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Japan officially in recession
Old 11-16-2014, 07:07 PM   #1
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Japan officially in recession

From the WSJ:

Quote:
A sales-tax increase pushed Japan's economy into a recession in the third quarter, setting the stage for Prime Minister Shinzo Abe to postpone a second increase in the tax.



Japan's real GDP shrank 1.6% on an annualized basis as firms cut inventories and held back on capital investment. None of the 18 economists surveyed by The Wall Street Journal had forecast a contraction; the median forecast was for a 2.25% expansion.
Sounds like they need a new set of guessers.
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Old 11-16-2014, 11:08 PM   #2
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Agree. These "experts" seem to have no idea what is needed to fix the problem. They speak very well, and seem knowledgeable, but, it's just a lot of "hot'' air. Academia.

In the real world, if they worked at a private company, and made such big
blunders, they'd be long gone.

As for me, I wish they'd quite talking about "raising the interest rates".
It's been years now, and they keep predicting, oh, next year, expect rates to increase,,,so invest short term.....blah blah blah.....such a waste of time.
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Old 11-16-2014, 11:34 PM   #3
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"Japan officially in recession"

My amateur economist opinion is they have been in recession for the last 30 years or so, never came out .

I'm afraid the west is headed for the same fate, if not already there. You just can't expect real growth by off-shoring manufacturing then creating artificial consumer / infrastructure demand with endless central bank stimulus.

QE-4 , 5 and 6,
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Old 11-17-2014, 07:14 AM   #4
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Japan officially in recession"

My amateur economist opinion is they have been in recession for the last 30 years or so, never came out .

I'm afraid the west is headed for the same fate, if not already there. You just can't expect real growth by off-shoring manufacturing then creating artificial consumer / infrastructure demand with endless central bank stimulus.
+1
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Old 11-17-2014, 08:02 AM   #5
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Quote:
Originally Posted by Lakewood90712 View Post
"Japan officially in recession"

My amateur economist opinion is they have been in recession for the last 30 years or so, never came out .

I'm afraid the west is headed for the same fate, if not already there. You just can't expect real growth by off-shoring manufacturing then creating artificial consumer / infrastructure demand with endless central bank stimulus.

QE-4 , 5 and 6,
+2
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Old 11-17-2014, 08:21 AM   #6
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Originally Posted by Lakewood90712 View Post
"Japan officially in recession"

My amateur economist opinion is they have been in recession for the last 30 years or so, never came out.
I'm afraid the west is headed for the same fate, if not already there. You just can't expect real growth by off-shoring manufacturing then creating artificial consumer / infrastructure demand with endless central bank stimulus.
QE-4 , 5 and 6,
I have always thought deflation, or recession, was the way we are headed. You cannot keep depressing wages and not suffer from slower spending. There will always be a country to offer labor cheaper. It was Japan, now it is China, soon it may be South America, or Africa.

When people have less money to spend, the economy contracts, and a recession starts. Companies reduce prices to sell more. Or if they have a solid market share, they increase prices, and sell less, but make a higher profit.

In the old days, money velocity was ~6. I went to a restaurant, tipped the server. They in turn, bought a pair of pants at the store. The clothing store had to buy the pants from a manufacturer here in the USA. The manufacturer bought the cotton from a coop, which in turn paid a farmer. The farmer spent the money, and the cycle began again.

Now, I tip the server, he buys a pair of pants, and Wal-Mart (or Target) gets the money and the money goes to China.

And we wonder why printing money has no effect.

Only a severely weaker dollar will create jobs in the USA again, but other countries are printing money faster than we can.
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Old 11-17-2014, 08:49 AM   #7
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Actually, I wouldn't include the US or the UK, but wouldn't be surprised to see France, Italy and Germany with similar issues. Contracting internal demand is caused by a combination of high debt and declining working age population, which feed into each other. The US, and to a lesser extend the UK, should see a stable or growing labor force over the next few decades. As long as nominal interest rates are below the nominal rate of GDP growth, which is feasible, economic growth is sustainable, the debt can be serviced and the total debt to GDP ratio should decline.

