Dent reports about Japan's Demographic Collapse.
(emphasis mine) [my
March 22, 2009
Dennis Gartman, of Gartman Letter fame, had some good commentary on Japan's
demographics in his March 20 issue that are worth repeating here. The
Japanese demographic implosion is a topic that we find particularly
fascinating. Here before us, we see a real-time case study in what happens to
a modern country with a shrinking and aging population. In a pre-industrial
agrarian society, a shrinking population means fewer mouths to feed and is a
boon to those who remain. But in a modern, consumer-focused economy,
population growth is a necessity. Fewer, increasingly older consumers mean
fewer sales. Fewer workers means fewer people paying income taxes. A
shrinking population also quickly exposes pay-as-you-go social security
systems as the Ponzi schemes that they are. Let us now take a look at
Gartman's interpretation of events:
We have long argued that Japan has put itself into a horrid place
demographically as her birth rate keeps on plunging and as Japan is no longer
replicating itself. Things have gotten so bad demographically that the
government itself says that Japan's population shall halve in another 50
years…. At this point, little… indeed it appears
nothing… can be done to stop this terrible demographic collapse. We
are watching a demographic train wreck happen in very slow, but inexorable
like his train-wreck analogy and find it to be absolutely appropriate. Much
as a train cannot veer off of its tracks to avoid a collision, there is
absolutely nothing that the average Japanese citizen or even the government
as a whole can do to stop the coming collapse. An individual family can
decide to have more children, but their efforts will be a drop in the ocean
in a country of 120 million people. With the number of women of child-bearing
age getting progressively smaller, it would require an unimaginable societal
shift in preference towards large families. But as Gartman contends, this is
highly unlikely. Marriage and family formation are in an unprecedented
decline. Despite the fact that the population is falling, the number of
households is actually rising, to 30% of total households from 20% a decade
ago. Young and early middle-aged Japanese have made it very clear that they
are not prepared to accept the responsibility of child rearing.
language that echoes HS Dent, Gartman saves some of his best comments for
Demographics drive everything. [Emphasis ours] [and
mine] They are tidal in nature, and demographic trends are
monstrous in size and not readily turned around.
Demographic trends are the aircraft carriers of economic forces; that is,
once they are set in motion it takes time… and lots of it… to
turn the trend around. Japan's trend toward demographic self-destruction
is now well established. The young are not about to change their selfish
lifestyles, and the society is on its way toward eventually self-destruction.
This has been and this shall be sad to watch.
could be that Japan's purpose in the decades ahead will be to serve as a
morality play of sorts for the rest of us.
Check out this animated
GIF showing the age breakdown of Japan's population
for 1930-2055, courtesy of the National
Institue of Population and Social Security Research
(click for full size; males are on the left, females on the right). This
graphic really drives home Japan's demographic problem.
In 2000, the MIT Japan Program asks is history repeating itself in contemporary
HISTORY REPEATING ITSELF IN CONTEMPORARY JAPAN?
Mr. David Asher, MIT Japan Program
March 29, 2000
[This article is old, but this relevant]
How closely is Japan today repeating the economic performance and policy
errors of the 1920s? That era was the previous one in which Japan
systematically attempt to open to the outside world. Today, after a decade of
decay, Japan's economy remains mired in stagnation. This was also the case at
the end of the twenties. Similarly, democratizing reforms and financial
crises characterized both periods. By further investigating the similarities
in the economic situations between the periods, we can better understand the
possible implications for Japan's grand strategy in the future.
Today, the economic situation in Japan can be characterized as suffering
under the five "Ds": debt, deflation, default, demography, and
deregulation. Regarding the first of these, Japan today is on the cusp of
a debt crisis of the scope the world has not seen. Currently, Japan's
government held debt is fifteen times larger than its tax revenues. This
ratio is twice as high as the next highest historical record, Britain
following world war two. Furthermore, Tokyo's annual interest payments
account for some 65 percent of its annual tax revenues, leaving very little
for financial stimulus. Rather than facing a liquidity trap, Japan today
faces a debt trap. There are only two possible solutions to this. First,
Japan might rely on expansionary monetary policy to inflate its way out of
the current problem. This would have tremendous effects on social stability.
Alternatively, Tokyo might choose to implement IMF style orthodox economic
reforms, involving large scale writing off of assets. This too would have
substantial costs, necessitating deep changes in the economic system that
produced the miracle of Japan's post-war growth.
