No Picture

The Danger Of Patriotism

September 24, 2017 Tyler Durden 0

Authored by Bob Livingston via Personal Liberty blog,

My friends, it is frightening how simple we are and how easily we are manipulated simply because we are intellectually lazy.

The U.S. establishment has confused cause and effect by and through a flag-waving mania in America. “Patriotism” throughout history has covered a multitude of mischief. We are seeing it now!

Phony patriotism is strong leverage against a population ignorant of the ways of treason by its own government. I also have no doubt that U.S. history is full of wars “for democracy” killing millions under the propaganda of patriotism with the majority support of the people and the full support of all but a small cadre of “elected representatives” — who are paid by the federal government, incidentally. In addition the millions of foreign dead, these wars have left hundreds of thousands of American military members dead or maimed physically and/or emotionally.

The whole world knows about the U.S. military industrial complex war machine and its pursuit of profits. But Americans tend to turn a blind eye.

When George Washington said “government is force,” he meant that government is force against its own people.

Since by definition government is force, then it follows that government will use any ruse imaginable to increase its power. Increased use of government force or power could backfire unless skillfully handled and justified in the public mind. Therefore governments rarely take action unless accompanied by skillful propaganda.

The brouhaha over certain NFL players’ refusal to stand for the playing of the Star Spangled Banner has erupted anew. The reaction of most Americans — who claim to believe in the Constitution and Bill of Rights — is that this expression cannot be tolerated… it is un-American… it is “unpatriotic.”

But is it? Or is it not the most American of all things to resist and rebel against what we perceive as tyranny and its symbols?

If we deny one — whether through intimidation and threats, monetary sanctions or government force — his rights, are we not creating a situation where rights are just privileges that can be denied on a whim? If we support police power to invade our homes and wallets and steal our property just because government has made it “legal,” are we not again conceding that rights are merely privileges?

You cannot say, “I believe in the 1st Amendment, but…; I believe in the 2nd Amendment, but…; I believe in the 4th Amendment, but…” There is no but.

And if that government making “legal” the assaults on our liberty is represented by a symbol, shouldn’t we conclude that that symbol is a symbol of tyranny? I wrote about the phony patriotism of flag worship when the Colin Kaepernick stir occurred last year.

In light of the new kerfuffle over NFL players refusing to stand, and comments to some of our columns on preserving liberty of late, I felt it was time to run it again. Here it is:

The American golden calf

As a young boy, I enjoyed my family’s bantam chickens that laid very small eggs and hatched very small chicks. Theirs was a small and miniature world.

One day one of my bantams started sitting on eggs to hatch its chicks. Something happened to her eggs but she continued to sit, so I decided to put a duck egg under her. Duck eggs are at least three times bigger than bantam eggs and take a few days longer to hatch, but she dutifully sat on the egg several days longer. She hatched the duckling and, as you can imagine, it thought that his world was normal and that the bantam hen was his mother.

The duckling eventually grew into a full sized mallard duck, probably five or six times the size of its bantam mother. The full-grown duck would follow its hen mother around as would normal chicks. It was a funny sight to watch.

But I remember thinking, even as a small boy, that the duck’s entire reality was that the bantam hen was his mother and that was the way the world worked. He had no need to consider anything else.

This is the world of the American people today. Their perceptions of reality control them and they who control their perceptions control the American people.

Our perception of America has always been that she is the mother country and ordained by God, good and just and a beacon of freedom. This is hammered into our psyches from our early days.

From pre-school up, we are taught to worship the state. I don’t know if it is still done, but in the public (non)education system, for many years, schoolchildren across the South — and elsewhere, I suppose — recited the Pledge of Allegiance each morning. Political rallies and government meetings are still often begun with a recitation of the pledge.

People say it with patriotic fervor, with their hands placed dutifully on their hearts.

Sporting events, political rallies and other public venues are often kicked off with the playing and/or singing of the Star Spangled Banner. Before the song begins, people are instructed to rise, men to remove their hats,and people place their hands over their hearts. They don’t realize its value as a propaganda tool.

