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Quiet critic of Kuroda's 'monetary shamanism' turns up the volume

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By Leika Kihara

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Brilliant man and a very insightful article.

Izuru Kato is a soft-spoken and bookish economist, but his dismissal of the Bank of Japan’s stimulus policy as “monetary shamanism” is ringing loud in the ears of bank Governor Haruhiko Kuroda.

Me thinks his term "monetary shamanism" will become as famous as "voodoo economics".

-1 ( +4 / -5 )

Yes, we should bandy the "monetary shamanism" term about from now on.

“He’s very knowledgeable about the technicalities of monetary policy, perhaps more than even some of us at the BOJ.”

Ah, but he's surely not as knowledgeable as some of the spreadsheet wizard accountants here at Japan Today! Just wait for them to come out of the woodwork and start calling the man a loon...

“When you think about the time the BOJ were to end QQE, it would be nice to have someone well versed in market functions like him.”

Harsh words of the BOJ members from Miyako Suda, but she was apparently the number one hawk at the BOJ during her tenure, which might be useful context for that comment.

Kato authored an interesting article here earlier this year regarding Abe's "regulatory reforms". http://asia.nikkei.com/Viewpoints/Economeister/Abenomics-needs-to-shift-gears-to-deregulation-from-monetary-fiscal-stimulus-IZURU-KATO

In the eyes of German participants, current Japanese policy looks like nothing more than the typical form of monetization of fiscal deficits that the Germans most hate.

But then what would the Germans know about it...

-2 ( +1 / -3 )

I think it is the devil incarnate. Printing money in a currency used for overseas trade allows one to purchase the labour of others for free, and in that sense enslave them. It is also like a drug since it soon becomes addictive. Free wealth leads to less wealth production. It is the financial equivalent of the self-esteem movement. Do not be a better person just tell yourself you are a better person. And despite the claims of the self-esteem movement, and those that espouse easing, it does not lead to more output, but to the need for another boost of self aggrandisement or money printing.

4 ( +4 / -0 )

Mr Kato is right. Kuroda and Abe are glorified "shamans".

QQE doesn't create jobs, increase wages, or bring about economic growth. The problem with Kuroda and Abe is that they're trying to create government driven growth.

A more market-minded approach is needed for Japan.

1 ( +3 / -2 )

Even Keynesian economic practices are practicable if there is an underlying foundation for growth. When Keynes developed his economic theories, populations around the world were growing rapidly, technology and manufacturing were advancing at a pace never before seen in the world. Such rapid changes resulted in large economic fluctuations which could be mitigated by central bank intervention. In addition, in Keynes' time, government spending as a percentage of GDP was one-third what it is now. "Pump priming" was a workable option to get the economy going whenever there was a stall.

But now the situation is much different, particularly in Japan. In Japan, there is no underlying foundation for growth, period. With the population shrinking by more than 6 figures every year, and due to decrease by 40% by the middle of the century, there is absolutely no possibility of domestic economic growth. With other parts of Asia providing services and products at lower prices than Japan, there is little possibility of non-domestic growth.

Monetary easing and deficit spending are only feasible when there is demand-pull inflation. The increase in the money supply diminishes as the population and economy grows, and inflation caused by increased demand reduces the weight of debts and debt servicing costs. But when the population is not growing, and the economy is shrinking, monetary easing simply doesn't help. Increasing the money supply when the population and economy is shrinking simply devalues the currency, and robs people of the value of their labor and savings. The decreasing population can only cause deflation, as demand for goods decreases when there are fewer and fewer people around to buy goods. In this environment, companies cannot increase wages to keep up with inflation because their sales and profits are decreasing.

Abe, and Kuroda are sinking in the quicksand, and grasping as whatever straws they can to slow down their slide. But monetary easing is not the answer, it only makes matters worse.

1 ( +4 / -3 )

I hear Abe graduated from Shaman U.

1 ( +2 / -1 )

Calling the QQE stimulus policy “monetary shamanism” does not get to the heart of what is going on here, which is class warfare. This is about shifting public wealth and political capital to the elite 1 or 0.1%. The sham is reducing the discussion to one of macro economics when it should be a political economic discussion.

