Shinzo Abe and Global Japanification

Shinzo Abe and Global Japanification

Japan serves as a “Petri dish” for central bankers and their capacity to generate inflation through monetary policy, said Nick Moroutsos, global head of bonds at Janus Henderson.  “We should look at this model and say, ‘maybe we are not able to generate inflation.’”

-       Bond investors cast doubt on Fed’s power to push up inflation – Financial Times

Did Abenomics succeed?

The simple answer is: no.  The central goal of Abenomics was an inflation target of 2 per cent.  Yet even before Covid – 19, Japan never got closer than about 1 per cent.  This is failure.

-       Six Abenomics lessons for a world struggling with ‘Japanification’ – Financial Times

By JM Hamilton (9-6-2020)

Happy Labour Day. 

Aside from the never-ending circus that has come to define American politics, there were two key events that jumped out in the last two weeks.  The first was the announced retirement of Shinzo Abe, the Prime Minister of Japan, who served a record time in office.  The second, within the United States, was the announcement of a “new” Federal Reserve policy designed to keep the pedal to the metal – in regards monetary policy – to achieve a targeted 2% inflation rate.  The link between these two events – seemingly two worlds apart – was Japan’s greatest export ever: Economic Japanification & ultra-accommodative monetary policy. 

Japanification describes an economy characterized by: stagnation, colossal public debt (better identified by an extraordinary debt to GDP ratio), an aging population, deflation, highly accommodative monetary policy (driven by, & simultaneously facilitating, too much private & public sector debt… in the ultimate Catch-22), flat wages over time, and marginal GDP growth. 

Sound familiar?  It should… for the Japanification described above not only applies to its namesake, but many Southern periphery European nations, as well as, the United States and the UK (all to varying degrees).  At the center of the storm, or Japanification, are central banks who attempt to kick start the economy – repeatedly – with the same ultra- accommodative monetary policy (characterized in layman’s terms by money printing, the purchase of government & corporate bonds, as well as, interest rate suppression, et al.). 

The goal of loose monetary or easy money policies (often referred to as “dovish”), deployed by many central banks around the globe, is that a flood of money should spur business loans and entrepreneurship, followed by a robust economy, with a heavy demand for labour.  The resulting robust economy should stimulate GDP growth, competition for labour, and wage growth, as well as, the targeted inflation…  at least in theory.  But for many decades now, in Japan, and since 2008, w/in the United States… instead of a virtuous growth cycle, the many countries deploying Japan’s easy money policies have seen the aforementioned Japanification or stagnation.  (In fairness to the Japanese Prime Minister, Mr. Abe, his country's problems go back to a property and stock market bubble, spanning the mid-eighties to the early nineties.  And the Bank of Japan, or BOJ, had in place dovish monetary policies long before Abe was voted in as PM.)

All of which begs the question, if Japanification and ultra-accommodative monetary policy are proven failures, in terms of its stated objectives, why do global central banks keep utilizing it, again and again?  To answer that question, we need merely follow the forensic golden rule by resolving the riddle: follow the money, and who benefits?   

The beneficiaries of FED policy – which has aped the BOJ’s monetary policy - going back to 2008 crisis and into the present day, are: nearly all the asset classes of the American aristocracy, especially the stock market.  Loose monetary policy, or easy money, fuels M&A, public and commercial debt w/ exceptionally low yields, bank fees, underwriting fees, consolidation, cartel & monopoly, financial engineering and stock buybacks … all of which feeds a great deal of speculation in the stock market, with attendant extreme valuations. Compounding this stock market speculation further is interest rate suppression, as the bond market affords little or no yield.  Zombie companies win.  Politicians also benefit: hard fiscal choices are put off further then they should; endless war is financed by the FED; seemingly endless deficits are funded by the FED; and since the FED, and central banks, often present themselves as economic saviors, the Congress feels free to abdicate its responsibilities to govern.

So to get back to the question at hand, who benefits(?):  The elites at the top of the pyramid, bank majors, and the financialized economy (aka within the US, the Wall Street economy), and of course, politicians.  Who loses?  Well, that would be each country’s respective labour pool, Democracy itself, and the Main Street economy (we can see this firsthand, presently, w/ tens of thousands of failed businesses, tens of millions unemployed, and little or no wage inflation to be found anywhere).  Even pre-pandemic, wages were stagnating throughout the West for decades.  In fact, since consolidation, monopoly, monopsony – instead of entrepreneurship – are among the primary outcomes of the dovish monetary response to Japanification, the globe’s central banks actually end up creating the very deflation and stagnation (doom loop) they say they want to defeat.  