The second "D" of default manifests itself in a bankruptcy rate
that accounted for three percent of the gross domestic product (GDP) in 1997
and 1998. This rate is higher than ever seen in an OECD economy. As firms
exercise their exit options, the unemployment rate has risen to post-War
highs, and the number of businesses eliminated per year now exceeds the
Deflation has been a third characteristic of Japan's current recession. More
than a decade after the bursting of the Japanese bubble, asset prices
continue to spiral downward. The decline in land prices accelerated to 4.4
percent last year, an even steeper decline than the prior year. Deflationary
pressure is likely to continue as a result of deregulation, which reduces the
cost of many consumer goods (however, at least this has some positive impact
given that consumer spending in deregulated sectors has been somewhat
responsive to such price changes). As deflation continues, pressure on the
corporate sector is likely to increase as much of their debt relies on land
for collateral --land that was valued at the peak of the bubble economy.
Demography presents the fourth key challenge to the Japanese economy. Japan
is entering a profound aging crisis. By 2002, its working age population will
be decreasing by 2 percent a year. Attempts to address this concern
through increasing the worker participation rate are unlikely to help
substantially as the unemployment rates in the youngest and oldest age
brackets (the usual targets for programs to increase the size of the
workforce) are among the highest in Japan. Finally, the social security
system in Japan, which has been running a deficit since the mid-seventies,
will soon face accelerating difficulties. By 2005, its liabilities are
expected to exceed income by nearly 13 percent. In the context of the
worsening fiscal position of the central government, it is unclear how the
shortfall will be funded [more debt].
The fifth "D" of deregulation presents short-term dangers while
holding promise in the long term. Capital productivity remains
problematic. Japan still invests a third more than the US does, and its
investment levels remain fifty percent higher than the OECD average. While
such high rates would be worthy of emulation if they led to higher growth,
today there are reasons to question the productivity in Japanese investment:
Japan's returns on investment are only half as large as those of the US. Deregulation
is the only solution to such unproductive economic activity.
These five "Ds" describe an economy in crisis. But is Japan
repeating itself? In each of the five above areas, the current Japanese
experience eerily parallels that of eighty years ago. (Debt is somewhat
anomalous, as in the 1920s government debt rates were not so high.)
Furthermore, both today and at the beginning of the century, we see a decline
in the power of the traditional ruling oligarchs. Both then and now huge
economic problems compel the nation to open itself up to external investment.
Both then and now recent democratic reforms constrain the government's
ability to effectively implement adjustment policies. Both then and now
reactionary forces have raised voices in protest of the economic
deprivations. Both then and now the policy response to the economic crisis
can be characterized as weak and ineffective. In both periods it has relied
on fiscal and monetary stimulus, propping up a failing banking sector,
mismanagement of currency relations, and dependence on gaiatsu for stimulus
Looking forward, we might imagine
three [one] possible
scenarios that could characterize Tokyo's attempts to respond to this crisis.
First might be a continuation of repeating of the Taisho experience. This
would consist of half-baked reform plans, continued stagnation, a continued
outward migration of business opportunities, and a withering (although not
abrogation) of the US-Japan alliance. A second scenario might be
characterized as a repeat of the Tory Renaissance period. This would posit a
sea change in views within Japan. It would include aggressive restructuring
of the economy, a massive inflow of foreign capital, and a true opening of
the Japanese economy. In this scenario, the US-Japan alliance would become
even stronger, as befits a "normal" Japan. A final scenario
might have Japan play the role of a modern day Weimar Germany. Political
inaction and a reliance on magic bullets such as monetary expansion could
spark runaway inflation, capital flight, economic implosion, and the rise of
reactionary movements at home. Such a scenario would have profound dangers
for East Asia. A Weimar Japan, while not returning to its imperialist
policies of the past, might still provoke arms races in Asia. If Japan turns
inward and isolationist, it may feel a need to increase its military and
operationalize its latent nuclear potential. Such action on its part would
inevitably worry its neighbors. [Japan's demographic collapse rules
out Japan becoming a military in the way Germany did]
None of these scenarios is guaranteed to come to pass. Notionally, we
might assign probabilities to each: continuation of the Taisho experience, 50
percent [0 percent]; a turn to the Tory Renaissance, 25 percent
[0 percent]; and a decline toward Weimar outcomes, 25 percent [100
percent]. While Japan today has more robust democratic institutions and
stronger civilian control of the military today than it did eighty years ago,
the prospects of the final scenario coming to pass bear watching.