1 ( +2 / -1 )

Very good article and commentary.

0 ( +2 / -2 )

warispeace,

How about the class warfare in the opposite direction?

Top level income tax rates are going up, so too is the top rate of inheritance tax.

In the Japanese news yesterday I saw an article about the government's plans to crack down on "tax avoidance" by millionaire-equivalent individuals who move to places like Singapore, Hong Kong and Switzerland (according to the taxmen and politicians) in order to sell their profitable stock positions and pay the local tax rates (zero) rather than Japan's 20%. Bastards. So the cunning plan is to tax these creeps (circa 100 a year) who had the cheek to accumulate wealth and invest on their way out the door. The tax agency will tag team with foreign tax agencies to get the Japanese government's cut if necessary.

Meanwhile everyone is supposed to be buying stocks on their tax-free NISA accounts to help the economy, and the government wants the population to grow... Will driving people offshore with tax policies like these contribute to a improvement in Japan?

0 ( +1 / -1 )

Three years into the introduction of QQE last April, consumer prices could rise more than 9%, which households would find hard to manage with wage growth still slow, he argues.

"Could" being the operative word here, and the sky "Could" fall too.

The weak yen has had a positive effect on trade, which is good for business and the economy, the weak yen is a direct result of Abe's shamanism, does this Kato guy offer any alternatives or does he just sit back and criticise Abe for at least having a go and showing some bravery in trying to tackle japans problems.

Doing nothing would have had the same result japan had had for the last 2 decades, doing something has a chance of altering the result, taking some risk is also part of changing your destiny.

-2 ( +2 / -4 )

Calling the QQE stimulus policy “monetary shamanism” does not get to the heart of what is going on here, which is class warfare. This is about shifting public wealth and political capital to the elite 1 or 0.1%. The sham is reducing the discussion to one of macro economics when it should be a political economic discussion.

Nonsense, as Solomon said, "there is nothing new under the sun". There is no such thing as class warfare. People, like animals, have a territorial instinct, and the natural desire to acquire and possess. People are not created equal, just as no other living is created equal. Some people are taller than others, just as some trees of the same species are taller than others. People who have an advantage in skill, strength, intelligence, or motivation will move to the top of the ladder. Darwin proved evolution, and the principle of natural selection, it is funny that people don't seem tp realize that this principle applies to all living things, including themselves. A top 1% exists because it is naturally ordained to exist. It has always existed, and it always will. In the past the people have risen up to get rid of the top 1%, but they were simply being used by others who aspired to be at the top.. When the existing ruling class was shot, guillotined, or exiled, it was immediately replaced by another ruling class, which was often worse than it's predecessor.

Class-warfare rhetoric is nothing but a phony issue used by those at the top to mollify or fool the lower classes into thinking they care. Politics is not about giving ordinary people a voice, it is a method of keeping people under control. We don't need more politics, we need less. Economics is based on black-and-white truths, cause-and-effect, not the empty promises and outright lies which the stupid are foolish enough to believe.

-2 ( +2 / -4 )

StormR,

Kato's alternative seems to be that the 3rd arrow should be pursued with greater vigour. See the article link I posted above.

Abe hasn't taken many risks at all in the deregulation space, almost 2 years into his term now. With his popularity now on the wane the chance has passed. The weak yen has benefits but that alone isn't going to be enough, as even Abe told us. His 3 arrows together are supposed to be unbreakable, yet he's only done the print money and spend money pieces.

1 ( +1 / -0 )

Kato's only book about the BOJ was written in 2001 ("Has the Bank of Japan Died") and is alas out of print. http://www.amazon.co.jp/%E5%8A%A0%E8%97%A4-%E5%87%BA/e/B004LT8UCQ/ref=dp_byline_cont_book_1

In the eyes of German participants, current Japanese policy looks like nothing more than the typical form of monetization of fiscal deficits that the Germans most hate.

Does that mean that Japan is printing its way out of debt? Rather than build more boxes that fill up with 'civil servants' who need to be paid, things that have maintenance costs, and otherwise creating 'work' where there is no demand and no sustainability other than printing more money, is it possible to pay off the Japanese debt by QQE?

