Japan's economy threatens return to recession

Already hurt by troubles in Europe and significant slowdowns in China and India, the U.S. and the global recoveries got another dose of bad news: Japan's long-sluggish economy is threatening to slide back into recession.

The world's third-largest economy shrank 3.5% at an annualized rate in the third quarter — the worst drop in gross domestic product since the country was battered by an earthquake and tsunami in March 2011.

Analysts now predict an additional but smaller contraction in the final quarter of the year. Two consecutive quarters of negative growth, by one common definition, would constitute a recession.

"This is another nail in the coffin for a global economic slowdown," said Sung Won Sohn, an economist at Cal State Channel Islands.

While Japan isn't a major driver of global growth in the way that the U.S. and China are, its downturn is nonetheless likely to be felt, particularly by states such as California, which has long benefited from Japanese trade, tourism and investments.

Japan had enjoyed a moderate pickup in the last year, thanks to a recovery in private consumption and massive fiscal spending for reconstruction after the 2011 disaster.

But Japanese consumers clamped down after the end of government auto subsidies. Consumer spending, which makes up nearly two-thirds of the Japanese economy, shrank 0.5% in the quarter. Spending also has been under pressure from an aging and shrinking population.

Meanwhile, the nation's export-dominated economy has been severely distressed by weakened demand from Europe and China, where a territorial dispute over a group of uninhabited islands in the East China Sea sparked a massive Chinese boycott of Japanese goods.

Toyota Motor Corp. and Nissan Motor Co., two of Japan's leading exporters, have reported huge sales declines in China. Japanese companies also have been hampered by a persistently strong yen.

With shipments and profits down, business investments and capital spending fell sharply in the quarter.

An easing of the debt crisis in Europe could help the Japanese economy grow next year, and China's economic slide of nearly two years may have bottomed out in October, according to the most recent government data.

Moody's now sees Japan growing by just 0.6% next year, down from 1% in its October projection.

"Any delay to the global recovery and further deterioration in China-Japan relations continue to pose significant downside risks to our forecasts," Izumi Devalier, an economist for HSBC, wrote in a research note Monday.

The poor Japanese data add to the shadow cast on any significant rebound in the global economy.

While the U.S. economy is continuing to grow modestly, fears about impending fiscal spending cuts and tax hikes threaten to hamper one of the last big world economies still standing. That's what makes the latest Japanese numbers all the more worrisome.

As an export nation that has long run a surplus, "Japan's never been a big center of demand [for the world]. But it's happening at the same time that the EU is committing suicide and China and India are slowing dramatically," said Clyde Prestowitz, an Asia expert and president of the Economic Strategy Institute in Washington. "I think it's bad," he said. "We're talking about the third-largest economy in the world."

Link -
http://articles.latimes.com/2012/nov/13/business/la-fi-japan-economy-20121113
=================================
A few observations -
1) IF anyone had said "Japan isn't a major driver of global growth" prior to 1990, THEY WOULD HAVE BEEN WRAPPED IN A STRAIGHT JACKET & SENT TO THE ASYLUM.
2) There will be NO EASING OF EUROPE'S DEBT CRISIS, ANYTIME SOON!
3) The Ratings Agencies ARE PART OF THE PROBLEM, THEY ARE NOT PART OF THE SOLUTION! 

It_is_the_Darkness wrote on Dec 13^th, 2012 at 11:19am:


I don't!

Because I have an idea or 2, on where it would all lead to & IT'S NOT A SUITABLE PLACE FOR 99% OF THE GLOBAL POPULATION.

In particular, I WOULD NOT LIKE MY SON, OUR DAUGHTER & HER HUSBAND or OUR GRAND DAUGHTER, TO BE THERE!

Nine awash in red ink with $972m loss

Nine Entertainment made a $972 million loss for the financial year ending June 30 - taking its total accumulated losses to more than $2.5 billion - as the media group headed for collapse.

In financial reports just released to the corporate regulator, Nine confirmed its dire financial condition over the last year with a $783 million write down on the value of its assets last year. This includes a $720 million writedown to the licence value of the Nine network.

The company recorded asset impairments totalling more than $1.5 billion over two years.