In 2001, Charles
Hugh Smith reports about Japan's Runaway Debt Train.
Runaway Debt Train (2001)
Imagine, if you can, an economic Hell in which the U.S. government was borrowing
40% of its annual budget, creating annual deficits of 900 billion dollars a
year; where 65% of all tax revenues were gobbled up by interest payments on a
mind-boggling $13 trillion public debt; and where there was no conductor in
sight to stop this runaway debt train.
Welcome to Japan, where that Hell is reality.
Reports on Japan's weak economy and the mountains of bad debt in its
banking system have been percolating for over a decade; every once in a
while, a downgrade bubbles to the surface, and then the whole
"crisis" sinks from view again, lost in the complacency of
seemingly permanent malaise.
But after a decade of half-hearted attempts at reform and repeated stabs at
"kick-starting" its moribund economy with pork-barrel spending,
time is finally running out for Japan. For despite the endless hand-wringing
about weak banks, Japan's real financial cancer lies in the public sector,
run not by bankers but by politicians.
In fact, if Japan's bad bank debt magically vanished tomorrow, the root causes
of the nation 's financial woes would remain untouched.
Japan's Public Spending Orgy
Japan's legendary work ethic has created a decade-long conundrum: how can one
of the hardest-working people on Earth have one of its most troubled
It comes down to this: losses and loans eventually have to paid by
somebody. Sure, you can max out another credit card to make the interest
payments on the last spending orgy, but at some point you run out of people
willing to lend you money, and you find yourself owing far more than you can
possibly pay off.
This is essentially where Japan's government finds itself: having borrowed
itself into a deep hole to pay for ten "stimulus packages" (read
construction pork-barrel spending) totalling over $1 trillion in the past
eight years, it no longer has the ready ability to borrow enough to cover the
estimated $1 trillion in bad debts held by banks, insurance companies and
Instead, it finds itself caught in a vicious circle, borrowing more heavily
every year just to finance yet more ineffective "stimulus" spending
and ballooning interest payments, which in turn add another vast sum to the
nation's debt load.
The numbers are truly stunning: Japan's swelling public debt of $6.3
trillion is 136% of the nation's GDP--over twice the relatively modest U.S.
rate ($5.6 trillion in public debt, or about 56% of GDP)--surpassing even
Italy, long the European Community's poster child of public indebtedness at
120% of GDP.
In stark contrast to the universal hand-wringing which arose when the U.S.
national debt hit 70% of GDP in the late 80s, this record-breaking public
debt has only recently created a ripple of concern around the world.
It's not just the size of Japan's current debt that worries observers; it's
how fast it's growing. Government receipts totalled only $463 billion in
2000, while its expenditures were $830 billion.
The $367 billion difference--a staggering 40% of the budget--was borrowed,
with the government issuing some 33 trillion yen of new bonds to fund the new
debt. Deficit spending is now a mind-numbing 9% of the entire GDP.
This is the result of a decade of denial.
Pay Now or Pay Later
But Japan's leaders have consistently downplayed the size and the severity of
their nation's woes, insisting that tepid reforms and modest set-asides were
taking care of the lingering bad debt and liquidity problems.
Their "solution"--ignore the debts debilitating the banking and
insurance sectors and "grow" their way out of the resulting
economic malaise by spreading unneeded pork-barrel bridges, runways and
reclamation projects throughout the country--has failed miserably [sound
familiar?]. Despite spending $1 trillion in "stimulus
packages", Japan managed only an anemic 1.2% annual GDP growth in 1995-99,
compared to the U.S. average of 4.1%. And now even that meager growth has
slid to a halt.
The government revised the heady 2.4% rise in GDP it had estimated last
summer--which had caused a short-lived spike up in the sinking Nikkei stock
average--down to a 0.6% decline in the third quarter, effectively admitting
that even this rise was largely illusory.
A Mount Fuji-Sized Pile of Debt
Let's say Japan's leadership finally decided to get serious about facing
their debt hangover. Just how big is it?
Very big. In fact, the nation's debts defy description. Virtually every
layer of Japan's public and private institutions is larded with stupendous
and largely under-reported debts.
