Japan's Insane Tax-At-All-Costs Political Class

This will be my 800th posting on this blog. I think it is fitting that, after all that has happened, as through the short history of this blog, the economy of Japan and most western nations are close to collapse, as Japan's national debt is over 200% of GDP, as the US government has surpassed the legal limit on the debt ceiling for that nation and into de facto bankruptcy, as silver hits a new 31 year high to nearly $44 USD an ounce and gold is knocking at the door of $1500 dollars an ounce, that this 800th blog should be about taxes and the economy.

BEATLES CARTOON - TAXMAN

Once again, the news shows that our rulers never learn their lessons when it comes to taxation and debt. After the disastrous events of the last month starting on March 11th and continuing today, once again, the government of this country shows that their only answer to our financial problems is to raise taxes.

Jiji Press reports:

Tokyo, April 18 (Jiji Press)--Japan is considering raising the consumption tax by 3 percentage points for a limited period of some three years to secure funds to rebuild areas devastated by the March 11 earthquake and tsunami, officials said Monday.

   Japan will be able to secure 7.5 trillion in annual tax revenue by raising the tax rate to 8 pct from 5 pct, government and Democratic Party of Japan officials said.

   The nation is preparing the first supplementary budget for fiscal 2011 with the spending amount of some 4 trillion yen. The budget will be covered without new debt issuance.

   Tokyo is likely to compile more budgets for the current year, as many in the government and the ruling party believe that more than 10 trillion yen should be spent in total on the reconstruction of the disaster-devastated areas.

   To finance the second and later budgets, the government will issue reconstruction bonds. Many think that the revenue from the envisioned tax hike should be used entirely to redeem the reconstruction bonds, the officials said.

It says in the first paragraph, "Japan is considering raising the consumption tax by 3 percentage points for a limited period of some three years..." Sure. Only three years, right? And after that, we're supposed to believe that the Japanese government will have their financial house in such good order and fine shape that they can cut taxes? What planet are these people living on? Has the Japanese government ever cut taxes? How, pray tell, are they supposed to be able to do that when the economy is so bad and, as I mentioned, our public debt has surpassed 200% of GDP?

History also shows us what happens when sales taxes are raised. There will be a correlating drop in sales equal to the percentage of the sales tax; raise taxes by three percent and sales will drop by three percent. And who winds up paying for this kind of sales tax hike? Not the ultra-rich or corporations who have all sorts built-in tax advantages. The rich only have to spend a few percentage points of their income for basic foodstuffs. The average middle class household is spending 15~25% or more just for survival. Hit them with a sales tax increase and you hit them below the belt. 

The good example goes like this: Say, average millionaire wants to buy a new yacht? No problem. It's needed to entertain guest so it is a business and tax write-off. But, say, the single mother with a two kids whose husband has run off and doesn't pay any alimony, is not buying yachts and diamond necklaces, she is scrimping and saving to buy milk, eggs and rice. and the basics she needs to survive.

A 3% hike in her grocery bill hits hard. 

The average household is is also expected to carry the burden of massive public debt created by the government. It is this government who arbitrarily decides to tax one class of poor people to give to another class of poor people (in this case, the average Japanese family gets taxed to pay for the suffering and reconstruction of the poor who suffered in the Tohoku disaster) all the while the government takes a margin for delivering these services and gives no-bid reconstruction contracts to their cronies.

Nikkei 225 at ¥9441 on April 19, 2011

The economy is already in desperate shape. Japan's credit rating has been downgraded in the last year and the Nikkei 225 is wheezing away at under 9,500 (it is at 1/4 the amount it was at the height of the bubble economy) and it has also been reported that 15.7% of Japan's population now live below the poverty level. Think about that. 

And, with all of that, with all of this suffering and misery caused by badly thought out government policies, these people want to raise taxes? They must be completely insane.


Japan owns trillions of dollars in US government bonds that were bought with tax monies taken from the public. The value of these bonds have lost some 40% over these last 10 years due to the rapid decline of the US dollar, yet, even with this, the Japanese government has painted Japan into a corner whereby we cannot unload this debt without causing a quick rise in the yen and hurting Japan's export economy.

