Muddle Muddle Toil And Trouble

This week's snow storms in Berlin, NY

January 3, 2008

Elaine Meinel Supkis

Some writers today mention the 'muddle through' option for the economic mess we are in. I believe, since these same words have been used more than once in the past to describe Japan's economy, this is code for 'faux depression which hits only the working class and retirees' option. Also, we have to discuss why the US is for sale while Japan, with its depression and cheap interest rates and weak currency is NOT for sale to ANYONE at all! This is a paradox but we see their huge FOREX sovereign wealth funds and think, a ha! This is why! Time to step back in time and take the long view yet again.

Americans Sold Out to Foreign Firms at Record Quarterly Rate

Foreign investors exploited the declining U.S. dollar during the past three months to snap up American companies at the fastest pace in at least a decade.

Buyers from Dubai to the Netherlands accounted for 46 percent of the $230.5 billion of U.S. mergers and acquisitions announced in the fourth quarter, the biggest share since 1998 when Bloomberg started compiling the data. The total excludes $17.9 billion of so-called passive investments by state-run funds in Asia and the Middle East in U.S. banks, including New York-based Citigroup Inc.

According to this article, people in other nations are exploiting the cheap dollar and relatively cheap US interest rates to buy up a lot of shares and certificates and bonds and nearly anything that is or is not nailed down including real estate in NYC. People are trying to travel to America to spend their euros here while the going is good. Just like Japan during the bubble years following the Plaza Accords. The international monetary system, warped badly by various government and central banking manipulations mostly by the G7 nations which were the signatories to the Plaza Accords, is a windfall for nations with strong currencies even as it is a poison for these same nations if they want to be an industrialized capitalist system! The present general philosophy of the US/UK pax pact is increasingly destabilized as non-G7 nations rise in economic, military and diplomatic power.

History lurches through various periods which are characterized by one or another empires taking control of the Seven Seas and via this way, end up controlling not just international trade but the terms of financing this trade. The British won this after the Napoleonic Wars gave them an edge over France and London became the center of banking for international commerce. To this day, the LIBOR is how international trade used the London rates to figure out the value of contracts and sales as well as money transfers. The US saved England twice from total destruction and thus, became the ipso-facto center of world commerce. When Russia and China, due to revolutions, were cut off from this internationalist rule, they both stagnated badly but both are today, very much big players on the international stage and are slowly transforming the US/UK empire, contesting it for world dominance.

A number of commentators mock this force by noting that China and Russia's economies are 'smaller' than many of the G7, in particular, the US and Japan. But this is a false reading of the situation. We cannot compare these two geographical giants with huge populations and massive nuclear arms with defanged Europe and helpless, fading Japan. For world dominance is never purely financial, it is also military and the rulers of the Seven Seas get there via tremendous battles and considerable violence. Never is this process quiet. But the process of rot of older empires is very quiet for of course, the rivals sharpening their swords do not want to alarm a dying empire but rather, will go to great lengths to coddle, fund or finagle a sick empire.

Indeed, new powers will prop up a dying empire to prevent rivals from gaining any advantages. The dying Ottoman Empire stumbled along for a century in this fashion. Whenever Russia, Germany, France or England thought each was gaining ground, they would turn on each other and fight. The Crimean War wasn't a war for conquest by England, for example, it was a war to stop Russia from ripping off huge hunks of the weak Ottoman Empire!

100 years after France invaded much of Europe seeking to consolidate a base on the mainland due to the high cost of patrolling the Seven Seas, Germany tried the same thing and was, like France, defeated by England which did this with the help of strong allies, France was such a weak empire, it nearly fell overnight to Germany. But the British misunderstood the power of their dying empire and imagined they were stronger after WWI rather than a reproduction of the Ottoman Empire. After the war, the empire expanded but it was more like a sun going into the red giant phase when it is about to go nova. Ignoring the obvious financial disasters created by the costs of WWI, the Crown continued onwards as if nothing was amiss.

The US rescue in WWII was accepted without changing attitudes or systems and England merrily runs on a proto-imperial system even as it continues to weaken and fall. Russia and China no longer contest the US controls nor does Britain, of course, but this doesn't mean all is well. It merely means, the US is being allowed to continue this faux rule only because all the other actors see we are on our last legs! As we limp along, we are like a powerful water buffalo being shadowed by a pack of lions waiting for us to stumble and crash to the ground. Why harm themselves, taking us down?