We have come to equate the flag, the pledge and the national anthem with patriotism, and patriotism with government, country and support for government, support for foreign wars and veterans. Anything less is “un-American.”

Beyond its patriot fervor is the almost religious fervor and religious symbolism of the American people’s actions when the pledge and the national anthem begin: the ritual standing, removal of hats, placing of hands and rote recitation. In the book of Daniel, Israelites Hananiah, Mishael and Azariah (Shadrach, Meshach and Abednego) refused to worship the golden image of Nebuchadnezzar contrary to the king’s decree. The king ordered them to be thrown into the furnace after it was turned up to seven times its normal temperature.

NFL player Colin Kaepernick created a stir last week when he refused to stand for the national anthem. He was not subsequently ordered into the furnace by the king, but he was burned symbolically by many football fans who torched their jerseys. Americans fumed that he should “leave” America if he can’t support the flag and that he had disrespected the flag, the nation and veterans.

What are we saying when we say that someone “disrespected the flag,”  “disrespected the country,” “disrespected the veterans” if he chooses to not stand for the national anthem? What is the flag but a piece of cloth? By the reaction to Kaepernick, it seems it has become more of a golden calf to represent mother country or the god of government.

Our mother has become a witch. Yes, same symbols, same flag, same pledge of allegiance, but a decadent spirit controlling the perceptions of the American people, keeping them on the animal farm (controlling their perceptions) long enough to impoverish and enslave them.

Time and gradualism can change a system all the way from human liberty to slavery (the animal farm) over a few generations without anyone being aware except a very few, those who ask questions.

“America, love it or leave it,” is a tired canard. One cannot leave it except at great cost. Recall that in 1860-1861 11 states attempted to “leave it” in order to preserve their liberty and rights as sovereign states. They were branded as “insurrectionists” and attacked by the War Party and the result was their economic and social destruction, subjugation and the deaths of some 850,000 people (the equivalent of about 8.5 million people today). When one talks of secession today he’s branded as a racist, crazy or a radical and told secession is “illegal.”

One can love his country but hate his government and its actions. I love America but not the people who control America and its government. I love America, but its rulers are alien to individual freedom, its government now anathema to liberty.

If the flag is symbolic of government and that government lies at every turn, enslaves its people, steals from their labor, passes laws that are an execration to their Christian faith, takes from them their liberty, mandates the murder of 1 million babies a year, imports tens of thousands of immigrants to replace American workers and drive down wages, and that makes war on other countries that have not threatened us, why should any acknowledge its presence with more than a sneer?

Wars are not for patriotism and “democracy,” as we are propagandized. And our freedom has not been threatened by outside forces in 200 years. Wars are to kill; i.e., mass ritual murder. Additionally, big business and globalist banksters in league with Satan reap massive profits for the killing and sacrifice of young men (lambs) on all sides of combat.

If the flag is symbolic of the Constitution, that Constitution died long ago — destroyed by a crony railroad lawyer and mercantilist who made war on a sovereign people to benefit monied interests.

If the flag is symbolic of freedom, that freedom no longer exists — stolen long ago by crony corporations and globalist banksters and unaccountable oligarchical black-robed satanists and idol worshippers who usurped their authority created laws out of thin air under the guise of “interpreting the Constitution” a dictate not granted them under the original document.

The phony form of patriotism instilled within the population is strong leverage against independent thinking, keeping people ignorant of the treason by our own government.

America today is a more advanced state of fascism than World War II Germany and Italy. Fascism never identifies itself as totalitarianism. It always calls itself democracy.

Democracy is the politically correct word and cover term for modern American fascism.

American fascism has all the attributes and trappings of benevolent totalitarianism. No, benevolent totalitarianism is not an oxymoron.

The word benevolent in this instance means that the general perception of the population of the American system is that it is benevolent. This is only to say that modern America is full-blown fascism with a pretty face. It is every bit as deadly to human liberty as any tyranny in history and I would add far more sinister because of its propaganda sophistication.

Any regime that can spin tons of fiat paper money with printing presses or electronically is a slave system regardless of what it calls itself or regardless of the general population’s perception of it.