Silver & gold price explosion is flashing warning signs about the economy

Gold breaks new record to $1503 the day of the posting of this article

Not only that, at least twice in the last 365 days, Japan (and most recently foreign central banks) has intervened in the dollar x yen rate and flushed billion of yen (billions of US dollars) in foolish attempts (that haven't worked) in order to lower the value of then yen.


The fact of the matter is that, for reconstruction, as Peter Schiff points out, Japan should want a stronger yen as that would make our buying of oil and raw materials as well as other items needed to rebuild the ravaged areas cheaper.


But, no! As usual, when it comes to doing something about the economy, the government cannot admit its errors and try to strip them away. As is the case now, and has always been the case, the government of Japan's answer to financial problems is not to cut spending or to sell poorly valued and foolishly bought US government backed securities (that lose value every day), but the answer is, and always will be to spend and raise taxes.


That is why our economy has been so messed up for this last 20 years and that's why is is so easily predictable that our economy will be messed up for at least the next decade or more as Mish Shedlock so skillfully points out.


The politicians who live on dead and proven failure Keynesian economic policies are leading this country down the road to ruin. It will be soon enough, at this rate, that Japan will be like the Philippines. Throw this situation in with how the youth of this country have no where near the dedicated and hard work ethics of their fathers and grandfathers and you have a chemistry that spells out for a very grim economic future indeed


When we look back at what happened in twenty years from now, we'll not be surprised for a second that Japan will be jokingly referred to as the Northern Philippine archipelago. 

Japan's Two Lost Decades Becoming Three

Once again Mish Shedlock from Sitka Pacific Capital has hit the nail on the head with his economic analysis.

In a recent blog criticizing US government "stimulus" and "bail outs" and other useless efforts to revive a moribund US economy, Mish has once again shown how these sorts of actions failed miserably in Japan. He also goes on to point out that, if they didn't work in Japan, why would anyone think they are going to work in the United States?

I am impressed with Mish Shedlock. He is always right on the money and, with this blog, I think he has coined a term that I have never heard of before. I think this term will stick: "Japan's Lost Two Decades Becoming Three."

Mish was criticizing the US government in his blog; at least Japan had savings and industry... Today's USA has neither. Plus today's USA has a huge foreign debt of which they will never ever be able to repay.

Japan was and still is a creditor nation. The USA is the largest debtor nation in the world - by far!

Mish slices and dices the problem for you succinctly in his blog and you can read it here: America's Lost Decade - Another One in Progress Now.

The one part of that blog that really fascinated me was the "Japan's Two Lost Decades Becoming Three" chart of the Nikkei 225 over these last 20 + years:

CLICK ON IMAGE FOR FULL SIZE CHART

If history is any guide (which it isn't for investment purposes but can be a good clue) then we can see that from the top of the bubble in 1990, the Nikkei 225 stood at ¥38,900. Within ten years it had dropped to ¥20,800 - a 47% decline. This in spite of massive Japanese government intervention and "stimulus." 

Then, over the next ten years, with even more debt and stimulus, the Nikkei 225 dropped again to ¥11,408 from ¥20,800. This tallies in at about a 46% decline. 

Today, Sept. 19th, 2010, the Nikkei sits at ¥9,626.09. This is about a 16% decline this year.

If past history holds true, then we can expect the Nikkei 255 at ¥6,274 by 2020. Not a pretty thought.

So thanks to Mish Shedlock for diagnosing and giving us a name for our current malaise... Read his blog if you want to know how to implement a cure.

Mish Shedlock's blog is here.

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Keywords: Mish Shedlock, Nikkei 225, Japan's Lost Two Decades Becoming Three, Marketing Japan, Mike Rogers, Mike in Tokyo Rogers

Travelers Do Not Prefer Japan's Airports

By Mike in Tokyo Rogers 


I wrote before about Japan's coming financial disaster and how Japan is missing out due to inept policies by the Japanese government and indecisiveness by Japanese business... Then, when they finally do decide what action to take, it is often the wrong one.

Japan is now is seriously bad shape. 15.7% of the people are now below the poverty line. The Nikkei 225 has lost nearly 1,000 points in the last three months (will be much worse, you'll see). Now those fools in the government want to spend more money and get us more public debt - our debt is already 190% of GDP! The only country with a higher debt problem is Zimbabwe (I am not making that up).