Thereby, proving once again, fiscal & monetary trickledown policies are a failure. 

Perhaps as alarming, the asset bubbles these central banks create provide a convenient distraction from the real economy or Main Street economy, and more importantly: LABOUR’S WOES.  And if elites, the donor class, billionaires, and multinationals are doing well – and the management & stockholders of the latter are doing well – then there’s less of a sense of urgency to make the hard structural choices & decisions necessary to address the malaise & stagnation surrounding Japanification and the easy money policies that further fuel it. 

And here, Mr. Abe is both informative and instructional.  Japan’s Prime Minister knew that highly dovish monetary policy, alone, would not turn around Japan’s economy, but rather, loose monetary policy must be coupled with fiscal action, along with – and this is key – structural reforms. 

Structural reforms with a labour first perspective, that would place more money in labour’s/consumer’s pockets, which would, in turn, spur aggregate demand, consumption, and growth in GDP. 

Here, Mr. Abe hoped that the private sector would increase Japanese labour’s wages.  Relying on the generosity of multinationals to voluntarily raise worker wages, unfortunately, didn’t work out for Japan. 

So what structural reforms would JMH propose, as opposed to multinational charity: a living wage; end the gig-economy; the elimination of America’s failed & nefarious for-profit healthcare system; strengthening America’s labour laws and unions, perhaps with codetermination thrown in (see Germany); the breaking up of America’s seemingly endless number of monopolies & monopsonies… just to name a few remedies.  By doing these things, in whole or in part, America would end up placing more money in the consumer’s and labour’s hands, with the long sought after benefits to the economy.  And of course, barring the above or in concert with the above structural reforms, there’s also fiscal spending, like a Green New Deal or an Economic Bill of Rights. Perfect for the Great Depression we currently, likely, find ourselves in. 

But all of the above structural change, or fiscal proposals, requires an effective and responsive, representative government, and the American political duopoly – at least the current generation of Dems & GOP, presently in power – are too corrupt and simply not up to the challenge. 

Which leads us back to central banks… here, if the central banks want to truly lead, and end Japanification, they have two tools for maximum efficacy: a) public debt forgiveness (extraordinary public debt is used as an excuse by politicians to exact austerity upon the citizenry); and b) helicopter money – or UBI – placed directly into the hands of each and every American, for the span of the crisis or perhaps even in perpetuity. 

Until structural reforms, in combination w/ fiscal spending, are coupled with loose monetary policy, expect the problems of Japanification to continue and compound, especially raging inequality.  In fact, fiscal spending & structural reforms – directed at labour - w/out loose monetary policy (particularly, if debt forgiveness is applied to national debts) … may make for a fairer & more equitable economy throughout the West. 

Copyright JM Hamilton Publishing 2020

Medicare For All

Medicare For All 

Sixty-nine percent of registered voters in the April 19-20 survey support providing Medicare to every American, just down 1 percentage point from a Oct. 19-20, 2018 poll, and within the poll's margin of error.

-       Poll: 69 percent of voters support Medicare for All 

-The Hill

By JM Hamilton (8-22-2020)

Progressives in the United States support Medicare for All and are continually snubbed by the establishmentarians in both the Democratic and Republican parties.  Americans want to choose their doctors, they want to choose their health plan, Americans don’t want socialized medicine… are the familiar rebuttal arguments.  (And that might be true for a handful of very wealthy Americans.)  But is that true or is the establishment just protecting their financial interests, the Healthcare stocks within their portfolio, which are wildly profitable?  Is the establishment merely projecting their desires, and interests, upon the American people once again? 

Poll after poll shows that the majority of Americans want Medicare for All.  And as the next Great Depression hits the economy, and more & more Americans lose their health insurance, the numbers supporting Medicare for All will surely climb… well beyond a simple majority. 

As both an American & Canadian, I believe I have unique insight into the healthcare systems of the two nations, but perhaps more revealing is how the two systems stack up in a time of crisis.