Our mother has been transformed into a witch no matter how much we love her.

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Putting America’s Record-Breaking $20 Trillion Debt In Global Context

September 24, 2017 Tyler Durden 0

The U.S. federal government just passed a record $20 trillion in publicly held debt. That’s bigger than the entire economy of every country in the European Union, combined.

As HowMuch.net notes, the debt will only grow higher unless President Trump and the U.S. Congress can agree to unprecedented spending cuts combined with tax increases. 

Don’t count on that happening anytime soon. Most people think that an eye-popping $20+ trillion debt is insurmountable, and in fact, it is the largest in the world by far.

But when you look at another fiscal measure – the ratio of debt-to-GDP – the U.S. is not in the worst situation…

Source: HowMuch.net

HowMuch.net’s visualization allows you to quickly see how the U.S. government’s debt compares to other countries around the world. The size of the country correlates to the size of the debt. The U.S. and Japan stand out because they have the highest debts in the world ($20.17T and $11.59T, respectively). Other countries, like Germany and Brazil, appear much smaller because their debts are comparatively tiny ($2.45T and $1.45T, respectively). We then color-coded each country according to its debt-to-GDP ratio. Green countries have a healthy margin, but dark red and fuchsia countries have debts that are even bigger than their entire economies.

Top 10 countries with the Worst Debt-to-GDP Ratios 

  1. Japan (245% at $11.59B)
  2. Greece (173% at $338B)
  3. Italy (138% at $138B
  4. Portugal (133% at $274B)
  5. Belgium (111% at $111B)
  6. Spain (106% at $106B)
  7. Canada (106% at $106B)
  8. Ireland (105% at $105B)
  9. France (98% at $98B)
  10. Brazil (82% at $82B)

The debt-to-GDP ratio is a critical metric for evaluating a country’s fiscal health. It makes a lot of sense for the American government to have a higher debt than a much smaller country, like Germany. Think about it like this: Bill Gates is worth $86 billion, so he can afford a much higher credit card bill than me or you.

That’s why it’s important to consider the Gross Domestic Product (GDP) of each country, a number which represents the sum of all transactions occurring in the economy.

Once you understand the public debt as a percentage of GDP, you get a level playing field for countries on different economic scales. When you think about it like this, the U.S. isn’t even among the ten worst sovereign debts in the world.

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China’s Maritime Strategic Realignment

September 24, 2017 Tyler Durden 0

Authored by Brian Kalman, Daniel Deiss, Edwin Watson via SouthFront.org,
China has begun construction of the first Type 075 Class Landing Helicopter Dock (LHD).

Construction most likely started in January or February of this year, with some satellite…

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Trump Bars Breitbart From Alabama Rally As Feud With Bannon Escalates

September 24, 2017 Tyler Durden 0

Apparently, this is what Steve Bannon meant when he swore he would never turn on his old boss during a series of interviews he gave after leaving the West Wing.

The simmering feud between Breitbart and President Donald Trump intensified on Friday as the Trump communications team barred a Breitbart reporter from the press pool during a Trump rally in Alabama, where the president was campaigning for Luther Strange (aka “Big L”) – his pick to permanently fill the Alabama senate seat vacated by Attorney General Jeff Sessions.

Trump announced his support for Strange weeks ago, eliciting howls of outrage from Bannon and Breitbart, who have accused Strange of being a “swamp creature” and blasted him for his association with former Alabama Gov. Robert Bentley, who resigned earlier this year following a widely publicized sex scandal. Strange served as attorney general of Alabama (Sessions’ old job) under Bentley, and has been working with Trump for months after being appointed by Bentley to temporarily fill Sessions’ old seat. 

And Breitbart is denied entry into Trump-Strange rally #alpolitics pic.twitter.com/K9cczUvbrP

— Jeff Poor (@jeff_poor) September 22, 2017

But for better or worse, Strange is Trump’s man – for now, at least – and the president showered him with praise during the rally. But while cycling through his greatest hits (everything from the second amendment, to Hillary-bashing, to his promised border wall), he found time to slip in a subtle dig at Bannon, joking that he had “fired” certain former staffers for disloyalty. Bannon and Breitbart have consistently supported  Alabama Supreme Court Roy Moore, who will face off against Strange in Tuesday’s crucial Republican runoff primary.