Japan and Germany both have used the imperial battle of dominance between the communist giants and the US/UK empire to rebuild and to re-insinuate themselves into positions of pivotal power. Germany is now ensconced deep inside the newly built European trade zone and uses every opportunity to strengthen the bonds of this new Holy Roman Empire while Russia frantically rebuilds its own power from a much smaller but quite significant base due the Europe's need for Russian resources. The old alliance of France and Russia to keep down Germany has been turned on its head while England tries to be a fulcrum between Europe and America. But in Japan, they go it alone, in bitter pride and using their position as the fulcrum of power between the US and China to gain advantages which they exploit no matter how much this weakens the US giant that struggles to protect them from China's power and fury.

I keep focusing on all this because if we lose sight of this interplay and how the leaders of the various nations view history or even know any history, in the case of the US and England, reading history correctly is nearly impossible due to imperial hubris. The US is passively watching while our potential and in some cases, obvious enemies who wish us to die, buy us up. The Federal Reserve isn't supposed to be a wage/price control machine but are supposed to protect the banking system and protect the dollar. The dollar, being an imperial world currency, cannot afford to be weak by definition. The minute it gets weakened, the empire DIES. All empires discover this too late, of course.

And what weakens the dollar are two things: unnecessary trade that is one way and interest rates in the banking system that are below the rate of real inflation. The first sign of imperial rot is a run on the gold reserves of an empire. Always, empires deal with this by closing the door and issuing fiat paper currency. China did this long ago and got so weak, a host of aliens from Europe came in and tore the Empire to shreds. When Spain did this, they lost Mexico and all of South America with amazing speed and French armies invaded Spain and tore it all apart. When England was forced to do this in 1930, the empire toppled within a mere 10 years, the armies and navies of Germany and Japan overrunning the rotted corpse of the empire in less than 3 years.

Both Germany and Japan had a poor financial base even as they tried to overthrow the British Empire. This was a fatal weakness. Both jumped the gun, big time. Instead of letting the empire rot a while longer, they tried to dispose of it while offering no financial strengths for the places once dominated by the British. Instead, they were forced to loot and enslave any countries they took from Britain and even if Britain didn't have the US as a savior, this ugly imperialism was very unstable and would have led to a rapid collapse of both empires due to financial weaknesses.

The Chinese have studied this matter quite intensely. And discussed this a lot in the past as they tried to figure out how to grapple with the seemingly powerful US/UK empire that is allied with Europe, this entity being a very dangerous foe for China, having destroyed China in the last 200 years. The number one word with China is 'Caution!' They don't want confrontation even as they whittle away at our power. The news at the end of the year makes this very clear. The remnants of the Ottoman Empire feel the same way, they are very cautious about their plans to dominate and are very troubled by domestic unrest as the people in these places seethe with anger that threatens to burst out at any given moment.

All are buying up huge hunks of the dying US/UK empire and all hope to use this as a tool and the goal is to tame the great bull as it stumbles along, to yoke it and then hitch it to a plow. I used to have huge oxen. They were given to me because they developed bad tempers and I was told, their horns were dangerous. Instead of beating them, I tamed them to my will via various games and hazards. I lived very close to them so they saw me all the time and after a year, I could hang from their horns and they would stand quite still. They licked me out of love and if they were naughty, I would scold them and they would cry and then try again, better than before. Instead of forcing them to come to the yoke, I would call them from afar and they would lumber over.

The Chinese leadership is still only a generation away or less, from the peasant life which uses oxen. They know how to tame this dangerous beast, the bull, and render it a willing worker. The US is flailing Muslims to bend them to our will and they are swinging their horns at us and pushing back and even trampling on us. Instead of protecting them, we defy them and hit them with whips. The Chinese are using the discontent this is causing to make common cause and they are joined in an enterprise to pull down our empire not by direct attacks but by taking over the profitable parts of our empire and making us their servants.

The billionaires on Wall Street and the money men using Queen Elizabeth's many islands to run financial services are not money makers, they are servants, they are the tame oxen working for these foreign powers and as they get richer, our empire gets weaker. The inability to understand this is why economic discussions are often very shallow. My alarms are not due to 'will I get richer or poorer' but rather, 'will my children be slaves or free?' Wealth can be a trap, a chain, a yoke. Freedom isn't always about living in mansions and having fun, indeed, it is the polar opposite.

