Idiot Wind: Thomas Pascoe

Idiot wind, blowing every time your move your mouth,
Blowing down the backroads heading south,
Idiot wind, blowing every time you move your teeth,
You’re an idiot babe,
It’s a wonder that you still know how to breathe.

Idiot Wind, Bob Dylan

Sometimes I get tired of doing all the heavy lifting. So welcome to an occasional feature in which you get to do it for me! Here’s an “article” from The Telegraph, which I believe once used to be a semi-serious, if comically Conservative, newspaper (remember them) in the UK. Tell me what’s wrong, after the bio, with the following (link to the full article at the headline). Or you could tell Mr Pascoe directly at his contact details below:

Thomas Pascoe worked in both the Lloyd’s of London insurance market and in corporate finance before joining the Telegraph. He writes about the financial markets. His email is thomas.pascoe@telegraph.co.uk and his Twitter address is @PascoeTelegraph

At last, Japan may be about to abandon its disastrous Keynesian consensus

The world’s third largest economy is in crisis. That, in itself is not news. The world’s largest economy is also in crisis, as is its second, as is…

What is newsworthy is that, having tried and failed with every other option, the Japanese government may be taking a remarkably novel approach. It appears as though they are going to try to spend close to what they receive in taxation. The Keynesian consensus is coming to an end in Japan, although not before it has wrought enormous damage to one of the world’s great economies.

“The government running out of money is not a story made up. It’s a real threat,” said Japan’s finance minister Jun Azumi on Friday. Opposition parties in Japan are blocking a deficit financing bill which would allow the government to continue to drive its debt levels above 200pc of GDP. If the opposition holds firm, the government has threatened the unthinkable – it will spend less. Tax rises are also on the table, although the doubling of sales tax to 10pc will not come fully into force until 2015.

(abridged)

However, Japan’s horizons have been blighted by cloud for much of the past two decades. If anything, those clouds are now blackening. The long-term impact of the Fukushima explosion, in terms of public health, is anyone’s guess. The clean-up work undertaken in and around the plant since the explosion has been exceptional. However, there is every chance that the generation coming to maturity in the next two decades may be blighted by significant levels of incapacity, hampering the economy and requiring even greater state spending.

The Japanese may have arrived at the idea of moving towards a balanced budget both 20 years late and by accident, but it offers them a chance to consolidate and restore order to the public finances. At a time when public appetite for government debt has fallen to a seven-year low, reducing borrowing is not just the sensible option, it’s the only one left.

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10 responses to “Idiot Wind: Thomas Pascoe

  1. Stop fishing for an argument and take a position.

    • Dear Mr. Pascoe,

      Because I won’t deign to waste any more time on your tripe, I will merely append an e-mail I sent to a former colleague who asked if your analysis was accurate. I would advise you to stick to writing about subjects about which you might know something—anything—in the future, because you plainly have zero clue about Japanese politics or society, or even about Japan’s fiscal state. Your whole article rests on a fatuous misunderstanding—that some agent is about to reduce the primary fiscal balance to zero next year. They aren’t. Noone responsible—not the IMF, not the World Bank, not the ratings agencies—believes that. So you read a couple of Telegraph articles and grabbed completely the wrong end of the stick. Man up and admit you’re outside your comfort zone.

      I’ll tell you what I think – I think it is a grotesquely poor piece of hackery written by someone who knows not a whit of what they speak – that’s what I think!

      “It appears as though they are going to try to spend close to what they receive in taxation.”

      No, it doesn’t, not for a moment. The author has not a smidgeon of a clue about how Japanese politics works or what’s going on. The LDP got in a huff about Noda not promising an election at a specified point, boycotted the Diet, and the deficit-bond bill withered on the vine before the end of the regular session. So there will be an extraordinary Diet session in October with a new LDP leader and a measure of cooperation will resume, enough that I’m confident this bill will get through. The LDP has not the slightest intention of trying to force a balancing of the fiscal books immediately, it would be completely impossible when 40% plus of your budget is JGB-financed – now *that* would be a fiscal cliff.