These writedowns do not impact on the company’s underlying financial performance but the report shows how badly the business struggled under the multibillion dollar debt load that threatened to sink Nine. The company was not generating enough cash to pay its way with operating cash flows in the negative to the tune of more than $17 million last year.
Advertisement

Nine generated $45 million cash from its operations for the prior year.

Link -
http://www.smh.com.au/business/media-and-marketing/nine-awash-in-red-ink-with-97...
================================
With Channel 10 also experiencing problems, the media are perhaps a reflection of the times we are living thru?

Why A Fiscal Cliff Deal Will Bring Austerity And A Recession To America In 2013

Finally, some members of the media and analysts are starting to use the word "Austerity" to describe the United States, not just Europe. For the past couple of years, we have heard about austerity in Europe but few Americans seem to realize that austerity is coming sooner or later to our shores. Amazingly, it appears that few Americans even knew what the Fiscal Cliff was about until it became more widely discussed in the Presidential debates.

Many Americans are being led to believe by the media and government officials that all will be well and that we could even see a big rally if a deal is reached on the Fiscal Cliff by Congress and President Obama. But that appears to be a fantasy since a deal is likely to entail tax increases and some government spending cuts which could put a major dent into an already weak economy. Countries like Spain, Portugal, and Greece which have cut government spending and raised taxes (otherwise known as austerity), have subsequently seen a sharp drop in economic activity and an increase in unemployment. It now seems that more investors and analysts are willing to acknowledge that a Fiscal Cliff deal is likely to involve austerity. CNBC's Bob Pisani's "Trader Talk" article recently stated:

"Though the Republicans and President Barack Obama seem far apart, we can already see the elements of the deal: modest tax raises and some spending cuts. The bad news: The era of American Austerity is about to begin. The good news: It will be a fairly gentle austerity, at least in the beginning."

Once and if a Fiscal Cliff deal is made, the media is likely to start assessing the toll budget cuts and tax hikes will take on our economy and that is when more investors might re-position their portfolios. But for now, the stock market does not appear to have priced-in either a going off the Fiscal Cliff scenario or the austerity that is coming. That means a significant sell-off is possible in the near future, as is a recession in 2013, which could be driven by austerity.

Investors who want to stay one step ahead

of the average American

should consider raising cash now and prepare for what could be a much better buying opportunity in the stock market once we either go off the Fiscal Cliff or once investors fully realize that a deal is likely to bring the same austerity countries in Europe have experienced,

when governments cut spending and raise taxes.

Link -
http://seekingalpha.com/article/1066611-why-a-fiscal-cliff-deal-will-bring-auste...
==================================
A few observations -
There are 2 apparent outcomes, for this "so called Fiscal Cliff" -
a) An alternative Deal won't be reached & SOME tax increases will will be applied to middle & high income earners, PLUS SOME expenditure cuts will be applied, particularly to the US Military.
The overall result will possibly be as much as 5% of US GDP AND it would tip the US into Recession, pretty much straight away, BUT it would stop US Debt from escalating as quickly as it has in recent years!

b) An alternative Deal will be reached, THEREBY seeing only very modest Tax increases & minor Expenditure restraint, THUS ensuring that US Debt continues to run rampant, putting the US$ under growing stress and increasing the chances of an inflation breakout in the US.

The first outcome would be more severe initially, whilst the second outcome would kick the can a fraction further down the road, BUT also ensure that the eventual outcome would be MORE SEVERE than the first outcome.

Given the current US position, they now must choose between 2 bad outcomes, whereas in Australia we still have room to move, BUT we must start to move soon AND those movements must be carefully selected & the thrust must be towards Productivity.

Finally, this article suggests there may be better buying opportunity in the stock markets, after the impact of this "Fiscal Cliff & related issues" happens, BUT due to Demographic & other issues, this "better buying scenario WILL NOT OCCUR! 

Are Intragovernmental Holdings Real Debt?

As everyone who is paying attention knows, the amount of US debt outstanding is fast approaching the $16.4T limit. But whom do we owe it to? Most of the debt, about $11.6T of it, represents debt held by the public.

Intragovernmental Debt represents money we owe to ourselves. At $2.8T, the Social Security Trust Fund is the largest and most recognizable portion, with most of the balance being similar programs for government employees and the military. All of this adds up to $4.8T.