The US is losing ground and no matter where I look, I see bad news if one wishes for our nation to be strong and free. Our need to control the world has led to the world controlling us. And I don't mean the UN! The right wing, as they work to hand us over to foreign powers, fears the weak UN while at the same time, allowing free trade to decimate our industries. Even Ron Paul hesitates to talk about all this for fear that he might mention Federal controls over trade. Since the beginning of imperialism, empires have controlled trade and if they don't protect their core industries, they die. Rome, for example, imported everything from the distant provinces and killed Rome so badly, barely armed aliens fighting in a very disorganized, even chaotic fashion, utterly destroyed the entire empire at every level and in every province.

Asset-Backed Paper Grows for First Time Since August

For the first time since the August freeze in the credit markets, companies issued more IOUs backed by collateral as the cost to borrow the short-term debt fell to the lowest in 22 months.

Commercial paper backed by mortgages, credit-card loans and other assets rose $26.3 billion to a seasonally adjusted $773.8 billion for the week ended Jan. 2, the Federal Reserve in Washington said today.

The 3.5 percent increase, the biggest gain in at least seven years, snapped a 20-week losing streak that began as losses from subprime mortgages caused a retreat from all but the safest government debt. Yields on the paper due in 30 days posted their biggest weekly decline in at least a decade as investors became more willing to hold the debt.

``The market is stabilizing,'' said Neal Neilinger, managing director and co-founder at NSM Capital Management LLC in Greenwich, Connecticut. ``I don't think we'll see another drop, unless there's another headline that hits.''

These traitors think, continuing to pile on more debts is a good thing. They want the recent past's status quo to continue because being good oxen, they want to plow up our financial world and sow the seeds of tyranny. The US Treasury didn't complain when the New World Order Federal Reserve destroyed the dollar further in order to INCREASE OUR DEBT LOADS. The docile ox team of the US will groan and strain and begin to pull the sledge piled high with the large rocks of debt and we will stumble forwards a few more miles down the road of destruction. Do we need more credit card loans? Do we need more mortgages?

I would say, we have too much of both as well as corporate debt. The health of the stock market values was due much more to the loading of debts onto the bulls of Wall Street who have had their balls cut off. The illusion of rising wealth was based 100% on piling on more and more debts, not building industries or expanding markets. For example, did we expand markets in Japan? Did even the Japanese expand markets in Japan? China expanded but they sent out a lot of goods so they ran a huge trade surplus just like Japan!

Today, investors are sighing with relief. All seems well but as an ox driver, I assure everyone, I can see the weight being dragged along here and allowing this to pile up more is fatal. Yesterday, I published parts of the infamous Plaza Accords and noted that the provisions of those Accords were nearly ALL violated within less than 15 years by nearly all parties. The Plaza Accords were, in other words, FAKE. And the present game is the outcome of everyone grossly violating these accords with impunity, the worst being the US itself.

Many of the accord's promises were actually wise and good which is why they were there but there was bad faith and outright fraud on all parties who were not trying to fix anything but were rather, playing games with each other. A rule of thumb in life: people lie, cheat and steal and will do this with impunity if they can. The tragic thing here is, if the US did follow the promises we made with the Plaza Accords, we would be far richer and much more powerful today! Isn't that tragic? We would have had less consumer happiness but we would still be an empire, not a basket case waiting for the guillotine to chop off our foolish heads. We would have been the ox drivers and not the ox team.

Unlike most bloggers or economists writing about things these days, I focus a lot on Japan. Not from malice but ALARM. For we are imitating key elements in post-Plaza Accords Japan and this means the world's #1 economy will dive into a hopless depression like the world's #2 economy has done. The need for infinite loans at super-cheap rates means killing inflation and to do this, you literally starve the working class of finances, cash, access to better labor relations, a loss of health care, poorer public schooling and in general, turning them into either helpelss, scrawny oxen or hamburger. Once inflation is defeated via these cruel means, the system can run for years and years and make fine profits for a tiny handful of people in control of the government while the masses slowly die. The US tried the property/asset/stock bubble that Japan did in 1986-1990 and note that our monetary-driven bubble launched by Greenspan is the same length in time as this previous one and now, as the ability to absorb more debts is reached, we now enter phase II of the Japanese economic system, post-Plaza Accords which is a weak dollar, lots of exports and a flattening stock market.

I picked through the net today to find stories of Japan being invaded by people buying up cheap Japanese stocks and bonds and companies and guess what? This barely has happened. I read the Nikkei and I know that Japanese courts, customs and barriers have successfully protected Fortress Japan from the sort of buy-outs and buy-ups by foreign powers we see here in the US. This is very deliberate on the part of the Japanese. So I looked at some older studies and articles that address this without much understanding why Japan keeps out foreigners and how this is an important tool in their push to dominate the US and China.