Now, Japan has fallen to #3 after China and there is no good news on the horizon. I must say that I no longer see any Japanese companies with the zeitgeist or gumption (or even desire) to want to be top of the world anymore.

Today, Japanese companies are taking too long to make important decisions, and then, when they finally do, it's the wrong ones.

The only companies in the world who are now inspiring young people are Google and Apple.  It wasn't that long ago that Toyota and Sony were inspiring today's young people. Remember?

Now, here comes some more bad news... This, after 40 years of government infighting and incompetence and indecision concerning Narita and Haneda airport and their bungling of the entire affair. Now, it seems that international passengers are preferring to fly into Inchon, South Korea rather than Japan. 

Inchon? That isn't even convenient to Seoul! Read on.  

The government's civil aviation administration has been criticized for failing to make a clear-cut distinction between the roles of Narita and Haneda airports, while other airports are financially strapped due to cuts in flights and deteriorating government finances. ..

Incheon Airport has strengthened its position as an Asian hub to such a degree that travelers flying from local Japanese airports often prefer to use the South Korean airport to transit to other cities rather than use Narita and Haneda airports.


....Incheon can hardly be regarded as convenient, considering it is 50 kilometers from Seoul. So why is it so popular?

"During the four hours we have to wait before boarding our flight, my wife can surf the Internet free of charge and I can play with my son at the airport's kids room..."This airport has plenty of facilities, so I prefer flights via Incheon [to those using Japanese airports]."

Sure, it makes sense to me. I live in Japan and I hate going to Narita. Narita is a good 1.5 ~ 2 hour trip from Tokyo. It was a government boondoogle to build that mistake of an airport in the 1970's. Today, Haneda (which is 15 minutes from Tokyo) can handle most of our International flights, but NO! Now, just like every other government in the world, the government  cannot admit their mistakes and have to keep a messed up project going to save face.


Yes, they save face and get kick backs... The people get the raw deal, lose money and have to pay for it with increased taxes.

Original article from Yomiuri Newspaper: http://www.yomiuri.co.jp/dy/business/T100822001711.htm


Keywords: Haneda, narita, Marketing Japan, Mike Rogers, Inchon, Seoul, airport

Debt! Who is Better Off? Japan or USA?

By Mike in Tokyo Rogers


When it comes to public debt and the coming economic turmoil, who is better off Japan, or the USA?


I received a letter from a friend who asked me this question. It read;


Just a quick question. When it comes to debt, I wonder which is really worse off. I read somewhere that Japan's debt basically comes from the Japanese public, where as the US debt is from various countries. Therefore, when analyzed who is worse off?  (Sic)


My answer: Thanks for the question. But, please do not get the debt issue confused. Japan's debt is not "from" the Japanese public. Nor is USA debt "from" various countries. The debt is Japanese or USA government created. The governments created this debt through public spending on projects, war and social welfare with money they do not have. 


Remember that the government does not have any money.  The government can only take money from business and the public by borrowing it or taxing the people (they can also print and debase the currency which is a backdoor tax on the public)... Later, someone has to pay back this debt.. In the case of Japan, the public bought the debt as investments... In the case of the USA, foreign governments have bought the debt as investments...


Regardless of the confusion as to who created this debt, I understand the basic question and think it is a great one.  Instead of me just making my remarks I decided to ask someone who I definitely look up to for advice when it comes to this kind of subject and that is my friend, Mike "Mish" Shedlock. Mish Shedlock runs one of the most-read economic blogs in the world and is a registered investment advisor representative for SitkaPacific Capital Management.


I slightly rewrote the question to Mike:


When it comes to debt, I wonder which is really worse off; the USA or Japan? Japan's debt is basically held by the Japanese public, where as the US debt is owned by China, Japan, Saudi Arabia, etc... (various countries).  Therefore, when analyzed, who are worse off? The average Japanese or the average American? 


Mike's answer: 

Japan is worse off - Their problem hits first (Japan already has debt at 190% of GDP - USA debt 87.6% as of May 15, 2010). Also Japan is much worse off because of demographics – a much older population... Timing is the key! The USA actually has some time to do something (even if we know they won’t) 

Me: To sum up; the USA is better off than Japan, for now, because Japan's debt percentage to GDP NOW is larger and because the percentage of the Japanese population that is no longer in the workforce is larger.  