Last Fall, early Winter, I chucked my thirty-plus year career in the United States and moved to Canada.  The Goddess smiled upon me, as my timing was perfect. I moved into my apartment in Canada, the second week in January 2020, w/ no idea that a pandemic was about to hit. I met my Canadian doctor w/in a week or two, the handful of medications I take were filled at the local pharmacy, and despite one or two visits, no bills or deductibles or copays ever arrived in the mail.  

Before I left the US, I had several medical procedures performed, and while my doctors in the US were great … my Canadian doctor is equally wonderful.  But the cost for American medical insurance was outrageous, kept me tethered to my employer, and the copays and deductibles that arrived - in a never-ending stream - felt like the financial equivalent to being waterboarded.

In fact, the United States pays double what many Western democracies pay for their Universal Care plans.  Nearly twenty percent of US GDP goes to healthcare, while American life expectancy is reported to be in decline.  Meanwhile, among Western democracies, other than the US, healthcare spending is nine to twelve percent of GDP.  Thanks to predatory healthcare cartels and monopolies – Insurance Companies, Big Pharma, and Pharmacy benefit managers, often, stand out as the most egregious offenders – the American healthcare system is a drag and a tremendous tax upon the overall economy. 

Let’s do the simple math.  Pre-pandemic US GDP was approximately 20 trillion.  Twenty percent spending on healthcare means four trillion in US GDP goes to medical care.  If our Western allies, like Canada, spend half that amount, in term of GDP, vis a vis the US… this means Americans and the US economy are paying an extra two trillion dollars a year for a system that produces substandard outcomes.  And in many instances the US healthcare system is a death sentence for lower income and poor Americans. (True, Canadians do pay higher income taxes, but the differential is, most often, a shadow of the costs Americans pay for health insurance.)

That’s two trillion dollars that could go into alternative products and services w/in the US economy, instead of into the pockets of insurance companies, pharmacy chains, Big Pharma, and healthcare stock dividends and stock appreciation (that only benefit a privileged few Americans). 

Just for emphasis: Two Trillion Dollars flushed, annually.  Enough to pay off all outstanding American student debt, with nearly half a trillion left over. 

And the pandemic has only revealed - w/ tremendous honesty – how catastrophic the current US healthcare system is.   The US leads the world in virus cases and virus deaths.  It’s embarrassing and a stain on a nation that prides itself on exceptionalism.  To be fair, and clear, the healthcare crisis in the United States cannot be laid entirely at the healthcare industry's doorstep… the catastrophe had a sizable push by the political duopoly, which constantly puts donor and financial interests before the interests of the American people.

Americans forego healthcare in the United States because they are afraid of the outrageous fees and charges… a situation that has only grown worse with Private Equity’s entrance into the healthcare arena (see shock & awe billing).  Canadians don’t forego healthcare.  Based upon my observations: Americans live to work; Canadians work to live.  That’s a huge distinction, and I see it – and saw it - every day. 

To watch the US go down in a ball of flames, the economy and the healthcare system, greatly saddens me.  But what makes me happy is the Canadian economy is rebounding sharply, significantly outperforming the US.  I have a considerable amount of family in the US and they are all in my prayers daily.  But what is outrageous, as it is sickening, is the abject failure of the politicians in the US from both major parties.  And their perennial inability to respect the wishes of the disenfranchised – their voters, who they rely upon to get into office – all so that they, and their donors, can go on extracting a monopolistic tax from the US economy and indentured citizenry. 

Who said feudalism is dead?

Democratic and Republican leadership, at the national level, should be ashamed.  Healthcare is just but one of many examples, where the duopoly - as well as, business leaders - are not looking out for the good the nation, at the expense of the American people and the economy. 

Copyright JM Hamilton Publishing 2020

Crazy after all these years

Crazy after all these years 

ESG investing often marches under the same banner as “stakeholder capitalism,” which maintains that corporations owe obligations to a range of constituencies, not only their shareholders. Erisa [the Employee Retirement Income Security Act] requires something different of retirement plans, however: A fiduciary’s duty is to retirees alone, because under Erisa one “social” goal trumps all others—retirement security for American workers.

-       Retirees’ Security Trumps Other Social Goals - WSJ

By J.M. Hamilton 8-9-2020

Late cycle neoliberalism appears to center on two central business models: either becoming so monolithic, that said enterprise becomes a nation state (the Silicon Valley approach); or strip a firm bare, bust out its credit line, slash labor, and extract rents from the consumer before the horse gives outs (the Private Equity/Wall Street method).  