Anyone who has closely followed the many staffing changes at the White House will, of course, remember that Bannon and the White House communications department have offered conflicting accounts of the terms of his departure, with Bannon insisting that he left voluntarily, while the communications staff have suggested that he was fired.

A similar ambiguity exists surrounding the terms of Bannon loyalist and former Breitbart employee Sebastian Gorka’s departure, who, as luck would have it, appeared on Fox Business just minutes before Trump took the stage to slam the president over his support for Strange.

In a brief segment, Gorka criticized Strange for his association with Bentley and claimed that Moore was the true “MAGA” candidate.

* * *

Of course, when Bannon – who is back running Breitbart – promised that he wouldn’t use the website as a cudgel against Trump, he did so with the caveat that Breitbart would hold the administration accountable should it abandon the nationalist, populist agenda that Trump promised the American people during the campaign.

To wit, Breitbart has become increasingly frustrated with Trump’s perceived abdication of his nationalist agenda by sending more troops to Afghanistan (after promising to bring troops home) and, more intolerably, his decision to allow DACA to be preserved in law by striking a deal with “Chuck and Nancy.”

And now it’s decided to turn its guns on Trump, publishing now fewer than hald a dozen anti-Strange or anti-Trump headlines during the Trump rally last night.

More than a half dozen anti-Trump headlines running on Breitbart tonight

— Gabriel Sherman (@gabrielsherman) September 22, 2017

 

* * *

And now, Axios is reporting that Steve Bannon has been confirmed to headline a Roy Moore rally in Alabama Sunday night, alongside Phil Robertson of the popular show “Duck Dynasty.” Axios, which noted that Strange is also the pick of Majority Leader Mitch McConnell, a perennial Bannon foe, explained that “for Bannon to make a rare public appearance in such close proximity to Trump shows how invested he is in the race specifically, and attacking McConnell more generally.” But in attacking McConnell, in this instance, he is also striking at Trump.

In keeping with his promise to always support Trump against the establishment forces that Bannon says are trying to co-opt the Trump presidency, Axios reported that the Bannon camp is trying to spin the attacks against Strange as an indirect way of “supporting” Trump.

“Steve is coming to Alabama to support President Trump against the Washington establishment and Mitch McConnell. Steve views Judge Moore as a fierce advocate of Trump and the values he campaigned on.”

To be sure, Breitbart’s strategy may be working. Trump appeared to admit during the rally last night that his Strange endorsement may have been a mistake, and that he would support Moore if he wins.

While the crowd at Friday’s rally cheered mightily for Trump, the cheers for his chosen candidate were less enthusiastic. As of Saturday afternoon, Moore leads Strange by nearly 9 percentage points in the RealClearPolitics polling average.

Whoever wins Tuesday’s primary has a virtual lock on the senate seat. And as the race draws closer, we expect to hear more from Trump. But will Breitbart succeed in convincing him to change his endorsement?

Given Trump’s distaste for “losers”, we imagine it’s not out of the question. 

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No Picture

Trump Bars Breitbart From Alabama Rally As Feud With Bannon Escalates

September 24, 2017 Tyler Durden 0

Apparently, this is what Steve Bannon meant when he swore he would never turn on his old boss during a series of interviews he gave after leaving the West Wing.

The simmering feud between Breitbart and President Donald Trump intensified on Friday as the Trump communications team barred a Breitbart reporter from the press pool during a Trump rally in Alabama, where the president was campaigning for Luther Strange (aka “Big L”) – his pick to permanently fill the Alabama senate seat vacated by Attorney General Jeff Sessions.