Another person wrote and asked me "What should we do?" Now, that's a great question too! (realize that most people still, to this day, are not thinking about one or two years into the future when this entire situation is really going to start hitting home).

I answered:  

So, what do I recommend? Get out of debt, live within your means... Fight anyway that you can government spending and increased taxation. Get the government warfare and welfare state off our backs. Allow the free market to shake out the sick parts of our economy...

Own gold and silver and oil. Try to become self-employed or to start your own business for tax purposes.


If you want good advice on this subject... I suggest reading Mish Shedlock everyday! http://globaleconomicanalysis.blogspot.com/

Keywords: Mish, public debt, USA,

Marketing Japan: Insanity Reins in Japanese Government Circles

By Mike in Tokyo Rogers

The news out today informs us that, in spite of 20 years of fiscal stimulus that has done nothing but destroy the economy and ruin the lives of countless Japanese people, the current Japanese government has learned nothing and is considering another fiscal stimulus plan. As Yahoo reports:

Faced with meager growth and a strong yen, the country's leaders are moving toward injecting more stimulus measures to fight a sharp slowdown in momentum. 

See? The guy on the left works for the government.

They've been doing the same thing over and over since 1989 and look where it has gotten Japan. Why do they think this same old plan is going to work differently this time? It is the definition of insanity to repeat a process and expect a different result every time. So they are either insane or just plain stupid. I suspect stupid and I will prove it to you later in this article...

Of course, just like the west, or the USA, it doesn't matter what political party is in power at the time, the only answers they have to any of our problems is an expansion of the government and increased spending. They consistently pay lip service to controlling the budget, but we never hear of the practical measures that you or I would take if, say, our household financial situation were out of control: That would mean cutting spending. Oh no! Whether it is the left, right or center, no political party has the will to do what's right and cut spending on the government. They will, of course, cut spending on things that the public actually wants, like libraries or schools, but to cut spending on government staff, the military or pet projects? No way. They always want to increase taxes or increase the money supply (print more money).

But it will be a tricky task for Prime Minister Naoto Kan, who is also juggling a promise to reduce the country's massive debt and a possible challenge for leadership of the Democratic Party next month.

Kan has asked his Cabinet for ideas that limit new spending, suggesting tax and regulatory reforms as potential alternatives.

These idiots always hide tax increases by calling them "tax reforms" but don't be fooled! "Tax and regulatory reforms" always mean an increase in both taxes and regulations. Because that's what governments do; they work to increase themselves. (If you want to read more about this from a USA perspective, check out Mish).

Hopefully, this idiot Kan and his party will get thrashed in the next elections. I think they most probably will and then we will have our 7th prime minister in 6 years and the government deadlock - which is the best we can hope for - will continue (at least when there is deadlock, no new laws or taxes can be passed!)

But now let me go back to my claims that these guys and Kan are just plain stupid. Read that above line again. It says:

Kan has asked his Cabinet for ideas that limit new spending, suggesting tax and regulatory reforms

See? We already know that "tax and regulatory reforms" means "tax and regulation increases." Top that off with this moron Kan actually saying in public, during the last election, that he wanted to double sales tax from 5% to 10%! Think about this, folks: Anyone who is stupid enough to run on a platform that actually tells the public, in public, that they will raise their taxes if elected deserves to get stomped. Well, they deserve worse, but I think lynching is against the law.

Guess what? Kan's party did get stomped in the last election where they did this. I wrote about that here. Now they are going to try the same thing again? Hilarious... Well, it would be hilarious if it weren't true.

If the past is any judge of the future, then this is what will happen in Japan, unfortunately:

Kan's party will be stupid enough to run on a policy that has tax increases built into the platform. They will soundly lose the election. The Liberal Democratic Party of Japan (LDP) will return to power. Once in power, the LDP will implement some sort of  "tax and regulatory reforms" (for meaning of "tax and regulatory reforms" see above).