At the center of these two business models are two central themes, the desire to control every aspect of the business environment, to better ensure profitability, and given what we’ve seen as of late, a whole lot of crazy. 

And the methodology for attempting to control the business environment has been well documented: 

Competition… Eliminate or merge w/ it and become bigger; 

Government & Regulatory bodies … co-opt, capture, and own; 

Consumer… Make sure you’re the only game in town, so said consumer has few or no alternatives;

Labor… Utilize monopsony power, destroy unions, and line the Federal Courts & SCOTUS with reactionary/anti-labor jurists;

Taxation… Dodge it at all costs to starve the government of revenue;

Monetary Policy… Free money for financial engineering, industry consolidation, speculation, and to finance unearned dividends; and

Consolidation & monopoly… achieve zero oversight and M&A w/out limit.  

And it is this very desire to control & guarantee profits that has led to government paralysis in a time of crisis.  A nation governed by special interests – by profit motive – to the exclusion of all other considerations – is a nation destined for collapse.  The U.S. and the world are witnessing the culmination of special interest rule – profit rule (i.e. neoliberalism) – with the Trump Administration’s badly botched pandemic response.  A nation drowning in debt, bailing out banksters & financing credit card wars… certainly is ill prepared for a true existential threat. 

And as the two aforementioned business models become preeminent, the more we see American companies, government, management, and ownership do & say crazy.   

See Elon Musk praising communist China and telling America and US labor that basically - I paraphrase - they suck. 

We read that the Private Equity model is so ubiquitous that 20% of all US corporations are now zombies, per Deutsche Bank… that is, so indebted, and so lacking in income, that they can’t make their interest payments.  Welcome to deadbeat Corporate America, brought to you by unmitigated greed and the Federal Reserve. 

Americans survive the virus only to go immediately into bankruptcy with million-dollar medical bills, as private equity – not content to have destroyed American retail – dives into US healthcare.  And if you think Americans pay the most, per capita, for healthcare (w/ substandard outcomes), the United States hasn’t seen anything yet. 

PPP, under the CARES Act, is raided by the connected and powerful – a program designed to keep small business afloat – only to see thousands of Main Street and family run enterprises go under.  

Then there’s the optics of Trump attacking, perhaps, the only Western nation the United States runs a trade surplus with, Canada, when including services. Trump's latest tariff on Canadian aluminum smacks of desperation, election year theatrics, and misdirection.  

Meanwhile, the stock market indexes are right on top of or, in the case of the NASDAQ, have blown though pre-pandemic highs, while GDP dropped like a rock.  It seems gutting aggregate demand – screwing the U.S. consumer/labor – isn’t such a smart business practice after all. 

And finally, there was the visual of four Tech Utility CEOs completely choking in front of Congress.  And Dems, actually, surprisingly, appearing to have done their homework, unlike the billionaires in the docket defending their monopolies.  Post- November, it will be time to ramp up the FTC and Justice Department and to immediately begin breaking up the Tech Utilities. 

Absolutely strange, but perhaps the most surreal story JMH read in the last two weeks was the Bloomberg piece on Labor Secretary Scalia.  Going along with the themes of controlling your environment (good luck with that), and doing crazy, Mr. Scalia’s bright idea is to dictate to pension/retirement fund managers that they must invest based purely on shareholder value and short-term returns (irregardless of all other considerations). 

Mr. Scalia’s proposal, of course, is in retaliation to stakeholder capitalism and sustainable investing, or ESG investing, which is a direct affront to a huge GOP donor, Big Oil & Gas. 

Scalia appears to have tapped into the ultimate forms of control and crazy: Telling fund managers exactly how they must invest.  

Perhaps Mr. Scalia hasn’t noticed… but if America’s pension & retirement funds were to take up Mr. Scalia’s proposal, the first stock to dump – based upon a shareholder first focus – would be the planet killing, Big Oil stocks (which have been crushed by the pandemic). And these stocks will, likely, suffer additional fallout, before this crisis is over. 

All of this is very odd.  The more the GOP and their corporate supporters beat their chest about freedom and the evils of socialism, the more their actions betray them as dictators in love with big government & welfare for the 1%. 

Copyright JM Hamilton Publishing 2020