At this point, you may be wondering how exactly one would go about getting in debt to his/herself. For an example, let's take a trip back in time and assume that in a given month, the government collects $75B in Social Security taxes deducted from paychecks, but only makes Social Security payments of $50B. The $25B balance is spent by the general fund, and a $25B I.O.U. is penciled in on the balance sheet as "Intragovernmental". So the real question becomes, can you really owe yourself money? I think the answer is no, and that the whole concept of Intragovernmental Holdings is just an accounting farce. In reality, the $4.8T balance of Intragovernmental Holdings simply represents an up to date tab of the amount already spent.

So what does this mean? Should we all breathe a sigh of relief and simply write off the $4.8T of Intragovernmental debt on our books? No on the relief. Yes on the write off. The truth is the internal debt has never really mattered, so admitting to ourselves what it truly represents doesn't change anything other than the magnitude of lies we tell ourselves. The problem is, if we stop pretending that we owe ourselves money, we also have to stop pretending that the social security trust fund exists. Then, we would have to stop pretending that social security isn't a run of the mill welfare program and stop pretending that FICA isn't just a regular old ~15% income tax. Are we allowed to say any of that out loud?

Are we, as a nation, ready to start telling ourselves the truth staring us in the face? I really doubt it. But pretending something isn't true doesn't change the facts.

As it stands, we have a debt outstanding of somewhere between $11T, and $100T, depending on what accounting standards you happen to believe in.

On top of that, we have a structural cash deficit in excess of $1T per year and no realistic plan to materially change any of this. And yet if something doesn't change, it virtually guarantees that sometime in the future, both on and off balance sheet liabilities will be defaulted on, one way or another. 30 years of history suggests that whatever "fiscal cliff" compromise is reached over the next few weeks will be woefully inadequate, but most of us will probably pretend otherwise.


Link -
http://seekingalpha.com/article/1066631-are-intragovernmental-holdings-real-debt...
============================

Now, what was that, about ROBBING PETER, TO PAY PAUL?

AND, the elephant in the room is that, within a few short years, the income derived from the FUS ICA Tax.
http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax

So, very soon annual Retirement payouts, will start exceeding annual FICA income AND the problem of ROBING FROM THE FUTURE (Peter) TO PAY PAST GENERAL EXPENDITURES (Paul), WILL START TO COME HOME TO ROOST!

Oh & the FICA program is the Federal Insurance Contributions Act (FICA) tax is a United States Federal payroll (or employment) tax imposed on both employees and employers to fund Social Security and Medicare —federal programs that provide benefits for retirees, the disabled, and children of deceased workers. Social Security benefits include old-age, survivors, and disability insurance.
http://en.wikipedia.org/wiki/Federal_Insurance_Contributions_Act_tax

IF they had retained the unspent funds raised, instead of simply throwing those unspent funds into the funding of general Expenditure/Debt, then they would have had a reasonable chance at keeping US Debt to a more managable level AND they would have POSTPONED THE DAY DAY OF RECKONING ON FUNDING BABY BOOMER RETIREMENTS, for a few years longer.

The U.S. Debt Crisis Explained In Layman's Terms

There has been a lot of discussion and media coverage about the United States' debt issue these days. Why should we care? Because as U.S. citizens, we all own stock in this "company" called the United States of America (let's say the ticker symbol is USA). We purchased this stock through the various taxes we pay every year (income tax, payroll tax, corporate tax). And we receive dividends through the various benefits we receive every year (security provided by defense budget, Medicare/Medicaid benefits, Social Security benefits, etc.). This article attempts to explain the U.S. national debt in simple layman's terms by analyzing the United States and its debt issue as if it were a stock investment.

U.S. GDP = Market Value of a Company
Let's first discuss the Gross Domestic Product or GDP. The GDP is the market value of the goods and services produced within the United States in a period of time. A more technical definition of GDP is GDP = Consumption + Investment + Government Spending + (Exports - Imports).

The current GDP as of 3Q2012 is $15.8 trillion, or our USA stock has a market cap of $15.8 trillion (with a U.S. population of 314mm. Remember every U.S. citizen is like a stockholder of USA stock, a price per USA share would be around $50,000 per share).

In the past 20 years (1990-2011), the average annual GDP growth has been around 2.4%. In the past 10 years (2000-2011), the average GDP growth has only been 1.8%.