2 ( +2 / -0 )

timtak, his new book mentioned in the article is titled "日銀、「出口」なし! 異次元緩和の次に来る危機". It's on Amazon.

-1 ( +0 / -1 )

fxgai if abe is able to implement the changes needed and deregulates things, along with the other measures he has undertaken there is some chance, if things are left stagnant then there will be little chance, I prefer to think that things will be carried through with, adding more weight to abes reforms and increasing the chance it will succeed.

If you all want to sit there and throw your hands up saying we are all screwed then we all might as well give up now, but I simply refuse to, and will fight, struggle and kick on.

I hope upon hope that it all comes to pass as we all need it to, but to simply reside myself to the fact we are doomed is not a page in my book.

-2 ( +0 / -2 )

StormR, on a personal level I don't intend to be screwed. I try to insure myself against the crazy stuff the politicians and central bankers get up to.

I do give Abe credit for having a plan, and things did seem perky early last year, but after two years I can only give Abe a C+ for actual execution. The expectations were there in the early days but he's not lived up to them. In the news today yet another of his newly minted ministers appears to be involved in a funding issue. Of course I hope he can get it together but I won't take personal actions based on hope alone.

0 ( +1 / -1 )

Yawn. The same old warnings about high inflation, "unmanagable" debt, bond sell-offs, rocketing interest rates, etc. Only one problem, folks: none of these scenarios have ever materialized.

Maybe you posters should start congratulating him once something he says actually comes true. Or.... you could congratulate me instead, since all of my predictions on this board concerning monetary-fiscal policy and the direction of Japan's economy have been true. Check the archive if you don't believe me.

-7 ( +1 / -8 )

I do give Abe credit for having a plan, and things did seem perky early last year, but after two years I can only give Abe a C+ for actual execution. The expectations were there in the early days but he's not lived up to them. In the news today yet another of his newly minted ministers appears to be involved in a funding issue. Of course I hope he can get it together but I won't take personal actions based on hope alone.

I give Abe no credit, because he lied. There is no "third arrow", and it appears there was never any intention to deregulate or reform the econmy. Had there been meaningful reform, the easing and stimulus policies would have been less necessary, or nit necessary at all. But continued economic problems give Abe and his party an excuse to loot the Japanese economy through awarding "stimulus projects" with money which the government is printing and borrowing from itself.

Yawn. The same old warnings about high inflation, "unmanagable" debt, bond sell-offs, rocketing interest rates, etc. Only one problem, folks: none of these scenarios have ever materialized.

Yet.

The situation is a lot like the sinking of the Titanic. It went down slowly, and the band played on. Because the people were not aware of the urgency of the sitiation, many did not escape, many of the lifeboats were empty. Abe, Amari, and Aso are telling the band to play on, but don't imagine for a moment that they will go down with the ship.

-2 ( +2 / -4 )

"Yet."

It's always "yet," isn't it. Well, keep moving your goal posts back further and further and further. Whatever you do, don't give up your flawed and outdated ideology, which has yet to get any of its predictions right.

"The situation is a lot like the sinking of the Titanic."

LOL. Not it isn't. We're talking about modern public finance, whose dynamics are utterly disconnected to the sinking of a passenger ship early in the 20th century.

Again, admire people who are right, not people who conveniently satisfy your preconceived notions.

-1 ( +2 / -3 )

Ah, but he's surely not as knowledgeable as some of the spreadsheet wizard accountants here at Japan Today! Just wait for them to come out of the woodwork and start calling the man a loon...

See?

-1 ( +0 / -1 )

And again we have some here with some idea and the others are obvious as they continue to bang on n on, and none of it coming to pass.

I have been saying for quite some time that things are improving, much better situation than in 2008 or even 2012, and we do see reports of increased tourism in todays headlines, the stock market has gained plenty in the last 12 months, machinery orders have been good and exports increased, but we still get the broken record brigade banging that same old pot and pan. Clang, clang, clang the sky is falling.

Oh well, by the way how was that wrinkled $20 bill you got the other day ?