Trump announced his support for Strange weeks ago, eliciting howls of outrage from Bannon and Breitbart, who have accused Strange of being a “swamp creature” and blasted him for his association with former Alabama Gov. Robert Bentley, who resigned earlier this year following a widely publicized sex scandal. Strange served as attorney general of Alabama (Sessions’ old job) under Bentley, and has been working with Trump for months after being appointed by Bentley to temporarily fill Sessions’ old seat. 

And Breitbart is denied entry into Trump-Strange rally #alpolitics pic.twitter.com/K9cczUvbrP

— Jeff Poor (@jeff_poor) September 22, 2017

But for better or worse, Strange is Trump’s man – for now, at least – and the president showered him with praise during the rally. But while cycling through his greatest hits (everything from the second amendment, to Hillary-bashing, to his promised border wall), he found time to slip in a subtle dig at Bannon, joking that he had “fired” certain former staffers for disloyalty. Bannon and Breitbart have consistently supported  Alabama Supreme Court Roy Moore, who will face off against Strange in Tuesday’s crucial Republican runoff primary.

Anyone who has closely followed the many staffing changes at the White House will, of course, remember that Bannon and the White House communications department have offered conflicting accounts of the terms of his departure, with Bannon insisting that he left voluntarily, while the communications staff have suggested that he was fired.

A similar ambiguity exists surrounding the terms of Bannon loyalist and former Breitbart employee Sebastian Gorka’s departure, who, as luck would have it, appeared on Fox Business just minutes before Trump took the stage to slam the president over his support for Strange.

In a brief segment, Gorka criticized Strange for his association with Bentley and claimed that Moore was the true “MAGA” candidate.

* * *

Of course, when Bannon – who is back running Breitbart – promised that he wouldn’t use the website as a cudgel against Trump, he did so with the caveat that Breitbart would hold the administration accountable should it abandon the nationalist, populist agenda that Trump promised the American people during the campaign.

To wit, Breitbart has become increasingly frustrated with Trump’s perceived abdication of his nationalist agenda by sending more troops to Afghanistan (after promising to bring troops home) and, more intolerably, his decision to allow DACA to be preserved in law by striking a deal with “Chuck and Nancy.”

And now it’s decided to turn its guns on Trump, publishing now fewer than hald a dozen anti-Strange or anti-Trump headlines during the Trump rally last night.

More than a half dozen anti-Trump headlines running on Breitbart tonight

— Gabriel Sherman (@gabrielsherman) September 22, 2017

 

* * *

And now, Axios is reporting that Steve Bannon has been confirmed to headline a Roy Moore rally in Alabama Sunday night, alongside Phil Robertson of the popular show “Duck Dynasty.” Axios, which noted that Strange is also the pick of Majority Leader Mitch McConnell, a perennial Bannon foe, explained that “for Bannon to make a rare public appearance in such close proximity to Trump shows how invested he is in the race specifically, and attacking McConnell more generally.” But in attacking McConnell, in this instance, he is also striking at Trump.

In keeping with his promise to always support Trump against the establishment forces that Bannon says are trying to co-opt the Trump presidency, Axios reported that the Bannon camp is trying to spin the attacks against Strange as an indirect way of “supporting” Trump.

“Steve is coming to Alabama to support President Trump against the Washington establishment and Mitch McConnell. Steve views Judge Moore as a fierce advocate of Trump and the values he campaigned on.”

To be sure, Breitbart’s strategy may be working. Trump appeared to admit during the rally last night that his Strange endorsement may have been a mistake, and that he would support Moore if he wins.

While the crowd at Friday’s rally cheered mightily for Trump, the cheers for his chosen candidate were less enthusiastic. As of Saturday afternoon, Moore leads Strange by nearly 9 percentage points in the RealClearPolitics polling average.

Whoever wins Tuesday’s primary has a virtual lock on the senate seat. And as the race draws closer, we expect to hear more from Trump. But will Breitbart succeed in convincing him to change his endorsement?

Given Trump’s distaste for “losers”, we imagine it’s not out of the question. 

