Japan’s Exports Plunge, Trade and Current Account Deficit Balloons

The popularly held mercantilist view is that weak currency equals strong exports.

Well the above chart is just an awesome unmasking of the mercantilist myth.

Abenomics via the massive debasement of the yen has led, not to an increase in exports, but instead to a sharp decline. January exports retraced by about 15% (m-o-m). Japan’s exports have now reached pre-Abenomics level. Nonetheless Japan’s exports is still up about a measly 9.5% (y-o-y). After all the yen’s debasement, this has been what remains of export growth?

The steep drop in Japan’s exports seem to mirror China’s exports collapse in February. 

I’ve read some excuses by the mainstream bubble worshiping zealots alleging that China’s export drop has been cyclical and due to a supposed “overinvoicing”. But even if there have been some truth to this, none of this explains the degree or scale of the drop. Why 18% and not 5 or below 10%? Why the huge drop? 

And of course if we look at Japan’s top trading partners, it looks like neighboring China has been instrumental in providing substantial external trade. 

Unfortunately, both countries have been playing with geopolitical fire, being engaged in a territorial squabble over some small islands called Senkaku.

And the sharp contraction in Japan’s export growth can likewise be seen in Japan’s exports to China.

I am in doubt if such has been about geopolitics. 

That’s because Japan’s export to Australia has also been shrinking.

And guess the common denominator between Japan and Australia? 

Well the answer is China. China represents Australia’s largest trading partner, where Japan comes only second and the US third.

What does all the above suggest? They imply two things; one China appears to be meaningfully slowing down and second there has also been a significant downshift in the global economy

Going back to Japan. The substantial export decline has only exploded…

…Japan’s trade deficits

as well as her current account deficits

This means that Japan will need foreigners to plug on these or that she will have to draw down from her dwindling domestic savings (18.6% 2012 from 24.6% 2007) or expatriate her externally located capital (NIIP) or…

…even borrow more to compound on her debt yoke. The above table from global finance reveals that Japan’s private and government debt load as of 2011 is at 512% (!!!) of GDP.

And don’t forget the above deficits will add to the ballooning government deficits.

And a major sales tax hike is coming this April.

The above conditions looks like the present emerging market dilemma (weak currency, weak current and trade accounts). Nonetheless given Japan’s policy direction, they seem to be headed that way via a Black Swan event.

But don’t worry be happy. Japan’s stock markets will likely ignore this because bad news has really been good news. All these for Japan’s Wall Street means more easing from the BoJ in order to expand “Abenomics”. 

War on Savings: Australia Doubles Retirement Taxes

Crisis or no crisis, Cyprus may have set a trend for governments to seek ways to tax private sector savings. 

Australia has reportedly doubled taxes on retirement savings.

Here is the eloquent Simon Black of the Sovereign Man

Though Australia’s national balance sheet is comparatively quite strong, the government has been running at a net deficit for years… and they’re under intense pressure to balance the budget.

The good news is that Australia now has a goodly number of investor-friendly immigration programs designed to bring productive foreigners into the country, similar to the trend we’re seeing across Europe.

On the flip side, though, the Australian government has just announced new rules which penalize citizens who have responsibly set aside savings for their own retirement.

Any income over A$100,000 drawn from a superannuation fund (the equivalent of an IRA in the United States) will now be taxed at 15%. Previously, all such income was tax-free.

The really offensive part about this is that the government is going to tax people’s savings ‘on both ends,’ meaning that people are taxed on money they move INTO the retirement fund, and now they can be taxed again when they pull money out.

The Cyprus debacle drew a line in the sand– fleecing people with assets, or income, in excess of 100,000 dollars, euros, etc. is now acceptable. This is the definition of ‘rich’ in the sole discretion of governments.

And make no mistake– if it can happen in Australia, which still has reasonable debt levels despite years of deficit spending, it can happen in bankrupt, insolvent nations like the US.

We can see from the following charts why.

The Australian government has embarked on a spending spree since 2009. Australia’s fiscal balance has been deteriorating since.

This shows of the Emmanuel Rahm syndrome or Austrian economist Robert Higgs’ ratchet effect where crises have always been an excuse to justify government expansion.

And by doing so Australia’s government has been ramping up debt. External debt grew by about 30% since 2009, while debt to gdp has began to reverse from years of austerity or fiscal “discipline”. 

And as I have earlier pointed out, Australia has also been manifesting signs of bubbles

Australia’s credit to the private sector as % to gdp is now about 128%

 

While the banking sectors exposure account for 145.76% of the gdp in 2011.

And like almost every country, low interest rates have been a principal factor in driving credit expansion

Despite the above, Australia’s stock market has hardly recovered from the 2008 global financial debacle. (all the wonderful charts above are from tradingeconomics.com)

This means much of the credit expansion has been directed to the property sector, as measured by the phenomenal manic growth of housing prices (chart from vexnews). 