1 ( +3 / -2 )

In some cases I am for high rates for inheritance taxes, but the first 40,000,000 yen should be tax free. Then 10% for 40-80,000,000 yen. The top rate should be 40% for amounts over 300,000,000 yen.

0 ( +0 / -0 )

"but he's surely not as knowledgeable as some of the spreadsheet wizard accountants here at Japan Today!"

That day that interest rates in Japan skyrocket, or any of his hackneyed "predictions" come true, is the day you can call him "knowledgeable."

"But then what would the Germans know about it..."

The Germans are idiots when it comes to monetary policy. They gave up having their own central bank! handing control to Brussels. The mark was an awesome currency, which was the backbone of their postwar success. The euro experiment has left them totally screwed and bogged down deeper than Japan, perhaps forever.

0 ( +3 / -3 )

Mr. Kato finds himself as the head of Totan Research, appearing on TV and having a feature article written in Reuters about him, and you are a guy who reads stock market reports most days and posts comments on JT. But you're the genius and he's just another nut case without a clue.

It must just have been a cruel twist of nature that you don't find yourself in his shoes.

The Germans are idiots

Who isn't, to someone as obviously supremely intelligent and failsafe at predicting the future as you?

Just wait for them to come out of the woodwork and start calling the man a loon...

See?

-2 ( +0 / -2 )

"....and you are a guy who reads stock market reports most days."

That's because my job requires it. I get paid to write about business and economics in Japan. What's your profession?

".... to someone as obviously supremely intelligent and failsafe at predicting the future as you?"

Do you want me to apologize for being correct? I never said I was intelligent, but I did major in econ and one thing I took away from it is that public finance in soverign economies like Japan or the US is distinctly different from household finance. When people assume otherwise, that private debt is like fiscal debt, well, then they tend to make wrong predictions. Not that it hurts their credibility among the economically illiterate.

0 ( +3 / -3 )

I'm pretty sure Mr Kato and other highly paid "idiots" such as BOJ's Kuroda, the Germans, they all education (and experience) in economics too. Something doesn't add up don't you think?

-4 ( +0 / -4 )

That's because my job requires it. I get paid to write about business and economics in Japan. What's your profession?

Are you kidding?

Do you know what a ponzi scheme is? It goes like this. You put in a certain amount of money, and after a short time, you are repaid your investment, plus a percentage. Your investment and the extra percentage is paid when two or three other people put in some money. Their money goes to you. A few more people join and put in their money, and this goes to pay the two or three people whose funds went to you. The scheme works so long as ever greater numbers of people put money into the scheme. In the 70's, the ponzi scheme was called a "pyramid club". as the base of the pyramid widens, those at the top of the pyramid get more money. But eventually, the number of participants declines, and those late players who are on the bottom of the pyramid and were the last to put in their money end up losing it all.

Japan's entire social welfare system (and those of other developed nations) is a ponzi scheme. Back in the 70's and 80's when the economy was growing, the system was workable. But now with the population declining rapidly, there are fewer and fewer people putting in their money. In order to keep the system going, the government is borrowing heavily, and putting the money into the system. But this compounds the problem. It is bad enough when shrinking tax base is no longer sufficient to pay the current bills, but then the government begins borrowing and spending. This money which the government is borrowing must be repaid. How can it be repaid when their already isn't enough revenue to fund entitlement spending, and the population is decreasing by 100,000 or more each year?

It's always "yet," isn't it. Well, keep moving your goal posts back further and further and further. Whatever you do, don't give up your flawed and outdated ideology, which has yet to get any of its predictions right.

"Yet" has already occurred. The decline of the population is the definitive sign. This decline is occurring rapidly, and each year the future population decline is revised downward. This is not a small problem, this is a catastrophe.

The BOJ (which I can see out my window right now), and the government are struggling heroically (or diabolically) to keep things going. Without the prospect of growth, there is little more that they can do. Abe and his friends are borrowing, scraping, printing, and promising to keep the national ponzi scheme going, but all things must come to an end eventually.

-3 ( +3 / -6 )

This money which the government is borrowing must be repaid.

