Japan – Down the Rabbit Hole

For all we complain about low growth and dimming prospects here in the US, it’s a problem that has plagued the developed world. If anything, we’re doing quite well, thank you. Europe is still struggling to get out of the depression, with high unemployment – especially among their youth. China and other developing nations appear to have hit a wall, unable to round the corner and step up to developed nation status.

And then, there is Japan. “Basket Case” doesn’t begin to describe it.

We last checked in with them over three years ago when Shinzo Abe became Prime Minister and instituted what has been called “Abenomics”. Call it “Supply Side” if you want, as it emphasized growth in the money supply and a cheap Yen to stimulate growth in production. Call it “A license to print money by the Bank of Japan (BOJ)” if you’re a cynic.

But the problems in Japan are much more severe – they are demographic and social. Without a wholesale restructuring they are as doomed now as they have been for an entire generation. There’s a lesson here for everyone.

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Demographics is Still Destiny

Just about 12 hours after this post goes up, the world will see the ADP Employment Report for July. We can expect it to show a net gain of about 240k jobs, about the same as the 237k gained in June. It’s a decent number, higher than the 220k or so averaged last year at this time, but what does it really mean?

Context is the key to understanding the data that drives our world, so let’s get going with some solid background on what these figures mean. It’s time for a few charts and graphs once again to demonstrate just how strong things really are going into the magic period where Baby Boomers start to retire in droves – sometime after 2017.

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Paralyzed

“It is common sense to take a method and try it. If it fails, admit it frankly and try another. But above all, try something.”
– Franklin Delano Roosevelt

One of the key features of the time we live in is paralysis.  Uncertainty creates risk aversion, since risk is much more difficult to calculate.   After a few years living like this and people start to live day to day.  It eventually becomes “survival mode” when tomorrow becomes very difficult to imagine.  The result is nothing – and that often comes even when one person is calling the shots, let alone a system based on consensus among many.

The evidence is all around us that something unusual is happening.  Change is coming faster and in ways that are not often talked about adequately.  The economy is not simply recovering the way it has after any other post-war recession.  What should we do?  FDR had it right – try something and see if it works.  If that goes against every instinct you have right now, you’re not alone.  But let’s see if we can convince you that there are, in fact, some things that point to very different actions than we’re all used to.
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The Year Everything Changes

2017 is still over three years away, but we can already say a lot about it. We know that there will be a new President, although it’s not clear yet which party has the edge this far out. It’s likely that whoever is elected she (as it well could be) will try very hard to take the partisan edge off of Washington and get things done. There may even be a new Congress by then with a completely different configuration. But as big as the political changes are likely to be, the real change will be away from Washingtoon.

That will be the year that the peak Baby Boomers, born from 1952-1959, hit 65 years old and start to retire. Ahead of them are at least 15 million Boomers who will have passed that threshold, with probably 10M or more retiring. With slow growth inflation should still be low and unemployment will suddenly and sharply decline. The Millenial Generation will hit the workforce (and the electorate) in a big way. Combine that with the rising optimism coming on slowly and the boom should fire up.

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Triple Threat

What’s the right thing to do to help the economy?  Clearly, Congress has no idea, making bizzy with games designed to impress their constituents.  Major economists don’t agree, either, with at least three different views on what is going on and the appropriate remedies. How can it be so chaotic and disorganized?

It’s always been Barataria’s creed that if you complain about how things are you have to stick your neck out and offer a better solution.  Our answer has always been that there is a totally new economy forming around us as we work through the Managed Depression, and that there is a dire need for public and private leadership to help us create that new world dynamically.  That’s a bit too hard to define , but we can offer is a different way of looking at the situation we’re in.  It doesn’t directly point to courses of action, but it suggests things that should be tried.

Here is a description of the Triple Threat to the US Economy – Business Cycles, Globalism, and Demographics – and how they are working together to make this a once in a lifetime change.

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Retiring Inequality

Income inequality is one of the biggest barriers to sustained growth today.  You can’t have a consumer economy without income reasonably well distributed, and such an economy is going to have more sustained, reliable growth.  But as we’ve shown before, income inequality has grown since 1968, threatening long term growth.

Here is another way to look at that rising inequality as part of a long-term trend that defined 1968-2000 – the expansion of the workforce and subsequent collapse of that expansion that will solidify  when the Baby Boom hits retirement.  Economic changes are often demographic at heart, and we are due for some major upheaval that we need to be ready for.

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