Ultimately, the real problem in Japan boils down to this: the core of the problem is the economy. The economic problem is too much public debt; more spending will only make it worse. Every time the Japanese government passes a stimulus bill, they take one hundred yen from the Japanese people, then hand back fifty yen, then they cannot figure out why the economy continues to decline! 

Add to that the aging of the Japanese population; not enough babies are being born in Japan to support this entire mess. Now they want to put the public into even more debt and to raise our taxes.

I predict the Nikkei 225 at 7,000 - or lower - by August of 2011 - even with the stimulus!

The Japanese economy death spiral will continue.

Marketing Japan: Japan is Headed for Third World Status

By Mike in Tokyo Rogers

The big news is about Japan's public debt. Even the older Japanese people have become worried. This has led to many problems that include poor old people not reporting to the government that relatives have died so that they can continue to collect on government pensions. I wrote about that here.

This problem with spiraling public debt in Japan is nothing new, but what is new is the perception of the Japanese themselves. There seems to be a growing realization among the average Japanese that serious trouble is around the corner and that preparations must be made.

I knew that something had seriously changed the day that my father-in-law asked me where he could buy physical gold! This from a very conservative Japanese government supporting former company president. I recommended buying gold in Tokyo from here.

From the recent news, and things that I am seeing with my own eyes, I am getting the impression that people here are getting nervous. Considering Japanese politics and how they are consistently in a state of inertia (except when it comes to spending money, raising taxes or sending our "defense forces" off to somewhere halfway around the world) then I think we are in big trouble and I think it is coming soon.

One thing that really set off this train of thinking in my mind was a visit to Shibuya the other day. It was the first time I had been to Shibuya in quite a while. I had to wait for a business associate in front of the station. Oh, how things have changed in Shibuya over these last 30 years.

I looked out across from the police box in front of the station at Hachiko and then it dawned on me: Urban decay. The place was starting to fall apart. It was dirty, the tiles on the street were crumbling and in need of repair, there was trash on the streets, and it was the kind of dirty that reminded me of downtown Los Angeles.

Forgive my rose-colored glasses, but Japan is not supposed to look like downtown Los Angeles or Thailand or Hong Kong...

No disrespect for Thailand or Hong Kong, I love those places, but looking out from in front of Shibuya
station, I couldn't tell if I were in Japan or some south eastern asian country! This might not seem a shock to you, but remember that this is the #2 or #3 economy in the world... It should not look at all like some broken down third-world nation.

I wrote in 2005 how America had become a third-world nation. It was the #2 most read article for the entire year on Lew Rockwell... It got me a ton of hate mail and even death threats...

No one complains about that article anymore. It is a given. Japan is now definitely headed in that direction. Unfortunately, I think that is a given also.

Tiles on the sidewalk to help the seeing impaired - this is what they are supposed to look like. 

The ones I saw were crumbling, ripped up and completely missing in some places.

The kicker for me was the tiles placed on the ground for the sight-impaired. They were ripped up and - not just in need of repair - they all needed to be completely replaced!

Notwithstanding my basic policy of being against any government spending for anything (especially social welfare or the mlitary); I did not make policy in this country. The policy has created a huge government bureaucracy and a social welfare system. It was designed to bloat the government but also to take care of the unfortunate and down-trodden.... If that is the policy, then what kind of a country doesn't have to money to take care of the most basic needs of the most unfortunate among us? What are we taxed to death for?

And this situation was painfully visible in Shibuya no less. Shibuya!? One of the most famous shopping and entertainment districts in the world for young people. A name synonymous with fun, shopping, spending and fashion... and it now looks like a rundown dump.

Here's an article from the Australian newspaper that supports what I say, though on a bigger scale.

Economists will blame the deflation trap and misguided fiscal spending. Political analysts will blame parliamentary deadlock and vested interests. Investors will blame over-engineering and timidity. The simpler version is that Japan has ceded its status as the world's second-biggest economy to China because it lost interest in keeping it. The farcical domino-run of six prime ministers in five years marked a haemorrhaging of national gravitas that few other electorates would tolerate. Even if Japan as a whole were hungry enough to give China a battle for the second-place spot, it has nobody willing to channel that energy.

Japan! How could this have happened?

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Keywords: marketing Japan, Third World, Shibuya, Mike Rogers, deflation, Mike in Tokyo Rogers,