This is a greater issue for surplus countries with poor age demographics, such as Japan, China, Germany.
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Old 11-17-2014, 09:18 AM   #8
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Originally Posted by samclem View Post
From the WSJ:


Sounds like they need a new set of guessers.
Who would have thought that raising sales taxes might actually reduce purchases? Maybe I should apply for a government grant to study this.
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Old 11-17-2014, 10:34 AM   #9
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Originally Posted by Senator View Post
You cannot keep depressing wages and not suffer from slower spending. There will always be a country to offer labor cheaper. It was Japan, now it is China, soon it may be South America, or Africa.
If the US increases output per labor hour (productivity) faster than other countries, we can maintain our wage levels even in the face of low wages overseas. There are still a lot of advantages to having a factory in the US (rule of law, stable government, good public infrastructure, literate workforce, etc) that go some distance to offsetting very cheap labor.
The key to increasing labor productivity is usually captial investment (tools/automation) and training. US laws/policies also give US employers a significant advantage over many industrialized countries (try firing a worker in Italy)
And we need to take a look at our tax code--it is not designed to help US employers stay competitive, and does not induce them to keep jobs in the US--quite the opposite.
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Old 11-17-2014, 11:18 AM   #10
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Quote:
Originally Posted by MichaelB View Post
Actually, I wouldn't include the US or the UK, but wouldn't be surprised to see France, Italy and Germany with similar issues. Contracting internal demand is caused by a combination of high debt and declining working age population, which feed into each other. The US, and to a lesser extend the UK, should see a stable or growing labor force over the next few decades. As long as nominal interest rates are below the nominal rate of GDP growth, which is feasible, economic growth is sustainable, the debt can be serviced and the total debt to GDP ratio should decline.

This is a greater issue for surplus countries with poor age demographics, such as Japan, China, Germany.
This is my view as well. I don't see the US doomed to follow in Japan's footprints.

We may experience slow growth for a while yet, but that is not the same as deflation. And I believe we will start to see some labor shortages that will improve the salary situation for working folks.

And the sending jobs overseas bit is actually starting to see some reverses. The bulk of offshoring jobs may have run its course - overseas labor is not nearly as cheap as it was.
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Old 11-17-2014, 12:06 PM   #11
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Quote:
Originally Posted by samclem View Post
If the US increases output per labor hour (productivity) faster than other countries, we can maintain our wage levels even in the face of low wages overseas. There are still a lot of advantages to having a factory in the US (rule of law, stable government, good public infrastructure, literate workforce, etc) that go some distance to offsetting very cheap labor.
The key to increasing labor productivity is usually captial investment (tools/automation) and training. US laws/policies also give US employers a significant advantage over many industrialized countries (try firing a worker in Italy)
And we need to take a look at our tax code--it is not designed to help US employers stay competitive, and does not induce them to keep jobs in the US--quite the opposite.
+1
I would add that the US economy is not going to grow faster by manufacturing cheap pants or providing jobs in lower-skilled sectors. It has successfully moved up in the global value chain, and away from cheap-labor manufacturing to a more dynamic economy with technology and innovation - and that's what drives a sustainable growth and where the US should invest capitals in.
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Old 11-17-2014, 03:33 PM   #12
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Originally Posted by frank View Post
J
I'm afraid the west is headed for the same fate, if not already there. You just can't expect real growth by off-shoring manufacturing then creating artificial consumer / infrastructure demand with endless central bank stimulus.


+1

I have a simple long term formula for predicting recession. Population increase = inflation, population decrease (especially younger generation) = recession.

Applying this formula, US will not go into prolonged recession as long as their population grows (if not by birth rate, do it with immigration). Western Europe will more likely see recessions. Ditto for Japan, Korea. Not so much for China & India. For the world overall, we will have 8 billion people in 10 years. I see growth, and other things that come with it (more environment issues, border conflicts, shortages, ...).

FYI, from wiki, 2012 Japanese population = 128M, 2014 estimate = 126.4M. Either they learn to spend more, or they need to export more.
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Old 11-17-2014, 03:56 PM   #13
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http://www.usdebtclock.org/index.html
See if you can find "Money Creation"
and then look at the comparison to the year 2000. (especially currency and credit derivatives)
...and then check out the median income...compared to 2000.

Forbes has an interesting outlook:
http://www.forbes.com/sites/jeffreyd...ly-much-worse/
Quote:
Some people hate the notion of comparing a country’s financial situation to a family, but I think it is useful in many cases with this being one of them. For a family, debt that exceeds three times your annual earnings is starting to become quite worrisome. To picture this, just take your home mortgage plus any auto, student loan, or credit card debt, then divide by how much you earn.

If the answer is two or less, you are in great shape. If you are between two and three, you are pretty normal. Over three and you probably are feeling some financial stress with debt payments absorbing much of your paycheck.
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Old 11-17-2014, 04:10 PM   #14
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Originally Posted by robnplunder View Post
I have a simple long term formula for predicting recession. Population increase = inflation, population decrease (especially younger generation) = recession.