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America’s ‘Fake’ Stability & Boobs On Credit

September 24, 2017 Tyler Durden 0

Authored by Jim Quinn via The Burning Platform blog,
Do you ever hear something so startlingly mind numbingly ridiculous you realize it must be a sign things have gotten so fucked up something has got to give?
As I was driving to work yesterday morning…

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Elon Musk Isn’t Alone: Vladimir Putin Asks “How Long Before The Robots Eat Us”

September 24, 2017 Tyler Durden 0

Elon Musk isn’t the only one whose afraid that advances in artificial intelligence will leads to something akin to the creation of Skynet.

The Daily Mail is reporting that Russian President Vladimir Putin has expressed reservations about artificial intelligence, even asking the head of Russia’s largest tech firm ‘how long do we have before the robots eat us’?

The Russian president was speaking to Arkady Volozh, chief of internet firm Yandex, during a tour of the company’s Moscow headquarters, the Daily Mail reports. Volozh was discussing the “potential” of AI when he discovered that Putin has a dramatically different interpretation of what that might be.

According to state-funded Russian broadcaster RT, the question baffled Volozh.  

“I hope never”, he replied after taking a pause to gather his thoughts. “It’s not the first machine to be better than humans at something. An excavator digs better than we do with a shovel. But we don’t get eaten by excavators. A car moves faster than we do…”

 

But Putin seemed unconvinced. “They don’t think,” he remarked.

 

Volozh acknowledged that it was true and scrambled back to his speech on AI’s merits.

Putin hasn’t always harbored such a pessimistic view of AI. When asked earlier this month by a group of kids about who would rule the world in the future, Putin said it would be whatever country manages to perfect artificial intelligence.

As RT points out, tech firms like Google and Facebook are developing new AI technology as an increasing number of online services rely on algorithms, including search engines, automated translation between languages, image enhancement and targeted advertising, an area that recently got Facebook into hot water when its self-reporting ad algos created a targeting category using the keywords “jew hater.”

Musk has repeatedly warned that AI could cause World War III. Unless the technology is properly regulated, he said, it represents a much bigger threat to the security of the US than North Korea.

Of course, Musk has been criticized for his paranoid views by such tech luminaries as Facebook CEO Mark Zuckerberg, who said he was “optimistic” about AI’s potential.

Whatever happens with AI, hopefully it doesn’t come to this.

 

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“Japan Has No Illusions That Rates Will Ever Rise”: Is This What The Endgame Looks Like

September 23, 2017 Tyler Durden 0

By Victor Shvets of Macquarie Capital

Japan Debt Mountain: does it matter?

For almost 25 years, Japan’s debt burden has been the poster child of what would happen to others if capital is misallocated, bubbles burst and then clearance and required reforms are either delayed or not implemented. Indeed, at more than 5x GDP, Japan is shouldering a greater debt burden than other key jurisdictions. It is also facing severe demographic challenges, while its labour market remains constrained and the state maintains a sway over the private sector. Since WW II, Japan has always been more statist than most other major economies, with Korea and China subsequently following Japan in developing a similar model. The conventional argument has been that Japan’s debt would ultimately crush its economy and severely crimp public sector spending, while the private sector would be unable to adjust, and hence lose competitiveness. Eventually, the private sector might lose confidence and stop repatriating cash and the country would then suffer from massive capital outflows.

Not only were these dire projections wrong for decades, but as the rest of the world joined Japan in secular stagnation and unorthodox monetary policies, it is no longer perceived as an exception but rather as a pointer to the future. Japan’s success in navigating disruption, deep financialization and permanent overcapacity is now studied and imitated. While there are local nuances, Japan shows the way forward. QEs associated with the Fed were invented in Japan more than a decade earlier. The same applies to fiscal stimuli, collapsing velocity of money and strong disinflation. Whatever are the policies, Japan has already tried them. Japan is far more advanced in fully monetizing its debt by utilizing multiple asset classes, from bonds to equities. It also accepts that normalization is not feasible, and unlike the Fed, it has no illusions that rates could ever rise or that immigration and deep labour market reforms are either possible or desirable. When the US is focusing on returning outdated factories, Japan is building for the future, when labour inputs would no longer be the key.