Not right away.

the population is decreasing by 100,000 or more each year?

More than 2/3 of the dead are older than 75 years old. The number of new born is in decline, bur the birth rate is increasing every year since 2005.

Abe and his friends are borrowing, scraping, printing, and promising to keep the national ponzi scheme going

Money Yen is circulating more in stock and real markets. Hardly a ponzi scheme.

0 ( +1 / -1 )

This money which the government is borrowing must be repaid.

Who says ? Who is it owed to ? They can just print more to cover it.

jerseyboy, actually jefflee is one of the few who has any clue on here as to the real situation, his posts are mostly spot on, unlike those who keep clanging pots and pans together yelling the sky is falling and we are all screwed.

I have been listening to the likes of the naysayers and the doomsdayers banging on about japan and its debt for over 20 years, with predictions of next month, next year etc being the doomsberry, but nothing has come yet and unlikely it will.

Meanwhile the economy recovers bit by bit in spite of the fact posters on here wish it wouldn't.

Manufacturing appears to be up, exports are up 6.9%, tourism is at record levels, stock market is going great, etc so where is the doom n gloom you all talk of?

Business sentiment is mostly positive if you got about and about and spoke with those who are actually making it happen.

-1 ( +3 / -4 )

Do you want me to apologize for being correct? I never said I was intelligent, but I did major in econ and one thing I took away from it is that public finance in soverign economies like Japan or the US is distinctly different from household finance. When people assume otherwise, that private debt is like fiscal debt, well, then they tend to make wrong predictions. Not that it hurts their credibility among the economically illiterate.

JeffLee is absolutely correct. The operative phrase here is that "is distinctly different from household finance" which for these doomsayers, just can't simply comprehend after all these years. It's a net/sum zero game on Japan's (which includes individuals, corporations, and government's financial assets and liabilities) balance sheet.

0 ( +4 / -4 )

What irks about these economists are that they all make interpretation "after the fact." Ok, so what's his concrete, applicable, measurable plan to handle this situation? If he has any, very interested to hear.

1 ( +2 / -1 )

"Do you know what a ponzi scheme is?"

Well, since you prefer simplistic analogies, try this one out: imagine a Ponzi scheme where the fund manager has the ability to issue his own commonly accepted currency, basically at will, and can also purchase back his debt in exchange for the currency...that he creates. And that debt, by the way, is held nearly all by him (!) and people and institutions he has the sole authority to regulate.

How exactly would a Ponzi like that ever hit the wall? If you answer because the currency eventually becomes worthless, then you'll have to explain why the yen remains one of the world's hardest currencies....and a "safe haven" currency among global traders to boot.

1 ( +2 / -1 )

I do give Abe credit for having a plan, and things did seem perky early last year, but after two years I can only give Abe a C+ for actual execution

You're being too generous, fxgai. I'd give PM Abe an "F-" on his performance, and policies. Yes, he has a plan, but it's a plan more geared to hurting the economy rather than fixing it.

Abe aspires to grow the economy be a meager 2% over ten years. That's his target. He's aiming low. The tax hike and "Abenomics" create an illusion of decisive action, and planning, but they're just pretenses.

Taxation and spending will continue, and Japan's economy will be squeezed. As for driving capital offshore, well, the smart money is already gone.

-1 ( +1 / -2 )

JBinJapan, "F" is not objective. Your reasons are vague.

Abe has 2% target of inflation in two years. not 2% growth in ten years. Yen becomes weaker. Nikkei gained almost double. BOJ bought lots of bonds, which means less private bond owners. He traveled around the globe and good relations with the world except the two. Dealing with China and SK pretty good. etc.

I don't know any other leaders in the world who are doing a better job than him right now. I give him "B+"

0 ( +1 / -1 )

JBinJapan, "F" is not objective. Your reasons are vague.

OK tinawatanabe, let's get into more specifics.

Incomes remain stagnant, and heavily taxed. There's no tax relief for working people. Taxes on business remain high, at 35%.

Japan's small entrepreneurial class still doesn't receive much encouragement, or support from government, or the establishment.