Applying this formula, US will not go into prolonged recession as long as their population grows (if not by birth rate, do it with immigration). Western Europe will more likely see recessions. Ditto for Japan, Korea. Not so much for China & India. For the world overall, we will have 8 billion people in 10 years. I see growth, and other things that come with it (more environment issues, border conflicts, shortages, ...).

FYI, from wiki, 2012 Japanese population = 128M, 2014 estimate = 126.4M. Either they learn to spend more, or they need to export more.
With that in mind , Japan will be in recession for the foreseeable future. From what I have observed , the Japanese people in general are thrifty , and savers. The world is awash in excess manufacturing capacity, so they are exporting all they can already. Artificially making the Yen drop will not work , IMO , as the bigger players in asia can do the same to squash them.

The last real growth in Japan was rising from the ashes after WWII , and ending in the early 1980 , then on to insane real estate investments with cheap money that crashed ( sound familiar), and the rise of fierce export competition from Korea,China, and India.
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Old 11-17-2014, 04:17 PM   #15
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If the US increases output per labor hour (productivity) faster than other countries, we can maintain our wage levels even in the face of low wages overseas.
It is extremely difficult to compete with disposable workers from low-cost countries. No minimum wage, no child labor laws, no OSHA, No EPA, no Worker's Comp, prison labor, and lots of bribes to look the other way, etc.

A battery plant explosion kills over 3,000 people, no problem. Pay them $1M each and move on.

A mine collapses, no problem. Just fill it in and move on.

Other countries can work for pennies on the dollar compared to the US. If a company wants to hire foreign labor, that's fine, but there should be a tariff to make up for lack of regulations and even the playing field.

As it stands now, we will print enough money to level the costs, which is also fine. So far, printing money has not hurt us at all.
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Old 11-17-2014, 07:16 PM   #16
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Robots will replace labor, AI will replace office workers. Advanced, creative, or dangerous jobs will be all that is left.

Will that be a better or worse world?


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Old 11-18-2014, 09:44 AM   #17
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Robots will replace labor, AI will replace office workers. Advanced, creative, or dangerous jobs will be all that is left.

Will that be a better or worse world?
I don't know. But, I have suggested to my son (15 yo) that he be one of the folks either designing or programming the machines.
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Old 11-18-2014, 10:15 AM   #18
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Originally Posted by samclem View Post
Sounds like they need a new set of guessers.
But this chart does not seem to scream trouble for Japan. Could the truth be more complex? I'm not smart enough to get ahead of the stock and foreign exchange markets.

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Old 11-18-2014, 02:50 PM   #19
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Of course, if there is a long-term excess supply of labor, that increasing productivity might just lead to higher profit margins, not higher wages. Kinda like this--

Economist's View: GDP per Capita versus Median Family Income

Profits At High, Wages At Low - Business Insider


Quote:
Originally Posted by samclem View Post
If the US increases output per labor hour (productivity) faster than other countries, we can maintain our wage levels even in the face of low wages overseas. There are still a lot of advantages to having a factory in the US (rule of law, stable government, good public infrastructure, literate workforce, etc) that go some distance to offsetting very cheap labor.
The key to increasing labor productivity is usually captial investment (tools/automation) and training. US laws/policies also give US employers a significant advantage over many industrialized countries (try firing a worker in Italy)
And we need to take a look at our tax code--it is not designed to help US employers stay competitive, and does not induce them to keep jobs in the US--quite the opposite.
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Old 11-18-2014, 07:13 PM   #20
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Of course, if there is a long-term excess supply of labor, that increasing productivity might just lead to higher profit margins, not higher wages. Kinda like this--

Economist's View: GDP per Capita versus Median Family Income

Profits At High, Wages At Low - Business Insider
Yep, that ol' supply and demand thing.

Imagine how low US wages would have gotten if US worker productivity hadn't been increasing. That's what the charts can't show, but we continue to see them trotted out. We know the labor and goods markets are global. Tarrifs on imported goods? We'll Smoot-Hawley our way to prosperity and full employment just like last time.

The wages of US workers are based on supply and demand, like other commodities. At least in the case of manufacturing (and for many services) long-term there's no effective way to restrict supply (because businesses overseas can do the work, and because workers can come here legally or illegally to do what is left--maintaining that flow seems to be one of the few things both political parties agree upon). So, if supply can't be effectively reduced, then the best route to increased wages for US workers is to improve the demand for that labor. High US worker productivity and a business climate which encourages employers to choose to locate in the US are the two ways to do that. If that demand is reduced (e.g. because US workers aren't seen as being very productive for each hour they work compared to other workers) then we can all guess what will happen to US worker pay.
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