What Could the Republicans Do to the Economy that Could Be Worse than Obama?

[Wonkish1]

True enough.  Their policies of massive deficits year after year, like Obamanomics, can't go on forever.

Bush's tax cuts and wars contributed way more to the debt than anything Obama ever did.

Repealing his tax cuts and ending his wars would be far more fiscally responsible than anything Republicans have done in the last 30 years.

How does anybody take you seriously?

[Wonkish1]

Serious question: Have you ever studied Japan at all?

They did take the pain. That's what Takeshita popping the bubble before it popped on its own was. Their policies since then haven't been particularly good but Japanese people don't socially construct 'living standards' the way you or I would and the Japanese economy is structurally different to the American one, because Japanese society is structurally different to American society.

The main crisis facing Japan is its birthrate, not anything economic.

This is coming from someone that is paying a lot of attention to Japan from a forward looking perspective(again in finance).

Let me detail you what they have coming to them:
1) They are currently more than 200% of GDP in debt
2) The vast majority of their debt is held internally by their own people, businesses, banks, and pension funds
3) After the crash 20 years ago they succeeded in convincing their people to buy up JGBs. So the trade surplus materializes in the pockets of businesses and corporations and that money is put into deposits or into the pension funds and those 2 groups would buy JGBs.
4) So as long as the deficit remained equal to or smaller than trade surplus every year they could finance the budget deficit internally and slowly grow the rate of internal ownership of sovereign debt.
5) The population of Japan is getting older. As older people start drawing on their pensions  the pension system has to sell securities to pay out those redemptions.

6) So you have two things that are moving in the direction of a cataclysmic event in Japan. The first being one day public debt just grows too much for the deficit to remain below the incoming trade surplus. And the second is that eventually this aging population is going to become net sellers of JGBs as they finance their future lifestyle.

7) Where do we stand on both of those? Well immediately following the 2008 financial crisis both of those indicators inverted and started becoming bigger problems for Japan. The deficit is now bigger than trade surplus and Japanese have become net sellers of JGBs not net buyers. Which means that each an every day the problem is getting much worse and more and more JGBs have to be bought by investors in other countries.

So now we just have to look for a catalyst. I can point to several depending on events, but I would be willing to bet that a cluster of defaults in Europe may just get international investors scared of owning a sovereign bond of a country that is more than 200% of GDP in debt. If they demand to much interest for those bonds than a small 200 basis point move in interest causes debt service to outstrip revenues and you have an instant default.

9) This is why Japan goes through finance ministers like you wouldn't believe(if I remember correctly I think 1 even committed suicide).


And the heart wrenching part is that the average Japanese person is so dependent upon the JGB for things like their retirement that a default like this will literally create one of the saddest falls in standards of living of any country I think we will ever see. These people are about to experience a level of poverty that would horrify the average American.

[Okay, maybe Mike Johnson is a competent parliamentarian.]

Hmm. My background is in language, literature, and culture, and I'm currently doing a lot of work with the Genpei Wars, so I might be a little inured to a forward-looking perspective right now. There isn't much that can happen to Japan that will be as bad as or worse than the Genpei Wars (I realize this is a bizarre perspective to take, but if you'd recently watched Atsumori for the first time...).

For what it's worth, the new Prime Minister, Noda, who was the old (for given values of 'old') Finance Minister, is (or is at least perceived as being) one of the more competent people to navigate Japan's structural problems. I really do think that the birthrate and how fast the population is aging is a bigger problem than the debt, not in the sense that the debt isn't a problem, but in the sense that the aging population is make the debt very real, much more so than it would be otherwise, for the reasons that you articulated.

(Noda also comes from an impoverished background by Japanese standards, roughly comparable to Joe Biden's, which may affect his outlook.)

Also, there's a profound crisis of political leadership in Japan in general. They've had seven Prime Ministers in as many years.

Nakagawa, the Finance Minister who killed himself shortly after leaving office, was considered highly competent and had personal problems, namely heavy drinking, which was also what led to him resigning.

[BigSkyBob]

He has followed the Japanese model, and, as a result, we should expect the Japanese result: twenty-plus years of stagnation.

1. It's better than the Russian model.

The failures of command economies to efficiently allocate resources, and, financial bubbles popping in market-oriented economies are different in kind. Had every Japanese company gone bankrupt, their factories would still be there.  Had the USSR collapsed, the factories would still be there, but, they couldn't produce output at a proper rate.

I said 'Russian', not 'Soviet'. I meant 'Russian', not 'Soviet'.

That's a distinction that doesn't make much of a difference. Russia is a nation burdened by the decades of resource misallocation during the communist era.

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And, you're aware that their national debt has ballooned to achieve nothing, right?

When their day of reckoning comes, and, it will if they continue on their deficit/stimulus path, Japanese living standards are apt to decline.

They should have taken the pain. Sure, a lot of Japanese companies would have failed. But, they came back from being fire-bombed to ashes, and, they could have come back from a financial meltdown.
[/quote]

Serious question: Have you ever studied Japan at all?

They did take the pain. [/quote]

Taking the pain would have been recognizing that bankrupt companies were bankrupt. That didn't happened. Failed loans, "nonperforming," were kept on books disguising the insolvent, aka "bankrupt," nature of numerous companies.

Serious question: How stupid do you think I am in asserting that you are asking a serious question?

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As their population starts to decline, the costs of carrying their accumulated deficits will become more accute. As their population falls, Japan will become as less crowded nation. Their plan was to replace the declining pool of labor with robots. The debt will become a problem for Japan well before demographics.

[Okay, maybe Mike Johnson is a competent parliamentarian.]

Serious question: How stupid do you think I am in asserting that you are asking a serious question?

Obviously not as stupid as you in fact are. Again: have you studied Japan, asshole?

There's a reason I'm willing to talk on a relatively high level with Wonkish1 and not with you. Can you guess what it is?