From Pepperdine University, 2004: The End of Japanese Intervention?
Peggy Crawford, PhD, and Terry Young, PhD

The Japanese believe that the growth of exports during the last, very difficult decade kept their economy afloat. Intervention to support the dollar was necessary to stabilize the exchange rate between the dollar and the yen and to limit price increases on items exported to the U.S. As the dollar continued to show weakness against the yen during 2003 and the first months of 2004, the Ministry of Finance acquired foreign exchange reserves totaling $650 billion dollars.[7]

The article was published when Japan paused in their buying spree. This was NOT because they tired of this or were changing tactics, it was due to CHINA suddenly, starting gradually in 2000 and then rapidly by 2004, building up their own FOREX reserves by holding dollars! Japan didn't need to prop up the dollar, the Chinese were doing a great job for them. But by 2005, China rapidly overtook Japan's funds in volume. The Chinese began to strengthen the yen due to Japan using the G7 forums to attack China's currency's value. When China complained about the two-faced monetarist positions, the G7 foolishly backed Japan in this due to the emergence of the carry trade which became central to all world lending.

However, the Japanese economy is beginning to show signs of life, and consumer spending, which accounts for 60 percent of Japanese GDP, appears to be increasing.[8] Exports continue to soar, thereby increasing Japan’s trade surplus to the highest level since 1998. More significantly, Japan had a trade surplus with China in February for the first time in almost a decade. Interesting to note is that Japan’s surplus with the U.S. fell for the 14th straight month, although the U.S. remains the largest market for Japanese exports.[9]

The Chinese forced up the value of the yen due to the Japanese exporting to China. The battle between these two Asian giants has been raging for the last 3 years and is increasing except maybe they are now conspiring together as I have noted in the news lately: Japan and China are making many secret accords and we have NO IDEA what they are since BOTH ARE CONCEALING THIS FROM US. If the US rulers have a clue, they are not telling anyone and frankly, I think our rulers are traitors, anyway.

Japan's exports to the US increased after 2004 and they have a huge surplus of trade with us but they are far from #1, China is #1 and Canada, due mostly to energy, are #2. But Japan sells the most VALUE-ADDED goods! This is pure capitalism: value added is better than raw materials or cheap trade goods. In 2004, people actually thought Japan was increasing consumer spending. I was in great alarm and noted this was NOT the goal of the government and I bet that this was going to be crushed and it was, quite cruelly. Since 2004, prices and wages have dropped in Japan and new car sales have fallen each year and this last year were worse than in 1983 which was when Japan was just beginning to boom!

Given the overall increase in exports while exports to the U.S. were decreasing, we pose the question whether changes have occurred which make the Japanese economy less sensitive to the yen-dollar relationship than it was in the past. The output and profit of the Japanese economy may be less affected by the swing in the value of the dollar for the following reasons. First, Japanese businesses have shifted their production to key international markets such as the U.S. In addition, they have increased local procurement of inputs. Therefore, goods can be produced in the U.S. – or other markets – with production expenses denominated in dollars and the final product priced in dollars. No foreign exchange transaction is required, and Japan has minimized its foreign exchange risk.

What was happening is now quite obvious: the carry trade began to take off in 2004 as various entities latched onto this business. As everyone figured out how to profit off of the carry trade, the Bank of Japan and the LDP rulers in Tokyo figured out how to leverage this power for the exporters of Japan. For a while, they didn't bother with the FOREX pool of money but when China outstripped them and went far past a trillion in holdings, they panicked and began to hold more reserves so they are now at about $900 billion and rising. The carry trade continues as they even ignore inflation and keep rates at sub-1% levels. The fiction of central banks controlling or responding to inflation has been shattered yet again and this, too, was part of the written promises in the Plaza Accords which were supposed to stop this sort of thing.

After almost two years of massive intervention, no dollars were bought by the Japanese Ministry of Finance during the month of April, and the yen was allowed to surge against the dollar. The ministry has denied rumors that it has abandoned its effort to curb the strength of the yen and insists that there has been no change in its policy. However, because of the aforementioned factors, the Japanese government may believe that the economic recovery is broadening and is not solely dependent on exports to the U.S. If Japan determines that it no longer needs to support the dollar to protect its economic recovery, who will pick up the slack?

