bank to run down the value of the yen as part of his economic stimulus program. China is thinking along similar lines.” Bloomberg Businessweek reported:
The American Enterprise Institute’s Desmond Lachman recently noted: “As early as September 2010, Guido Mantega, the Brazilian Finance Minister, sounded the alarm about the dangers of a global currency war. He did so as his country was overwhelmed by a flood of capital inflows that pushed Brazil’s currency into the stratosphere with considerable collateral damage to the Brazilian export sector. He also did so as an increased number of emerging market countries resorted to inward capital controls in an effort to stem the upward pressure on their currencies. Provoking Mr. Mantega’s concern was the resort to highly unorthodox monetary policies in countries like the United States and the United Kingdom as well as the continued resort to currency manipulation by China aimed at preventing any undue appreciation of the Chinese renminbi.”
Samuel Brittan recalled in the Financial Times: “The classic definition of beggar-my-neighbour policies was provided in 1937 by the British economist Joan Robinson. As Brittan wrote: “For any one country, Robinson argued, an induced increase in expors relative to imports lead to more jobs. In addition to the initial increase in employment, there is a secondary increase from the money spent by the newly employed workers. The snag, as she pointed out, is that an increase in the exports of one country leads to a decline in exports of other countries, ‘everything else being equal.’ At best ‘it leaves the level of employment for the world as a whole unaffected’ and probably reduces it.”
Beggar thy neighbor is more politically palatable than support thy neighbor. As the Dilenschneider Group recently stated in Here We Go Again But Where?: “In the current environment, the risk of trade wars is likely to increase. This is so because debt problems in many industrialized countries have largely taken fiscal policy off the table as a way of stimulating growth. Similarly, important central banks are constrained from relaxing monetary policy because interest rates are already at close to zero. That leaves exports – trade – as a source of growth.”
A "world historical" move?
As The GATA Dispatch reports: "Lauren Lyster today interviewed fund manager and "Currency Wars" author James G. Rickards about the Bundesbank's attempt to repatriate some of Germany's gold, a move Rickards considers "world historical" in importance, confirming that gold is "the real base money, high-powered money."
This commentator is in complete agreement with Rickards that gold is "the real base money, high-powered money" and agrees that there are many signs that the world monetary authorities are giving respectful consideration to restoring the role of gold to its historical status of the real money base. The physical transportation of gold by the Bundesbank from beneath The Federal Reserve Bank of New York, 33 Liberty Street in New York City, back to Germany, however, is more likely to be administrative in nature.
As the excellent Ambrose Evans-Pritchard wrote in the UK Telegraph:
[T]he Bundesbank will announce on Wednesday that it intends to relocate the gold to vaults in Frankfurt, said by insiders to include parts of the old archive library. Germany has 3,396 tons of gold worth roughly £115bn, the world’s second-largest holding after the US. Most of the reserves were stored abroad for safety during the Cold War.
The bank holds an estimated 45pc of its gold at the US Federal Reserve in New York, and 11pc at the Banque de France, lower than originally thought.
A report by Germany’s budget watchdog in October revealed that the bank halved its holding in London a decade ago, a period when the Bank of England was selling part of Britain’s gold at the bottom of the market to buy euros.
The gold was purportedly withdrawn because London was charging €500,000 a year in storage costs. The Bundesbank said part of 930 tonnes brought back was melted down for checks, and "not one gram was missing". It currently holds just 13pc of its total holdings at the Bank of England.
The Bundesbank says there is little reason to keep gold in Paris now that Germany is reunified and at peace. The bank will retain some reserves in London and New York for trading and liquidity purposes.
Many analysts say the world is moving towards a de facto gold standard again as China, Russia and other reserve powers boost their holdings to diversify out of dollars and euros.
Unlike Britain, Spain, Switzerland, Holland and others, Germany did not sell any of its gold when bullion was out of fashion. Nor did Italy. The two countries are now sitting on very substantial reserves that are starting to take on political significance.
When leaders of the BRICS meet in Durban South
The situation is worse among the four countries that comprise the BRICS. Morgan Stanley’s Ruchir Sharma recently noted in Foreign Affairs that “the rest of the BRICS are tumbling, too: since 2008,
As the Economist recently reported: “For Brazilians, disappointing economic news just keeps coming. After weak third-quarter GDP figures shocked market economists and government at the end of November, both cut their predictions for growth in 2012 to just 1%.”
“None of this should be surprising, because it is hard to sustain rapid growth for more than a decade,” noted Sharma. “The unusual circumstances of the last decade made it look easy: coming off the crisis-ridden 1990s and fueled by a global flood of easy money, the emerging markets took off in a mass upward swing that made virtually every economy a winner.”
But reality – especially the reality of the developed world – has caught up to the BRICS and the developing world. “Without the easy money and the blue-sky optimism that fueled investment in the last decade, the stock markets of developing countries are likely to deliver more measure and uneven returns,” noted Sharma.
The implications for world trade are stark, according to Sharma: “As growth slows in
So, as the BRICS seek greater cooperation and the world seeks to restart economic growth, more than the mortar of good will be needed.
Perhaps it is time to try something different from the bad old policies or the ineffective new policies. "Tut! tut!" said Sherlock Holmes. "You must act, man, or you are lost. Nothing but energy can save you. This is no time for despair."
The blame game has been a popular game since the Great Recession began in 2007. Among the fiscal sinners in
The German government now predicts growth in 2013 of 0.5% as export growth continues to stall. At the end of last year, the Economist predicted GDP growth for
“Determined to avoid a repeat of the last election, the Social Democrats in September nominated the pugnacious Mr. Steinbrück,” wrote the New York Times’ Nicholas Kulish, “Never one to mince words, Mr. Steinbrück once called on other European countries to ‘use the whip” on Switzerland over its tax havens, likening the Swiss to “Indians running scared from the cavalry.”
The Economist’s John Peet noted: “Mrs Merkel’s stubborn protectiveness of the German taxpayer is strongly supported at home. And that puts her political opponents in a bind. She has successfully sidelined would-be rivals on her own side, helped by personal approval ratings that are consistently higher than her party’s. Her coalition allies, the Free Democrats, are in the doldrums and may struggle to win the 5% of the vote needed to stay in the Bundestag. And the main opposition parties, the Social Democrats and the Greens, have found it hard to lay a glove on Mrs. Merkel.”
Andreas Kluth, the Economist’s
So don’t count out Mrs. Merkel. She’ll do better than the German economy.