      “The Keynesian consensus is coming to an end in Japan”

      Altogether now, pantomime style – “Oh no it’s not!”

      “If the opposition holds firm, the government has threatened the unthinkable – it will spend less.”

      No it hasn’t, not in any meaningful way. He completely misunderstands the situation, whether willfully or not.

      As you say, the guff about “an incapacitated generation” is beyond laughable. The sign-off is also drivel:

      “At a time when public appetite for government debt has fallen to a seven-year low, reducing borrowing is not just the sensible option, it’s the only one left.”

      First rule of financial writing – never quote anything from the apocalyptic nutters at Zero Hedge. Then look at the Bloomberg report:

      “Japanese households owned 3.09 percent of domestic bonds in the final quarter of 2011, a decrease from 3.2 percent in the third quarter and the lowest since 2005, Bank of Japan data released March 23 show.”

      Oooh – a 0.11ppt decline – call the fire brigade! And this is not “public appetite for government debt”, anyway, it’s the appetite of retail investors. And if they held only 3.2% in 2011 Q3, would it not be reasonable to conclude that they are NEXT TO IRRELEVANT in the JGB supply/demand picture to start off with?

      Oh, and the September 11, 2012, auction of 5-yr JGBs at a whopping 0.2%? 3.1x oversubscribed:

      http://www.mof.go.jp/english/jgbs/auction/calendar/eresul/eresul20120911a.htm

      And if you look here on p7:

      http://www.mof.go.jp/english/jgbs/publication/newsletter/jgb2012_07e.pdf

      You’ll see that foreigner JGB holdings have been on an uptrend since early 2010 and that retail investors
      were happily loading up on JGBs even as the debt mounted through to early 2007 – it’s absurd to insinuate
      that they are suddenly terrified of the debt mountain and fleeing the sinking SS JGB.

      So, in short, tripe, drivel, garbage, nonsense, bunkum, codswallop, rubbish, folderol, do I make myself clear?
      Back to you, Mr. Pascoe. I’m particularly interested in this:

      “However, there is every chance that the generation coming to maturity in the next two decades may be blighted by significant levels of incapacity”

      As you wrote this, you must have an authoritative source. Do share.

      1,000 to 1 says you’re too much of a fraud and a chicken to reply.

      Sweet dreams,

      Spike

      • Andrew S. Mooney

        You’re only beautiful when you’re angry…

      • But hold the press! This just in from Japanese wire service Kyodo! (Italics mine.)

        Fiscal 2013 budget requests hit record ¥102 trillion
        Kyodo, Friday, Sep. 14, 2012
        A record-high ¥102.48 trillion ($1.3 trillion) in budget requests have been submitted for fiscal 2013 despite the need for fiscal discipline, the Finance Ministry said.
        The requests for the year starting next April topped the previous record of ¥98.47 trillion for fiscal 2012 by about 4 percent. They comprise ¥98.00 trillion in general-account spending in areas ranging from welfare to national defense, and ¥4.48 trillion for reconstruction from the March 2011 earthquake and tsunami.
        Requests for social security spending rose 12.6 percent from the previous year to ¥29.71 trillion, the biggest portion, amid the rise in the elderly population.
        The government also set aside ¥24.65 trillion for interest payments and other debt-servicing costs, up 12.3 percent.
        Tax reforms, if implemented completely, would lead to a decline of ¥1.03 trillion in state revenues, unless the government finds alternative funding sources.
        The tax requests, subject to debate by Prime Minister Yoshihiko Noda’s Democratic Party of Japan, centered on the abolition of the automobile weight and acquisition taxes.
        Although a full-fledged stimulus package will be included in the fiscal 2013 budget, the government will examine whether it should be moved forward and what kind of measures it should take, he said.

        With 2013 tax revenues likely to come in at Y40trn-Y45trn, seems like there’ll be the customary Y50trn or so to be filled with debt issuance. What was it our esteemed Mr. Pascoe said again?
        “It appears as though they [Japan] are going to try to spend close to what they receive in taxation.”
        Those ornery bureaucrats don’t seem to be getting the message. Should I not fax them a copy of Mr. Pascoe’s hard-hitting article, pronto? That’ll to get them to repent their evil Keynesian ways, to be sure!