The Japanese didn't need to support the dollar against other currencies, only against the yen. And of course, no matter how far the dollar fell, the yen fell further, faster. Until China began to change this game slightly. In the last year, the battle to sneakily drop the value of the yen and note that having insanely low interest rates does exactly that, the yen has risen against the dollar by the end of the year by over 3%. The Japanese, at the very beginning of this summer's banking collapse, were boasting that they would drive down the value of the yen to 130 to the dollar by October. It did the exact opposite.

This is very significant because the G7 meetings this summer ended with all of them barking at China over currency values being too high while no one except maybe Germany, mentioned the weak yen. Japan has not sought a domestic economic recovery due to the simple fact, too many people at the very apex of Japan's ruling elites make horrendously huge profits with this faux depression. They will extend it forever if possible. A warning to all US investors. Our own rulers will do the same to us and to the investing class if they can. The Great Depression would still be grinding on if we didn't have elections and the much more dynamic Roosevelt didn't come in and change the parameters of the depression's game.

Now to go to today's news again, Mish is a very popular writer and he is quite good and he brings up some words today that have been used in the past....in reference to Japan! Let's first look at his writing and then go back into the past again.

How does one invest in 'Muddle Through'?
Mish

An Asymmetrical Unwind of the Credit Bubble

Assuming we do muddle through, there is still a strong likelihood for a continued asymmetrical unwind of the credit bubble.

Muddle Through Assumptions:

*Housing is going to continue to be weak
*Commercial real estate is going to be weak
*Capital impairments at banks will be an issue
*Unemployment is going to rise
*Consumer spending will be weak
*Credit card defaults will rise
*Foreclosures will rise
*Corporate earnings will be weak
*The Yen carry trade will unwind

Implications of that last point are particularly ominous. A carry trade unwind has the potential to affect nearly every equity class. In addition, there are obvious implications on emerging markets and China if US consumer spending is weak.

In the muddle through scenario, returns will be poor, and CPI adjusted returns might even be negative, assuming the prices of essential goods like food and energy continue to rise as stated in Wendy's email.

Mish, like myself, senses that this 'muddle through' business is actually a Japanese thing triggered by Japan's 'muddled mess' at home and it seems increasingly like the US will fall into the same depressionary spiral Japan is presently exploiting in order to boost exports. This is why the joy of our exporting industries that the dying dollar is finally 'balancing trade' annoys me greatly. The cost will be high! On every level. Especially imperial power.

The end of the 'carry trade' will hammer 'equity classes' because it will shut down the flood of debt that has destroyed our economic base and our nation's future power. Mish, like so many others who advise people how to get rich, ignores the historic problems of this carry trade. Namely, it made a handful of Americans very, very rich and has destroyed our entire international infrastructure as well as international banking, savings in America and a host of other important systems set up by hundreds of years of hard work and practical laws set up to prevent exactly this sort of hostile banking action by a foreign power seeking benefits at our nation's expense! The Japanese carry trade is KILLING US TODAY. Stopping it should be the #1 priority of the Federal Reserve, the other G 7 nations should hammer Japan about this and all the central bankers should be united in trying to stop Japan, not enable them! Gads! What will it take?

As we fall into a global depression caused by the carry trade flooding the world with super-cheap IOUs below the rate of inflation, when will we learn our harsh lesson? This is bad! Bad! Not good. Of course, ending this wretched business will cause all the systems to collapse since they are now based on it. But this is like lancing a boil: it hurts but then, the festering sore will finally drain and heal.

Let's go back to before the Dot Com bubble burst, right when the other mysterious mess we call the Asian Currency Crisis hit
:

Japan: The System That Soured
The Rise and Fall of the Japanese Economic Miracle

By Richard Katz, 1997

Without sweeping structural reforms, Japan will continue to stagnate. Japan's productivity growth is so dismal these days that, even if it operated at full capacity, economists say the fastest it could grow is around 2 percent or so. That's half the 4 percent rate it averaged from 1975 to 1990. And yet; because of Japan's myriad macroeconomic problems, Japan has commonly been unable to operate at full capacity. In four out of the six years since fiscal 1992, Japan has grown less than 1 percent, and in three of those four years less than 0.5 percent. Japan grew less over the entire five-year period from mid-1992 through mid-1997 than it did in the single year of 1990. Unless there is massive budgetary stimulus, this negligible growth is expected to continue through at least 1998 and 1999 (see Figure 1.1). By the dawn of the new millennium, Japan will have spent an entire decade growing more slowly than the United States, the nation it was supposedly "on track to overtake by the year 2000."