PM Abe hasn't openned the Japanese market up to more foreign investment. He's waffling on TPP which could bring in all kinds of revenue, and possibly jobs and business opportunities.

The Nikkei index's performance doesn't necessarily translate into direct, or healthy job growth, or rising incomes. Investor confidence, and business performance are bigger factors than government policy.

BOJ bought bonds with a lot of printed money, and having less private holders of debt doesn't mean a lower deficit, or national debt.

A weak yen means that it imports like oil, sugar, and food (for example) cost more to get. There are business that rely imports that suffer if the yen goes below a certain level, which it is approaching now. A weak yen helps large corporations that export goods overseas, but not consumers who have to shell out more for imported goods.

Yes, PM Abe is looking at 2% inflation in two years, but his target for economic growth is also 2% in 10 years.

Regarding South Korea, and China, those aren't the issues being discussed here. Perhaps he's done well, in that regard.

However, on the economy, he gets an F-, because of his poor understanding of free market economics. Taxation doesn't lead to prosperity, especially if a country's population and businesses are already heavily taxed.

You raise some good points, but, you're not considering working people, and families. Will their financial standing be helped by Abenomics in a real, and demonstrable way? Are incomes growing healthily?

If you want to know who's doing a better job, I'd go with Canada's PM Stephen Harper. While I don't agree with everything he's done, he has shown better understanding of economics. Canada's consumption tax was lowered from 7% to 5%, and next year, the government will balance its finances.

Business taxes in Canada are the second best in the world (although taxes on income could use some cuts), and the Canadian market is more open to foreign investment. The government has struck a record number of free trade deals, openning more markets for Canadian businesses.

Canada's provincial governments meanwhile have not followed suit and lowered their VATs, and many are mired in debt, and suffer from poor economic growth.

PM Abe could do much better by taking a more market minded approach to the economy.

-1 ( +0 / -1 )

Is income in Japan really that "heavily" taxed?

It's hard to say with the graduated tax brackets, but until one makes more than 9 million yen a year, the rate would seem to be 23%, which seems relatively low to me.

As a percentage of GDP, Japan's tax revenues are below 30%, which is lower than many places.

Incomes may not grow much until the economy really cranks up, but the weaker yen should in time help since a weaker yen makes Japanese labour cheaper relatively, which should increase the demand for it.

-1 ( +0 / -1 )

It's hard to say with the graduated tax brackets, but until one makes more than 9 million yen a year, the rate would seem to be 23%, which seems relatively low to me.

You're forgetting ward taxes (which are applied to income that has already been taxed), national health insurance premiums, pension contributions, . Not to mention taxation on business, which is high.

As a percentage of GDP, perhaps you're right. However, in absolute terms, the Japanese government collects a tremendous amount of money, just like many other developed countries.

The Japanese government can't make the claim that it doesn't collect enough taxes.

A cheaper yen may help large exporters, but not importers. A weak yen will have a negative effect on costs for working people.

As for the economy going up, the government's policy of taxation, spending, and heavy-handed intervention won't help.

0 ( +0 / -0 )

You're forgetting ward taxes (which are applied to income that has already been taxed), national health insurance premiums, pension contributions, . Not to mention taxation on business, which is

http://www.mhlw.go.jp/english/wp/wp-hw3/dl/1-31.pdf

-3 ( +0 / -3 )

nigelboy, I'm disputing relative cost, I'm saying that in real, absolute terms. How the tax burden relates to the GDP doesn't have much meaning to working people paying hefty tax bills, fees, etc.

Relativism makes many things seem better, or not look as bad, but, it doesn't mean people are keeping more of their hard earned income, or companies are retaining more of their profits.

I have students from varied backgrounds, and incomes. None of them have said tax levels are just fine. Certainly, having resided here for some time, I see no merit in the tax regime as it stands.

Japan's fiscal woes are the direct result of spending not a lack of taxation. Look at what happened to the economy when the tax was (recklessly) increased, or, better still, look at what consumers did in response to the tax increase.

http://www.economist.com/blogs/banyan/2014/10/japans-quantitative-easing

-1 ( +0 / -1 )

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