Abenomics is based on the idea that if you give rich people a lot of money, they\u2019ll spend it and the economy will get better. There are a few minor flaws to the theory, however, like the fact that it doesn\u2019t work. While trickle down has greatly impacted the sales of Gucci handbags, Farragamo scarves, Ferrari sports cars and other luxury items; it\u2019s done zilch for the broader economy where workers have seen their wages drop for 16 months straight and where the prices on food and fuel have steadily climbed higher.<\/p>\n
Even so, Japan\u2019s financial media can barley contain their enthusiasm for Japan\u2019s Prime Minister Shinzo Abe\u2019s \u201cradical reflationary policy\u201d. And it\u2019s easy to see why. Stock prices are up sharply, corporate profits are soaring, and Japan\u2019s Robber Barons are making money hand-over-fist. What\u2019s not to like? Just look at this from Bloomberg:<\/p>\n
\u201cJapan\u2019s three biggest banks reported a surge in first-half profits this week that they said means the year will turn out better than expected\u2026<\/p>\n
Mitsubishi UFJ Financial Group Inc. (8306), Sumitomo Mitsui Financial Group Inc. (8316) and Mizuho Financial Group Inc. (8411) increased their combined net income target by 23 percent to 2.26 trillion yen ($23 billion) for the year ending March, company statements showed. \u2026<\/p>\n
The higher profit targets at the three Tokyo-based banks exceeded the estimates of analysts surveyed by Bloomberg as the equity-market revival spurred sales of investment products and boosted the value of the lenders\u2019 stakes in other companies. Fees and commissions climbed at least 20 percent in the first half from a year earlier, the reports showed.\u201d (\u201cJapan\u2019s Biggest Banks See Profit Declining in Second Half<\/a>\u201c, Bloomberg)<\/p>\n So the banks are making out like bandits while wages keep falling and the economy remains mired in a long-term Depression? What a surprise. Here\u2019s more from Bloomberg:<\/p>\n \u201cToyota\u2019s \u2026. analysts estimate it will post record profit this fiscal year \u2014 illustrates how Prime Minister Shinzo Abe\u2019s policies that have weakened the yen are benefiting Japan\u2019s exporters and helping revive an economy that\u2019s been through three recessions in five years. Large manufacturers are more confident than they\u2019ve been since 2007, and share prices are near the highest in half a decade.<\/p>\n \u201cIn the past few months, Abenomics has pushed up sales of Japanese carmakers by weakening the yen,\u201d said Yuuki Sakurai, President of Fukoku Capital Management Inc\u2026.<\/p>\n Toyota shares have gained 58 percent this year, compared with GM\u2019s 23 percent. Volkswagen\u2019s stock has been little changed.\u201d (\u201cToyota Outsells GM in Quarter as Abe Gives Edge to Japan<\/a>\u201c, Bloomberg)<\/p>\n Yipee! Another windfall for big business while the workerbees get a pat on the head. This explains why the financial media wet themselves everytime they talk about Shifty Shinzo\u2019s monetary elixir. (aka\u2013Abenomics) What\u2019s good for Toyota, is good for the country, right?<\/p>\n Now get a load of this from Testosterone Pit:<\/p>\n \u201cThe 1,280 largest publically traded Japanese companies, excluding financial firms, reported outright glorious earnings. Their combined net income doubled to \u00a55.5 trillion ($55 billion), from \u00a52.25 trillion last year, according to a Bloomberg report. Translating earnings from operations overseas into weaker yen beautified the results of many companies.\u201d (\u201cHere Is Proof (Provided By Japan Inc.) Why Abenomics Fails The Real Economy<\/a>\u201c, Testosterone Pit)<\/p>\n \u201cGlorious earnings\u201d?<\/p>\n You betcha. The Bank of Japan\u2019s colossal money printing operation has sent the yen reeling which has boosted profits on Japanese exports. The only drawback is that rising import prices have put more pressure on household incomes. Gasoline is currently over $6 per gallon which is forcing ordinary working people to cut back on the basic necessities. Droopy personal consumption is why 3rd Quarter GDP clocked in at a measly 0.5% (1.9% annualized), which is a sharp drop from the previous quarter of 3.8%. And\u2013here\u2019s the corker\u2013the lion\u2019s share of 3Q GDP was inventory buildup and government spending, which means that the Japanese consumer is even more on the ropes than we thought.<\/p>\n But, hey, at least profits are up, right? And that\u2019s what counts. Here \u2018s more from Testosterone Pit:<\/p>\n \u201cDeeply troubled Panasonic has cut 71,000 jobs since 2011. It\u2019s cutting, dumping, and shedding\u2026<\/p>\n Sharp has been implementing a multi-year restructuring plan of drastic cost cuts, selling assets, and shuttering facilities\u2026<\/p>\n Toyota, announced in May that it would limit its capital expenditures for fiscal 2014 to \u00a5910 billion, \u2026<\/p>\n Mazda\u2026.started chopping workers, offshoring production to Mexico\u2026<\/p>\n Cutting costs at home, offshoring production, restructuring operations, shuttering plants, reducing the workforce, halting plant construction\u2026. These companies are cutting back in Japan, instead of investing in Japan.