THE FOLLOWING IS AN EXCERPT FROM DR. JACK RASMUS’S JUST PUBLISHED ARTICLE, ”On the Edge of Another Global Recession”
Source: teleSUR English
Japan’s economic and policy trajectory since the economic crash of 2008-09 has been similar to the Eurozone’s, prompting commentaries in the global business press about the growing similarities between the European and Japanese economies in recent years.
Both Europe and Japan have experienced repeated short and shallow recoveries since 2009, followed by similar repeated descents into recessions as well. With the latest bout of Eurozone decline, some commentators have begun to ask if Europe is succumbing to the “Japanese malaise” of repeated recessions and weak, halting recoveries.
But Japan’s economic performance since 2009 has been worse than even Europe’s and its second quarter 2014 collapse much worse than the Eurozone’s.
Like the Eurozone, data last week suggest Japan may have also entered another recession in the 2nd quarter 2014. Last week economic data revealed Japan’s roughly $6 trillion annual GDP contracted by a huge -6.8% in the 2nd quarter 2014. Should Japan also now slip into recession, it would represent its 4th such economic contraction since 2008. After collapsing by more than 15% in 2008-09, Japan experienced a second recession in 2010-11, followed by a third in 2012. 2014-15 may represent its fourth.
Like Europe, Japan has attempted to recover from its three prior recessions since 2008 by means of a massive money injection by its central bank, the Bank of Japan. In early 2013 its central bank began injecting $530 billion a year into its private banking system—a policy nearly identical to that followed by the US central bank, the Federal Reserve, which since 2009 has provided more than $4 trillion of QE and another $10 trillion in near zero rate loans to US banks and shadow banks. Also like the US Federal Reserve, Japan’s massive money injection has also been driven primarily by a direct bond buying QE program.
Today a year after introducing its version of QE, the economic effects have been no different from similar monetary policies followed by the European Central Bank’s $1.5 trillion LTRO and the US Federal Reserve’s $4 trillion QE: Japan’s QE has stimulated financial asset markets but has done little for the real economy.
Japan’s real economy is about the same size today as it was a year ago, when the Bank of Japan’s money injection began to hit the economy. On the other hand, its QE led money injection has resulted in a nearly 100% rise in Japan’s stock markets and a consequent escalation of corporate profits and investor incomes—just as had US central bank policies since 2009 and just as will a Eurozone QE when it most likely comes later this year or in early 2015.
The massive money injection by Japan’s central bank has produced the same effect as the massive liquidity injections by the US, UK and ECB central banks: despite the central bank money, Japan’s private banks in 2013 continued to lend only to large Japanese transnational companies, mostly for investment offshore, and not to the general economy. As a result, Japan’s level of domestic investment, wages, and consumer spending have not recovered despite the Bank of Japan’s policy. In the 2nd quarter consumer spending fell off a cliff, declining by an unprecedented nearly 20%.
Japan’s longer term consumption slowdown can be traced—as a similar consumption slowdown can be in the USA and in Europe—to a continuing decline in Japanese workers’ real wages and earnings over the last decade. Japan workers’ wages have declined every year except one since 2004. And that decline has accelerated every year since 2010, falling 3% in 2013 and a projected more than 4% further fall for 2014.
While some argue Japan’s second quarter 2014 GDP decline of -6.8% was due to a 3% increase in sales taxes introduced in the quarter, Japan’s household consumption rates were already declining to nearly zero by end of year 2013. The April sales tax hike just pushed consumption spending over the cliff. A similar scenario has occurred with Japan’s domestic business investment, with business inventories actually contracting in 2013 despite the massive money injection.
Both the core economies of the Eurozone and Japan’s economy are therefore poised on the precipice of a potential major contraction. Together that’s $15 to $20 trillion of global GDP that may potentially contract even further than 2nd quarter data already indicate.
That kind of magnitude and contraction cannot but significantly impact the rest of the global economy in a serious way. Most affected will no doubt be other emerging markets, already slowing in many cases to less than 1% GDP growth rates, that are dependent on money capital flows from Europe and Japan and on exports sales to those economies. Nor will the other two major nodes of the global economy—China and the USA—remain unaffected.
Dr. Jack Rasmus, August 18, 2014