Nor is this a temporary slump. According to official forecasts, without reforms, even at full capacity, the fastest growth Japan could sustain between now and 2010 is only 1.8 percent a year. After 2010, says the normally optimistic MITI, the combination of poor productivity and a declining labor force means it will get worse. Japan's growth potential will plunge to only 0.8 percent a year.

How did this happen? How could the world's most acclaimed economic miracle have stumbled so badly?

The root of the problem is that Japan is still mired in the structures, policies and mental habits that prevailed in the 1950s-60s. What we have come to think of as the "Japanese economic system" was a marvelous system to help a backward Japan catch up to the West. But it turned into a terrible system once Japan had in fact caught up. Korea's current trevails are a more tumultuous example of the same phenomenon.

Japan's expansion during the last 6 years has been over 2%. With a negative inflation rate due to rapidly dropping wages and benefits, this meant that Japan 'grew' at least, at the top. The US has 'grown' during this same time but this was mostly a pile of debts that grew. Our industrial base shrank. And the parts that 'grew' were often Japanese manufacturing like Toyota factories in the Deep South countryside. These were built in order to force the US to keep our unbalanced trade with Japan. I noted just two years ago that the President of Toyota complained in Canada that the US workers were fat, lazy and poorly educated in the south and he preferred Canada with its better schools and national health care.

MITI doesn't want Japan to grow any more than the LDP wants more babies. If Japan's population is shrinking, why grow anything there? The logic of falling wages, falling work force, fewer children, less services, coupled with gigantic trade profits and control of millions of workers in China and the US, guess what?

The Japanese people get to go to hell unless they get very loud and overturn the government. A lot of high-value trade from China to the US is actually products made with Chinese labor for Japanese exporters. Like, um, Toyota! The profit from this is very great especially when passed through the weak yen. The Japanese probably were sniggering happily when the US condemned Chinese trade surpluses while ignoring the hand of Japan in these same export values.

The Economic Planning' Agency has finally acknowledged that Japan's pervasive import barriers are part of the problem, and increased imports a necessary part of the solution. In its 1996 Economic White Paper, it declared, "An increase in imports would stimulate incentives to raise productivity of domestic industries."

HAHAHA. And the Japanese put out these papers to fool Westerners who are obviously rather shockingly naive. 'Productivity' is really all about increasing hours and cutting wages. Note how 'productive' the US has been doing exactly the same thing Japan has done. Robots have improved productivity but they are much more expensive than Chinese workers and moving everything to China has greatly improved productivity. And of course, this causes wages in Japan and the US to drop further as the owners threaten to move even more offshore or put in more robots. Japan has imported stuff from their own factories in Asia, back into Japan. But this causes a deficit so they are not so eager to sell to Japanese so they are bypassing Japan as much as possible and simply NOT SELLING CARS IN JAPAN, just for one glaring example. Sales have fallen increasingly faster and faster in Japan.

Actually, Japan has two problems hindering growth: a supply-side problem and a demand-side problem. The supply-side problem is low productivity growth. This is caused by a system that protects the inefficient sectors at the expense of the efficient sectors. Even if Japan were to run at full capacity, it could not grow at more than 2 percent a year on average.

The demand-side problem is that Japan finds it difficult to run at full capacity. The dual economy has so distorted the normal economic mechanisms that Japan is chronically unable to consume all that it produces. On the one hand, with economic maturity, the country's investment needs have slowed down. And yet, unlike in other mature economies, personal consumption has not risen to take up the slack. Consumption as a share of GDP is lower than in other advanced economies. The consequence is that Japan suffers from a kind of economic anorexia--a chronic deficiency of purchasing power.

In the last 10 years, using the excuse of the depression, the Japanese have lost their paternalistic relationship with the industrialists and now are treated like Americans: they are reduced to ox status and debts and wage cuts are piled onto them and they are whipped to death. In America and Japan, having children is very expensive. The more wages drop and debts rise, the more the wives must work, too, and the fewer children there are. In the US, this is masked by immigration. In Japan, there is a brick wall and the losses are mounting rapidly.

It is rather amusing that this article notes that 'consumption' in Japan is very low compared to elsewhere. But then, also we must note that the miracle of the Loaves and Fishes conducted by the Bank of Japan whereby the carry trade can multiply the Bank of Japan's savings by 1,000%, isn't going to the Japanese consumers! They get no loans! For anything! We can consume only because we get lots of 'free' money from Japan after the pirates tack on a 33% interest rate in the fine print.