  2. My heart leapt up when I beheld/
    The headlines in the sky…

    Or on the screen, at any rate. Fiscal insanity (okay, Keynesianism – same thing) finally on the way out in Japan? Say it ain’t so – if it is, it might just be reason to contemplate continuing to reside here. Fiscal responsibility is my bag, baby, yeah! Lay it on me, Tom!

    And yet, on further reading, I was sadly confronted by a complete lack of — what’s that word now, remember it from an introductory debate course in high school… ah yes, Evidence! Stuff that offers some grist for the mill of wild assertions. Useful, that, especially when said assertion is that an entire generation – two? – worth of insane econo-political behavior in the world’s second-largest economy is about to be turned ‘pon its head.

    OK, I’m being overly harsh. Not a complete lack: “The government running out of money is not a story made up. It’s a real threat,” said Japan’s finance minister Jun Azumi on Friday.” So, this week’s finance minister can count – bully for him! Knew that straightjacketed monopolized public school system was good for something. Alas, the step from Azumi-san showing off his arithmetical skills to the government no longer treating the public purse with the same strict controls exhibited by ye olde jacktar when he alighted in a friendly port and found the demon rum and local fauna at his disposal, is, ahh, rather wide. Chasm-like, in fact.

    Lord. Need one even go on? One knows the insatiable media maw must be fed, but really Thomas – this was an unconscionable tease. This falsely inflated balloon of hope deserves no other destiny than – to be Spiked!

  3. The weird thing is Japan’s Keynesian approach wasn’t that big an effort.

    Here’s the MOF’s report of “Public Works” spending by year — dollarized at ¥100/USD:

    1990 $70B, 74, 97, 137, 132, 128, 123, 111, 130, 130
    2000 $119B, 108, 92, 94, 82, 84, 77, 73, 69, 88
    2010 $58B

    They’re now spending less on “Keynesian” measures than at the start of the drawdown!

    Japan military spending is literally a rounding error on the US’s military spending — constant at ~$50B/yr since the 1990s (US spending has gone from ~$350B/yr in the 1990s to $800B/yr today).

    As for “It appears as though they are going to try to spend close to what they receive in taxation”

    this is a rather bizarre statement given that Japan’s tax-to-GDP burden is among the world’s lowest:

    http://www.taxreview.treasury.gov.au/content/html/Publications/papers/report/image/section_5-2.gif

    shows how low Japan is both on the revenue and spending side.

    What Japan has been doing since 1992 and especially since the LDP tax cuts of IIRC Hashimoto was trying to borrow their way out of their slowdown. The consumer and corporate side wedged themselves so badly in the 1980s bubble blowoff that the government had to become the borrower of last resort.

    And the current Japanese slowdown is a complicated thing. The CNY/JPY cross got weird in 1995 — the yen first went to under 100 and the yuan went to over 8, making Japan’s hourly wage become China’s daily (if not weekly) wage.

    Additionally, there’s been the shrinking demographics . . . Japan’s age 20-40 demographic was a constant 35.2M-36.3M from 1990-2006, but has now fallen to under 32M this year.

    I’m pretty sure few people have a solid understanding of Japan’s fiscal and monetary reality — instead, people just bring their own biases and ideological blinders without looking at the data. I don’t know anything, but I do respect Japan’s worldwide net capital position and I think my general impression that Japan, Inc. won the 20th century (well, the latter half of it at least) is correct.

    As for the author’s discussion of Fukushima I, I’m not going to waste my time with it.

    • “The weird thing is Japan’s Keynesian approach wasn’t that big an effort.”

      Absolutely agreed as far as public works binges go. I think Mr. Pascoe has a different definition of Keynesianism: for him it’s more a case of running endless fiscal deficits, not just counter-cyclical ones but pro-cyclical ones, which is fair enough. But the primary source of the humour comes from somewhere entirely different: to be disgraced here you have to have committed a whole other level of sins.

      “As for ‘It appears as though they are going to try to spend close to what they receive in taxation’ this is a rather bizarre statement given that Japan’s tax-to-GDP burden is among the world’s lowest”.