Although Japan’s cultural and labour market constraints reduce its ability to fully commercialize inventions, it has not prevented the country from maintaining its rating as the most complex economy in the world, while keeping leadership in patents and yielding above-average labour and multi-factor productivity. Japan’s stagnant domestic economy is overshadowed by its competitive externally-facing sectors that are becoming complementary rather than directly competing against China. Even financial repression that Japan practised for decades is becoming a global norm, nowhere more so than in Eurozone. We expect BoJ to quietly abandon its inflation targets while maintaining flexibility in asset acquisitions to keep cost of finance close to zero. This would be a recipe for continuing twilight for years to come, with debt burden neither derailing the economy nor financial markets, even as BoJ assets rise beyond 100% of GDP (~45%+ of JGBs).

Assuming that Abenomics is dead and that there is neither desire nor capacity to lift inflationary outcomes, then it would be positive for ¥. Higher ¥ would erode Topix’s ROEs (corporate governance is unlikely to offset lower returns) but it should also highlight the strength of its globally competitive and thematic plays. In our global portfolios we currently have Yaskawa, Fanuc, Mitsubishi Electric, Nintendo, Nidec, Murata, Keyence, Tokyo Electron and Yamaha. Any further ¥ appreciation should also reduce pressure on Korea and China while extending EM reflationary cycle and its investment ‘goldilocks’.

Why is Debt Mountain not crushing Japan?

“We know that advanced economies with stable governments that borrow in their own currency are capable of running up very high levels of debt without crisis.”

       — Paul Krugman

This quote by Paul Krugman neatly encapsulates the main reasons as to why Japan has not been crushed by ever-rising public sector debt. Japan is state with a high degree of credibility and it borrows almost exclusively in its own currency, with debt owned predominantly by its own citizens. Financial crisis is all about perception rather than reality.

However, one issue that Krugman has not emphasized but which is increasingly important is the ability of central banks (CBs) to support and distort the governments’ cost of funds. Given that the CBs are not economic agents, their bids and bond acquisitions are not designed to discover appropriate pricing levels, but rather to support governments’ objectives (usually to simulate economies by lowering cost of capital). In the past, such aggressive interventionist policies were unique and infrequent events (accompanying wars or other major dislocations), but over the last two decades, they have become an increasingly acceptable tool in the governments’ armoury. Japan has been leading from the front for more than two decades, followed by the rest of the world after GFC.

Thus, there are essentially four reasons as to why most bets against Japan failed on a consistent basis:

  1. Japan is a homogeneous society, with relatively egalitarian income and wealth distribution, and hence, pain has been shared fairly evenly, thus preserving economic and societal coherence.
  2. Japan maintained credibility by selectively boosting and adjusting national commitments to elderly and medical care while irregularly pushing up consumption tax. Although some of these measures were counter-productive on a longer-term basis, they have placated global markets.
  3. Japan borrows in its own currency and the bulk of JGB holders are Japanese residents (over 88%). This massively reduces the degree of external vulnerability.
  4. BoJ has been exceptionally aggressive in driving money supply up and cost of capital down. This aggressiveness coincided with the growing global disinflationary trend, which eroded bond yields and significantly reduced the proportion of the government spending that is spent financing interest commitments.

As can be seen below, despite massive rise in the governments’ gross and net debt burden, the proportion of state spending that is dedicated to servicing interest has declined significantly over the last decade and is now below 5% of total expenditure.

The extent to which BoJ has become the key to Japan’s perceived longer-term sustainability can be seen from the explosion of its balance sheet and how its asset base increased at a pace much faster than state requirements. BoJ has by now accumulated almost 45% of the entire JGB’s market (vs 10% only five years ago), and its balance sheet is rapidly closing on 100% of the country’s GDP (vs 37% G4 average). Also, BoJ is not just buying state paper but it has become actively involved in the corporate and ETF (equities) markets. BoJ already controls 75% of all of Japanese ETFs (although only 4% of overall equities) and as much as 15% of the Japanese corporate bonds.