This anorexia is the ultimate reason why the bubble was launched. The 1985 Plaza Accords, which sent the yen soaring, cut off the trade surplus route to growth and the economy began to slow. Tokyo responded by artificially pumping up real estate, stocks and capital investment with monetary steroids. Since much of even the physical investment had little real economic value, the bubble collapsed and banks are loaded with mountains of bad debt. The bubble was not a mere mistake; it was a false solution to a real problem.

Wow, talk about backwards! Japan's wealth, relative to the US, quadrupled overnight via the magic of currency conspiratorial manipulations by the G7 who signed the Plaza Accords and then went home and broke nearly every provision they signed. This caused the bubble. And the excess was not spent outside of Japan but entirely inside Japan. The Japanese did buy stuff here but not all that much compared to this windfall! Germany, as I have noted before, bought off Russia and got East Germany without firing a shot.

Here is yet another reference to 'muddling through' that mentions Japan:

Thorough Reform or Just Muddling Through?

There are some analysts who say that, once Japan finally gets past this patch of bad growth and recovers to a long-term growth rate of about 2 percent, then it can "muddle through." After all, the U.S. doesn't grow much faster. But, for a nation whose corporate debt loads, social security needs, and political institutions are geared to higher growth, such mediocre expansion is a recipe for lingering financial fragility and political instability.

For one thing, warns MITI, by 2020 such low growth would leave Japan unable to meet its social security obligations unless it took 60 percent of every worker's salary in taxes and ran a budget deficit at 20 percent of GDP. That's four times as high as the U.S. peak in the mid-1980s--a clear financial impossibility.

Both Japan and the US face the same problem and both are using the 'muddle through' solution which is 'depress workers to death so they die before they can retire and don't let them have any children, for crying out loud!' They won't tax workers to death, they will simply let everyone over the age of 65 who have no children, die. It is that simple. And the tool to use for this job is simple: depressions. Japan can't use the other tool which is, 'Loot minorities of everything' [aka: Naziism] or 'kill the descendants of slaves' options.

The eldery can't riot very well due to age. And if there is a deficit of young people, they can't struggle against this dead weight. The entire West is facing this paradox. People who cheer the destruction of the working class should remember that the middle class always falls far down the ladder when the workers are shoved into the pits of hell. The gap between the middle and the top yawns very wide, very fast, as we can see today. Uniting the working class with the middle class brings revolutions as we saw in Russia and France and frankly, here in the USA long ago.

Make Way for Japan
By Rowan Callick
From the July/August 2007 Issue

But we ignore Japan at our peril. While China gets all the attention, Japan, still firmly ensconced in second place among the world’s economic powers, is quietly enjoying its longest period of sustained growth since World War II. Japan’s global brands have never been stronger: Toyota surpassed General Motors in car and truck sales for the first quarter of 2007, knocking it out of the world’s top spot for the first time in 76 years; patent royalties deriving from Japanese inventiveness hit $4.2 billion in 2006. Sony and Canon, Honda and Panasonic, Fujitsu and Hitachi: throughout the world, Japanese brands are respected and profitable. By contrast, despite the best efforts of personal-computer giant Lenovo and white-goods producer Haier, China has yet to build a single brand that most Americans could name. Japan is back.

I
Under the leadership of Junichiro Koizumi and his successor Shinzo Abe, Japan has dug itself out of the hole of the 1990s and early 2000s. An export-led upturn in 2002 has segued into a broad-based economic expansion driven by surging domestic demand. Gross domestic product growth of 0.1 percent in 2002—barely a pulse—stepped up to 1.8 percent in 2003, then 2.3 percent, 2.6 percent, and finally 2.7 percent in 2006, a pace that is being maintained today and remains comfortably above U.S. levels.
*snip*
There is no doubt that Japan is on the rise, but the particular contours of this latest ascendancy remain undefined. Will Japan come to terms with its imperialist past and find a way out of its demographic dilemma? To what extent will Japan allow its cultural and political rivalry with China to trump common economic interests? How will Japanese relations with the West change? So far, it seems clear that Japan wants to remain a close ally of the United States, but not at any price. In the aftermath of World War II, Japan had no choice but to follow the U.S. lead, but that era is now over.