      Getting closer to the heart of the matter, but I don’t think Mr. Pascoe has raised his eyes far enough above the anti-Keynesian trenches to concern himself with vexing questions such as whether there’s room for tax increases. Cognitive thought is such hard work.

      “What Japan has been doing since 1992 and especially since the LDP tax cuts of IIRC Hashimoto was trying to borrow their way out of their slowdown.”

      Essentially, yes, although I don’t recall the LDP tax cuts of which you speak. I always think the first chart anyone interested in the subject of Japan’s post-bubble finances should look at is slide 2/page 4 here:
      http://www.mof.go.jp/english/budget/budget/fy2012/e20111224b.pdf “Trends in General Account Tax Revenues, Total Expenditures and Government Bond Issues”

      So, let’s see, the FY2012 initial budget of Y90.3trn will have to be cut to anticipated tax revenues of Y42.3trn if “they are going to try to spend close to what they receive in taxation”. As debt service and local grants account for Y42.7trn (slide 7), I guess it’s goodbye to social security, education, defense, and public works. As if!!! Our author has simply no conception of how the policy-making process works in Japan. As if the deficit-covering bond bills won’t pass the Diet eventually.

      “As for the author’s discussion of Fukushima I, I’m not going to waste my time with it.”

      Well, understood.

      • don’t recall the LDP tax cuts of which you speak

        I was thinking of this:

        “At a news conference following a hastily-convened meeting with top members of his cabinet and leaders of Japan’s ruling Liberal Democratic Party, Hashimoto said that his proposal for a one-time, $15.7 billion tax cut”

        I guess. During my time in Japan in the 1990s my taxes seemed to be going down each year . . .

        as for Pascoe’s use of the FM’s “The government running out of money is not a story made up. It’s a real threat” that’s kinda out of context, LOL.

        Like the US, the Japanese treasury can only borrow what the legislature explicitly authorizes. And also like the US, for some reason the legislature is playing games with this authorization.

        But any country with its own currency cannot run out of money, not until they lose the macroeconomic ability to purchase sufficient ink, paper, and the energy required to run its presses . . .

        And on that score Japan’s 77.64 yen rate is indicative of not enough printing, not too much!

        http://research.stlouisfed.org/fred2/series/MYAGM2JPM189N

        If Japan’s tax-to-GDP rate were up there at France (44.6%) or UK (39%) levels — or its yen rate were at 150 and not pushing 75 — I would be much more sombre about Japan’s national prospect.

        But compared to Europe and the US, ISTM that Japan *has* been undergoing “austerity” since the 1990s.

        Japan is spending $320 per capita on its military. Not much Keynesian efforts there! The US has gone from $1500/capita in 2000 to $2200 today.

        In 2008, Japan’s gov’t expenditure was 1 percentage point lower than the US — 36.5% vs. 37.4%. Since then, the US has embarked on a “Japan-style” debt take-on, boosting its debt from $10.7T on 1/1/2009 to $16T today, a $17,000 per capita rise in government debt.

        The various US state pension systems are generally in much worse shape — California’s alone only found a 1% yield last year, which was $20B shortfall of income they need to pay off the upcoming baby boom retirement.

        And I think that’s going to be the bigger story here — the US’s postwar baby boom (80 million) vs. Japan’s baby boom (smaller in absolute terms — ~15M — but larger as a proportion of population due to Japan’s low immigration and falling birth rate).

        This is a complicated topic with many moving parts.

  4. ‘Andrew S. Mooney | September 13, 2012 at 7:58 pm |
    You’re only beautiful when you’re angry.’

    Don’t listen to him, Pachiguy.
    At the keyboard you are the loving type.

    That is your beauty.

  5. “At last, Japan may be about to abandon its disastrous Keynesian consensus”

    Funny how this way written mere days before Japan launched its latest round of QE!

    However, Japan continues to do things slowly and half-assed, so compared to the balls-to-the-wall QE coming from Europe and America, it might look like Japan is being fiscally conservative in comparison. At least, currency traders seem to think so…

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