\u201d (Testosterone Pit)<\/p>\n Can you see the pattern here? The companies that are raking in the biggest profits are dumping workers, cutting costs, and shifting their industries to cheaper locations. Is that why Paul Krugman is so jazzed about Abenomics, because he wants to speed up the process that\u2019s reducing workers in developed countries to Third World poverty?<\/p>\n Here\u2019s how the Princeton Professor summed it up in a recent NYT article:<\/p>\n \u201c\u2026the overall verdict on Japan\u2019s effort to turn its economy around is so far, so good. And let\u2019s hope that this verdict both stands and strengthens over time. For if Abenomics works, it will serve a dual purpose, giving Japan itself a much-needed boost and the rest of us an even more-needed antidote to policy lethargy.<\/p>\n As I said at the beginning, at this point the Western world has seemingly succumbed to a severe case of economic defeatism; we\u2019re not even trying to solve our problems. That needs to change \u2014 and maybe, just maybe, Japan can be the instrument of that change.\u201d (\u201cJapan the Model<\/a>\u201c, Paul Krugman, New York Times)<\/p>\n What the heck is Krugman talking about?<\/p>\n Japan is \u201cthe Model\u201d all right; the model of structural adjustment, the model of shock therapy, and the model of wacky monetarist theories which further exacerbate the gaping chasm between rich and poor.<\/p>\n But maybe we\u2019re being too hard on old Krugie, after all, who could have known that doubling the money supply and buying 70 percent of all newly-issued Japanese Government Bonds (JGBs) wouldn\u2019t ignite a flurry of activity that would boost investment, increase hiring, and send GDP to the moon?<\/p>\n But that hasn\u2019t been the case, has it? Take a look at this from Bloomberg:<\/p>\n \u201cCorporate investment declined from 4.4% last quarter to just .7% this time around. Consumer spending contributed 0.1% and business investment 0.2% to third quarter GDP\u2026.In addition, industrial production figures for September were revised lower from 1.5% to 1.3%.\u201d (Bloomberg)<\/p>\n Just look at the data. Abenomics is a fraud. Japan\u2019s economy is in a state of near-terminal sluggishness bordering on complete inertia. In fact, the only reason GDP rose to nearly 4 percent in Q2 was because Abe frontloaded his program with a sizable chunk of fiscal stimulus ($100 bil) which generated some much-needed activity via government spending. Unfortunately, the fiscal component was a one-shot deal that will run out sometime in 2014 clearing the way for another bout of severe stagnation.<\/p>\n Adding to the problem, Abe has just passed a regressive consumption tax that will go into effect on April 1, 2014, and which will likely push the economy back into recession. So, expect a brief uptick in spending for a month or two as consumers try to make their big-item purchases before the deadline, followed by a sharp drop-off immediately afterwards. (We saw the same thing take place in the US during the \u201ccash-for-clunkers\u201d fiasco and the \u201cFirsttime Homebuyers\u201d tax credit, both of which pulled demand forward, leaving a big hole in subsequent sales.)<\/p>\n Another headwind facing Abenomics is that \u2013as the Japan Times notes\u2013\u201cThere is no demand for funds on the part of businesses. That\u2019s why the monetary easing is not working.\u201d<\/p>\n More from the Japan Times:<\/p>\n \u201cSince April, the BOJ has been gobbling up JGBs from banks and the open market. Its purchases amount to roughly 70 percent of the value of all new JGBs issued. But the banks are just stowing that money in their accounts at the BOJ because they can\u2019t find any companies interested in borrowing it.<\/p>\n \u201cThere is no demand for funds on the part of businesses. That\u2019s why the monetary easing is not working,\u201d Noguchi said\u2026<\/p>\n This means banks are just depositing the massive funds provided by the BOJ in their own accounts at the central bank. The unloaned cash is thus having little affect on the real economy\u2026\u201d (\u201cBOJ\u2019s money mountain growing but debt may explode<\/a>\u201c, Japan Times)<\/p>\n Businesses aren\u2019t borrowing, because there\u2019s nothing to invest in. And there\u2019s nothing to invest in because there\u2019s no demand. And there\u2019s no demand because people\u2019s wages are dropping, they have to set aside more money for their daily expenses and retirement, and because the outlook for the future has never been more bleak. So they\u2019re not borrowing, the economy is not growing and the prospects for a strong recovery\u2013or even an end to deflation\u2013are minimal to none.<\/p>\n And on top of it all, Japan\u2019s fiscal situation continues to deteriorate. The debts are piling up, \u201cthe trade balance has turned into a deficit and the current account surplus has shrunk.\u201d<\/p>\n No matter. Shifty Shinzo would rather shower his crony carpetbagging friends with filthy profits than worry about anything so incidental as the economy, the people or the nation.<\/p>\n What difference do they make?<\/p>\n _______________________<\/p>\n Mike Whitney<\/i>\u00a0lives in Washington state. He is a contributor to\u00a0<\/i>Hopeless: Barack Obama and the Politics of Illusion<\/a>\u00a0(AK Press).\u00a0He can be reached at\u00a0fergiewhitney@msn.com<\/a>.<\/i><\/p>\n