And how will the United States respond to Japan? So far, in stark contrast to the outcries of the 1980s, the American public does not even seem to have registered that Japan is on the rise, and until very recently American investors did not seem to be paying attention either. But that picture has shown some signs of change. Fidelity’s Japan Fund now has $1.9 billion in assets, and in late April, Merrill Lynch announced it would buy a $2.9 billion stake in Japan’s fourth-largest bank, Osaka-based Resona Holdings. Citigroup has been seeking to buy Japan’s third-biggest brokerage firm.

At least this article has the wit to notice that Japan's top 1% has been winning their trade war with the US. Of course, the assumption that Japan is an ally is now in question this last three months as Japan has artfully played a double game with China. When Merrill Lynch tried to use the Japanese carry trade loans to buy up a Japanese bank, the government and the others immediately closed ranks and went on the attack.

Results: today, where is Merrill Lynch? Are they buying banks? HAHAHA. Oops. They are being BOUGHT b others and these people are from Asia and the Middle East. The Japanese are wiping their hands to brush off the dust of the dead American investors who tried to scale into Fortress Japan. The Chinese are eyeing the gates and this is why Japan has been holding secret negotiations. Now for more news from today that confirms what I have been saying all this last year:

Why Are Toyota's (TM) Shares Down 20%?

Toyota has problems, but they are relatively less visible than they are at US car companies.

The big Japanese car company says it is increasing vehicle production 5% in 2008 to 9.85 million. But, inside those numbers, sales in it home market will be flat and overseas sales will be up 10%. Neither of those forecasts may work out.
*snip*
And, Toyota is the victim of its own success. As it builds manufacturing facilities around the world, it is less able to oversee quality control from Japan. The reputation of its cars has slipped in several recent surveys and it has had several recalls over the last 18 months.

Tokyo wants Toyota's shares to be unattractive. This keeps out hell hounds and others. The Japanese have maintained a dead stock market for a reason: it protects the power of the industrialists. They don't have to waste money on defending their stock values or anything. This is all 'free' stuff. They get rich off of capitalist profits from trade, not from stocks or piling on debts! US automakers struggle under increasing debts and every few months, more are piled on as they get flailed to death, pulling this huge sledge of IOUs piled as high as Mt. Fuji.

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Comments

[DeVaul]

Wow, Elaine! You seem to know the Japanese like the back of your hand now.

I still find it hard to believe so many people invest their entire lives in these schemes, but I do know the satisfaction they get from whipping people like me with their money, power, and influence. I saw it on their faces.

However, I also noticed that their intense feelings of victory do not seem to last very long before they need more.

[shargash]

The yen/dollar rate has been odd the past week. First it rose quite rapidly to around 115 yen. Then in maybe 3 days it went back to the low 109s. Those are pretty big currency swings in a very short period of time. Right now (~7:30 EST) Bloomberg has the Nikkei down 544 points in the first half hour of trading.

[Elaine Supkis]

Wow. Just went to the Nikkei! So much for the 'we don't need the US export market' garbage. Down 549.3 as of 7:45 pm EST.

[Elaine Supkis]

Also, the sudden rise to $1.10 loonie that then dropped to $1.02 in 48 hours: something is very, very out of whack with monetarist trading and I smell a rat making big profits moving huge sums suddenly in and out of currencies.

Year of the Rat, by the way, we are going into a calendar event here.

[Elaine Supkis]

Yen below 109 to the dollar and the Nikkei off the cliff, dropped 615 pts, over 50 pts lower in just 25 minutes.

Is this a collapse? Will the Japanese PPT come in?

[shargash]

Down 660 now at around 10:30 Japanese time. I think they shut down for lunch at 11:00 on the Japanese exchanges. It's going to be interesting to see what happens this afternoon.

[shargash]

I've been thinking for a while that the weak Yen was a trap for Japan. If the Yen goes up, it kills their economy. If the Yen goes down, the high price of oil kills their economy. Today they're getting a taste of both -- oil at $100/bbl and a strengthening Yen.

[shargash]

Bloomberg reports that the exchanges are only open in the morning today, the first trading day of the year. That should put a lid on the crash. Down 725 at 10:40 JST.

[Elaine Supkis]

It FLAT LINED before closing! I think the PPT stopped the trading.

Lord knows what they will do tomorrow. Will be interesting, no doubt.

[rain]

What a picture of the way things are , I am enlightened as well as confused. You know all seems as fog that we are in maybe most of the time but it could be the way thing are to be.

[Elaine Supkis]

This is due to the fog machine run by the rulers.

[krn]

Is that a Fit?