The public sector over the last two decades did not really have an option but to become far more aggressive in transferring excess debt from private sector and onto government books. While this private sector de-leveraging was largely complete by 2005, the combination of GFC as well as subsequent earthquake (2011), continued to suppress private sector desire for more aggressive spending. Private sector sectoral savings even today remain at ~6% of GDP, whilst velocity of money is at best only stabilizing.

If public sector did not step in, the country would have undergone a massive and uncontrolled deflationary bust. Instead, Japan had simply kept its nominal demand intact, despite the private sector sustaining losses (real estate and equities) of equivalent to 100% of Japan’s GDP in ‘90/91 (or ~US$5 trillion). For perspective, consider that the GFC caused initial contraction of only around 1/3 of the US GDP. In other words, bursting of an asset bubble in the ‘90s Japan was at least three times more powerful than the GFC’s impact.

The net outcome of aggressive public sector policies offsetting sluggish and deleveraging private sectors was a ‘tranquil autumn’ of a civilized relative decline.

The Japanese economy is today a fraction of its importance several decades ago. Whereas in the late ‘80s, Japan was responsible for ~10% of global merchandise exports, its share is now below 3.8%. In the same period, Germany’s share eased from 10%-11% in ‘80s to around 8%, while the US’s share is down from 12% to ~9% and France’s share is down from 5% in the ‘80s to ~3%. The same occurred to Japan’s share of global GDP (whether on a nominal or PPP basis). The growth rates have compressed massively, but the country managed to maintain its overall aggregate demand and per capita income intact.

Japan emerged from this traumatic experience, as land of no inflation (indeed mild deflation for most of the time) and steady demand funded by the fiscal stimulus and resilient private sector productivity.

It has become a land where the central bank has been effectively cancelling national debt by acquiring more securities than the government needed to fund its deficits. While this poses many questions (such as ability of life and insurance companies to price their products, in the absence of a viable JGB market), it also implies that Japan is shifting closer to embracing far more extreme (but necessary) policies, such as minimum income guarantees and abandoning any further consumption taxes.

In the world where labour inputs are becoming increasingly less relevant and where robotics, automation, AI and social capital are likely to play an increasingly important role, even the traditional argument of a negative impact of demographics no longer dooms Japan to oblivion and collapse. It also implies that the conventional arguments in favour of large-scale increase in immigration is not only irrelevant but is likely to be faulty on both theoretical and practical grounds. It is likely that the current age of ‘declining return on humans and conventional capital’ will become far more pronounced over the next decade. It so happens that Japan is in the forefront of this evolution.

It is highly unlikely that Japan would ever accept large-scale immigration (whether it applies to high or low skill labour). It is equally unlikely that the Japanese themselves would ever prefer to work and live in foreign jurisdictions. At the same time, the pace of human replacement (whether it is waiters in the restaurants or nurses in hospitals) is accelerating in Japan at a far more robust pace than elsewhere. The unique nature of Japan is also translating into sustainably high levels of private sector productivity while containing income and wealth inequalities. Although Japan is today more unequal than it was in  late 1980s-early 1990s, it still remains one of the most egalitarian societies in the world.

While Japan is yet reluctant to accept the most radical of policies, it is far more advanced in fully monetizing its debt burden and unlike most other countries it no longer requires an ever accelerating pace of financialization (or addition of new debt-driven generations). The objective in Japan is to maintain per capita income rather than generating growth to accommodate a rising population and keeping society intact. The extent to which Japan would be able to achieve this objective would depend critically on Japanese corporates and its overall economy maintaining productivity gains.

* * *

In part 2 tomorrow: “Global lessons from Japan – the future is Red”

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No Picture

Drone Footage Shows Puerto Rico Devastation From The Air

September 23, 2017 Tyler Durden 0

Hurricane Maria caused widespread damage to Puerto Rico. Drone footage captured the scene in San Juan and Canóvanas on Sept. 21.

As we reported earlier, flash flooding caused by the storm has prompted the NWS to warn that a dam in the northwestern part of the island is in danger of failing, prompting the government to scramble to evacuate the 70,000 residents of the river valley beneath the dam that is in danger of being completely submerged.

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