Wednesday, January 25, 2012

Japan's Crisis Has Arrived? Japan Has First Trade Deficit in 32 Years!

The floodgates are creaking. If Japan needs foreign loans to float the government debt, the country is sunk. The other option is to destroy the value of the yen.




Will the Japanese public stand hyperinflation? If interest rates go to just 3% they would consume ALL of Japan's tax revenue. Even doubling the Sales Tax won't help.


Mish Shedlock reports in Japan Faces Moment of Truth:


Japan is in deep serious trouble the moment it enters a sustainable period of negative or neutral current account balances. If Japan becomes dependent on foreigners to finance rollovers on its debt either the Yen sinks or interest rates rise. Interest rates at a mere 3% would currently consume all of Japan's tax revenue.
Bloomberg reported; “Japan’s government said it will probably miss its goal of balancing the budget by 2020 even with its proposed doubling of the sales tax, underscoring the scale of the nation’s fiscal challenges.
The primary budget deficit, which excludes the cost of servicing debt, will be the equivalent of 3.1 percent of gross domestic product for the year through March 2021, the Cabinet Office said in Tokyo today. Hours after the release, Prime Minister Yoshihiko Noda reiterated his call for opposition lawmakers to engage in talks on boosting the sales levy.
‘To balance the budget, the rate needs to rise further.’”
What did I tell you the last time I wrote against an increase in Sales Tax? No matter how much the taxes go up, the government will always spend what it takes and, no matter how much it is raised, it will never be enough. History shows us that! When the first Sales Tax came in at 3% in the early 1980s they said that was going to fix the budget problems. Guess what? Surprise! It didn't.


Why didn't it? Because they spent the money!
The article above really goes into how stupid and into the outer limits of insanity the current government of Japan is by stating that there are some who think Japan should have a 25% Sales Tax.
Like I predicted, this prime minister, Noda something or other (no need to remember his name, he is a goner) will be gone this summer. Bank on it.

Instead of raising taxes, how about cutting spending?

6 comments:

Ryu Oni said...

"Instead of raising taxes, how about cutting spending?" - How about a combination of both? Then when the budget is balanced and stable, lower the tax rate again. That would work, right?

mikeintokyorogers said...

No, Ryu... The problem is that the government never balances the budget. The government never lowers the taxes.. In Japan's case, for example, when they built some JR lines (when it was gov't owned) the gov't said they'd have high ticket prices until they paid for the construction and lower them after that.... But, 20 years later, after the payment was finished, they still didn't lower prices, in fact, they raised them. The same thing for the toll roads in Japan. They were paid for decades ago. When 1st built the tolls were "temporary" but they've stayed ever since. In fact, the money for tolls don't even go 100% to those roads anymore: they go to pay off debt and interest on debt in other areas. Saying and doing are two different things. PLEASE Read the classic economics book: Henry Hazlitt's Economics in One Lesson. This sort of stuff is talked about in there with tons of examples too. Besides that, my friend, here's a good philosophical start: http://www.lewrockwell.com/rothbard/rothbard160.html

mikeintokyorogers said...

Oh Ryu san,
You might find this one useful. It's a bout a balanced budget amendment (the government doesn't like those)... If we had that, then perhaps cutting spending and raising taxes might work. The problem arises in that all government's are temporary and the next government can come in and keep taxation as is but cancel balanced budgets. The public's best (and, in my opinion only) hope is to cut spending. If you give a drug addict more drugs, he'll just take them. Anyhow: http://mises.org/daily/4514

Kevin Riley said...

Ryu: "Then when the budget is balanced and stable, lower the tax rate again."

Have you ever seen any government anywhere ever lower taxes once they've raised them?

Anonymous said...

Look at one of the most powerful auto makers around, the automotive powerhouse, Toyota. They have profits at roughly 2%, and guessing, get money at around 0.75-1.5%. What happens when rates have to move up only 50-100 bp? Will they be able in this environment, to double profits? What happens to the TBTF banks, and soon the TBTF companies? Who will the JPG & BOJ throw under the bus?

Anonymous said...

Look at one of the most powerful auto makers around, the automotive powerhouse, Toyota. They have profits at roughly 2%, and guessing, get money at around 0.75-1.5%. What happens when rates have to move up only 50-100 bp? Will they be able in this environment, to double profits? What happens to the TBTF banks, and soon the TBTF companies? Who will the JPG & BOJ throw under the bus?