This proves that much of today's statistical economic growth have been Potemkin Villages

Yet once the global pandemic of bubbles pop, we can expect governments coordinate the dragooning of the public’s resources via more confiscation of savings to advance the interests of the political class via bailouts and more quack Keynesian fixes.

Of course this relationship will persist until people tolerate them. However, eventually the curse of the laffer curve will prevail or a financial repression (tax) revolt can also be an expected response.

Australia to Embrace China’s Yuan

Australia may use China’s Yuan more for international trade and finance than the US dollar.

From the Australian 

BUSINESS groups and economists have welcomed the prospect of direct convertibility of the Australian dollar and Chinese yuan, which would cut foreign exchange costs and bolster Australia's growing trade with China.

The Coalition also said yesterday it supported a proposal by Julia Gillard, revealed in The Weekend Australian, to secure the currency deal with the Chinese.

The Prime Minister is expected to put forward the plan, to make the Australian dollar and Chinese yuan freely convertible, when she visits China this weekend, an outcome that would save Australian and Chinese businesses from having to deal in US dollars or Japanese yen when trading with each other.

Greg Evans, director of policy at the Australian Chamber of Commerce and Industry, said "direct convertibility is expected to provide a practical business benefit for both small and large companies doing business with China". He said closer currency arrangements made sense as trade with China, which exceeded $120 billion last year, continued to grow…

Australia would become the third country, after the US and Japan, to secure such an arrangement from China, for which Australia is the fifth-biggest source of imports.

At present, companies doing business with China must pay the added cost of converting their Australian dollars into US dollars or yen, and then again from there into yuan. Fortescue director and former Australian ambassador to China Geoff Raby has called for Australia to become more involved in the internationalisation of the yuan and to make Sydney a trading centre for the currency.

Internationalization or convertibility of the yuan would require more trade, finance and currency/capital liberalization, factors which China’s government needs to address than just via bilateral agreements.

Nonetheless, Australia’s move to embrace the yuan serves as writing on the wall for the US dollar standard.

How Statistics ‘Discovered’ Wealth in Australia

For the mainstream, wealth is what government statisticians say it is…

From Reuters,

Australians are suddenly a whole lot better off after the government statistician "found" A$325 billion ($338 billion) in share assets previously unrecognized.

The Australian Bureau of Statistics on Thursday released its latest report on household assets which included massive upward revisions to estimates for equity holdings. Total financial assets were now put at A$3.1 trillion at the end of March, compared to the originally reported A$2.77 trillion.

The revision is worth roughly A$14,380 for every one of the country's 22.6 million people.

"This issue incorporates new estimates for households holding of unlisted shares and other equity in other private non financial corporations," the statistician drily noted.

The value of such equity is now put at A$383 billion at the end of March, compared to the original A$91 billion.

"The Bureau of Statistics has effectively 'found' A$325 billion in household wealth," said Craig James, chief economist at CommSec.

Total financial assets also rose further in the second quarter to stand at A$3.11 trillion by the end of June, up A$76 billion on the same period last year.

Of course since there are hardly any basis for the “new estimates” of “unlisted shares and other equity ownership other private non financial corporations”, this means that such "newfound wealth" have merely been arbitrarily determined by government magicians. 

Of course, forget that domestic credit provided by Australia’s banking sector has exploded since 2008

chart from tradingeconomics.com

chart from tradingeconomics.com

And also forget that money supply M2 as % of GDP has reflected on these bank driven credit boom.

A credit driven boom that is being reflected mainly on the capital intensive property markets.

This commentary from Australian Financial Review has a terse but accurate narrative of Australia’s business (bubble) cycle in progress (charts their too)

When the RBA cut the cash rate to 3 per cent in 2009, Australian house prices responded with disconcertingly robust capital gains of 13.7 per cent. Melbourne houses prices exploded in 2009, recording growth of 21 per cent.

The RBA is wary about stoking too much asset price inflation.

Although Australia’s equity benchmark (S&P/ASX 200) has not been a major recipient of the recent RBA driven credit boom.(chart from tradingeconomics.com)

Ah but the government statistics above doesn’t seem to have an inkling about this.

Well, the above instance is a neat example of of what the illustrious classical liberal French economist Jean Baptiste Say pejoratively described about government's obsession about statistics.  Quoted by the great Dean of the Austrian School of economics Murray N. Rothbard, here is JB Say…

Hence, there is not an absurd theory, or an extravagant opinion that has not been supported by an appeal to facts; and it is by facts also that public authorities have been so often misled. But a knowledge of facts, without a knowledge of their mutual relations, without being able to show why the one is a cause and the other a consequence, is really no better than the crude information of an office-clerk