Despite the government's modest efforts at financial reform, grandiosely titled
"the big bang," there is an enormous hoard of bad debt still hidden
away in banks and insurance companies; Moody's analysts estimate this dead
weight totals between 30% and 40% of GDP (non-performing bank loans alone are
guesstimated at about $700 billion).
Should the central government absorb this overhang of bad debt--and it is
slowly taking over and liquidating the most obviously bankrupt banks and
insurance companies, to the tune of $85 billion last year alone--it's
estimated the public debt would quickly rise to 180% of GDP. [Funny, it did.
This is an astounding prospect. Deficit spending is almost 10% of the
economy, the interest payments eat up half of tax revenues, there's trillions
in outstanding bad debt hidden in government, bank and corporate books, a
trillion-dollar stimulus has utterly failed, a no-growth economy staggers
under a peacetime public debt larger than the world has ever seen--and still,
there are few prospects for the fundamental policy changes so desperately needed.
Is this any way to run the world's second largest economy?
In 2009, Japan
Inc reports about Japan's
grim-and-bear-it 2009 outlook
grim-and-bear-it 2009 outlook
January 28, 2009
Things in Japan are looking grim. They keep getting grimmer, and it doesn't
seem they will be getting less grim anytime soon. To give you some idea
of what this means, only this week we learnt that Japan's steel production
fell 28 percent in December. This was the steepest decline in no less than
six decades. Meanwhile Hiroshi Yoshikawa, Tokyo University professor and head
of the Japanese government business cycle measurement committee said that
Japan's present recession may become the longest in the postwar era.
"We'd better get ready for a three-year recession," he said in an
interview with the press this week. The decline "will be very severe,
not only in terms of duration but also depth".
And those famous exports, which dropped by an astonishing annual 35% in
December, accounted for 61 percent of the growth in the last expansion, an
expansion which was the longest in over 60 years. What this means,
bluntly put, is that until exports recover there isn't much likelihood of any
more general economic recovery, and exports won't recover till global trade
starts to expand again, and the bank and credit crisis is over, which means
you can pretty much forget about 2009 as far as I can see.
… And here we have Japan's dilemma, since something needs to be done
to soften the blow of this recession, but with debt having been allowed to
expand so rapidly over the last decade (see chart below), there really are
limits on how much can responsibly be done.
The most obvious problem is that increasing spending at a time when tax
revenue is falling threatens the government's goal of balancing the budget by
2011 [a delusional goal]. But Aso has already indicated that the
government shouldn't prioritize fiscal discipline when the economy is ailing,
and so far as it goes the argument is reasonable. This is a "once in a
lifetime" crisis (we hope) and so once in a lifetime measures are in
order. It's just that Japan has now been busily taking "once in a
lifetime measures" for over a decade, and we still don't seem to be
getting anywhere. But we are ballooning government debt. Many quibble [not
me this figure is accurate] with the widely quoted 2008 OECD debt to GDP
number of 182%, since it is a figure for gross debt (which the OECD can
easily justify for reasons that we don't need to get into here). But look at
the green line above which shows net debt, this has also been rising and
rising, and is now near to 100% of GDP on IMF data. The point is we have just
been through the longest expansion in over 60 years, and yet at no point did
net debt to GDP start to fall. This is the real core of the problem that
Japan faces in 2009, that previous fiscal policy did not attack the growing
fiscal deficit in the good times, so there is little room to manoeuvre in the
bad ones. Which is why the Japan economic outlook in 2009 is grim, grim and
nothing but grim.
My reaction: This
will be one of my few entries on Japan. The main reason I don't plan on
covering Japan more is that the outcome is so obvious
The dollar's collapse is going to destroy the Yen by doing three things:
1) It will wipe out the value of Japan's foreign reserves, and, unlike China,
Japan hasn't been preparing for a dollar collapse by investing in hard assets
2) Destroy Japans largest export market, heavily damaging Japanese economy.
3) It will create doubts about all paper currencies. Paper currencies
partially backed by gold with either strong economies or responsible central
banks will do ok (Chinese yuan, Russian rubble, euro, Swiss franc, etc).
However, paper currencies backed by insolvent governments and irresponsible
central banks will suffer, and no currency will suffer more than the yen
(except perhaps the British pound)
Conclusion: There is nothing that can be done at this point. The yen is
heading for oblivion.
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by Eric de Carbonnel