Helicopter Money…Japan..25 charts

Japan has been at the forefront of weakening GDP/wages/growth, deteriorating demographics, elevated sovereign debt and extreme monetary policy.   Of all the major economies, given its existing debt burden and aging population, Japan is arguably the closest to Helicopter money.

Post 2012, policy (Abenomics) aimed at stimulating demand, generating wage growth and inflation has failed with respect to the specific objectives set.  But then again, what is an optimal level of consumption in a declining demographic paradigm?  Perhaps in the modern world it is one which drives growth to the point that current debt levels become manageable, or where risky assets provide returns commensurate with the consumption liabilities expected to be provided by them.   In this context, global Central Banks have been consciously attempting to manufacture growth for at least a decade.  Helicopter Money would however break this intercession, acknowledging that only more money supply and more debt relative to growth can support the expenditure/infrastructure side of the balance sheet: it is difficult to comprehend just how the asset side of the balance sheet would evolve in such circumstances.  I suspect that there would need to be an adjustment, a reset, but even that would be only half the story.  That said, on to Japan:

Japanese real GDP growth has been sliding heavily since the bursting of its own asset  bubble starting in 1990:

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Helicopter watch..PMIs

We do not need a global recession or a financial shock to precipitate a “Helicopter Money” operation, all we need is slow to anaemic growth given a heavily indebted economic and financial system challenged by demographics, productivity growth constraints, structural imbalances and increasing inequalities.  Anaemic to weak growth will itself precipitate a crisis. 

Today’s global PMI reports suggest that manufacturing growth globally remains constrained by weak/weakening export demand and that such demand growth that there is remains dependent on domestic demand conditions.  All cycles are punctuated by dips and rebounds but the relationship between the dip and the rebound and the strength of the latter provides clues as to the ultimate strength and direction of the cycle.  Today’s rebounds are lacklustre and this is cause for concern: 

PMI reports are littered with:

US Markit: “expansion remained subdued”, “weakest quarterly upturn since Q3 2012”, “stabilization in new export orders”, “generally improving global economic conditions”, “output growth remained below its post crisis trend”, “subdued client spending”, “cautious inventory policies”, “competitive pricing”;

Euro Zone: “weakest”, “ticked”, “stagnation”, “disappointing export trends”, “marginal”, “weak domestic demand”, “reduction in selling prices in response to competition”, jobs growth issues, “intensification of deflationary pressures”, “discounting”;

UK: “weakest performances”, “doldrums”, “challenging global economic conditions”, “poor levels of new orders from home and abroad”

(Russia): “worsening downturn”;

Indonesia: “output emerged from its prolonged slump”

TAIWAN: “moderate expansion of purchasing activity”, “client demand was relatively subdued”,”cautious inventory policies”, “raised staff numbers only slightly”, “renewed pressure on operating margins”, “new export work declined for the third month in a row”, “ companies continued to discount”, “Unless global economic conditions start to improve…”

Japan: “lowest for over three years”,”New orders…contraction was the sharpest in nearly two years”, “sharp drop in international demand”, “instability in the wider Asian economy”, “client negotiations and competition driving down selling prices”;

China: “fractional deterioration”, “continued to cut their staff numbers”, “relatively cautious stock policies”, “Weak foreign demand”

South Korea: “contracted for the third consecutive month in February”,”rate of decline was only marginal overall”, “slump in demand and challenging economic conditions”, “new orders stabilised….followed two months of contraction”, “increased competition and an unstable global economy”, “international demand declined for the second successive month”, “goods producers cut back on their staffing levels”, “increased competition encouraged companies to reduce their selling prices.“

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US Retail Sales, Industrial Production, Manufacturing New Orders

Nominal retail sales data is typical of a recessionary environment, but much of this is due to declining gas prices.  Manufacturing output and new order data is also typical of recessionary conditions.   Motor vehicles and parts sales/new orders/output are still strong data points albeit showing signs of weakening, especially in the auto components.  Cycle to cycle we see retail sales, orders and output all failing to establish a clear positive post crisis fundamental growth trajectory.   That said there does not appear to any abrupt collapse in the data which is not necessarily a positive.

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