U.S. National Debt = Total Debt of a Company
The current U.S. national debt is $16.3 trillion. This implies a current debt as a percent of GDP ratio of 103%! The only time in U.S. history when it has been higher was in 1945-46 post World War II when it reached 109%.


As shown below, in the past 10 years (2000-2011), the national debt has grown at an average of 9.3% per year. This compares to GDP only growing 1.8% per year in the same period.


How does the debt to GDP ratio compare to other leading developed countries?


What are some of the other countries that have a higher debt ratio than the U.S.? Greece 161%, Ireland 105%, Portugal 107%, Lebanon 136%, Jamaica 139%, and Barbados 117%.

For a full listing of all countries statistics, please see here, under IMF listing -
http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

Basically, the ratings agencies are not penalizing the U.S. as much (yet) for the high debt to GDP ratio, because the United States is still the default, go-to currency of the world (what other options are there, the pound, euro, yen, RMB, or hard assets like gold? U.K. and Japan has high leverage as well, the Euro has its own crisis, Chinese RMB is not liquid enough globally, gold is a non-productive asset).

Difference between Deficit and Debt
The deficit is the annual shortfall between federal tax revenue collected minus the federal spending every year. It's similar to the "net loss" for the year of a company (if a company has more expenses than revenues, they have a net loss).

The national debt on the other hand, is the total debt borrowed by the United States up to today. It's the cumulative amount borrowed to fund all the prior years' annual deficits (or annual net losses). Basically, the United States has been operating at a net loss (deficit or unbalanced budget) for a very long time now.

How did we get to $16.4 Trillion of National Debt
Let's look at the past "CEOs" of our USA stock (or past Presidents of the U.S.), to see how we got to such a large national debt amount. In 1981, the total national debt was about $1 trillion, or below 50% of GDP.
In 1981: $1 trillion national debt

Ronald Reagan (1981-1989): +$1.6 trillion

George W.H. Bush (1989-1993): +$1.6 trillion

Bill Clinton (1993-2001): +$1.5 trillion

George W. Bush (2001-2009): +$4 trillion

Barrack Obama (2009-2013): +$6 trillion

Some of this is also due to recessions (2000-2002 and 2007-2009).

Costs are Greater than Revenues
However, the primary cause of our debt issue is that for decades, we have managed to spend more than we collect in taxes each year. In other words, we have incurred a loss or deficit every year for decades now (except for a few years around 1998-2000), and every year we operate at a loss, we need to borrow more and more money.


In the past +40 years, the government on average has collected 18% of GDP in Revenues each year. However, on average they have spent 21-22% of GDP on Expenses or Outlays per year. In 2012, the gap is even wider at 16% for Revenue and 23% for Expenses. From 1998-2000 (during Bill Clinton's term), we did manage to balance our budget and have revenues exceed expenses, however for the other 38 years, we have spent more than we have received.

The U.S. Debt Crisis Explained In Layman's Terms (Cont)

A few observations -

Debt is Integral to the Economic System
No matter what some people may say, Debt IS not only part of the modern Economic cycle, it is integral to it!
Particularly, after the start of the Baby Boomer Boom, from around the early 1980's, Debt blossomed in almost every country and it was used to fund the "REQUIREMENTS" of the largest Global Population Growth in human history.   
BUT, there were also other reasons why Debt Blossomed, which were "unrelated  & necessary" issues, which also caused Debt to soar beyond reasonable/acceptable limits.   
Debt would Rise & Fall, at various periods during the Economic cycle, largely irrespective of whether the Right or Left of Politics was in office, as evidenced by the 160% Debt increase during the Reagan years, BUT only a 36% increase during the Clinton years.
That said, it should be noted that part of that Clinton era included the Peak Baby Boomer Economic period from 1995-2006 and a Left leaning Clinton did actually show a surplus from 1998-2000, whilst the Right leaning OZ Liberals also showed surpluses during the Peak Boomer years.
However, the years following 2000 have seen a marked divergence between US & OZ Debt, with the US incurring huge additional Debt under both Right & Left leaning Politicians, whilst OZ has retained a quite low Debt load, under both Right & Left leaning Politicians. 

Growth is Integral to the Economic System
Whilst some figures may well be mind blowing, they often only represent "normal" modern era Growth, over an extended period of say 10-20 years.

And, as the author points out, "stimulating the economy so that keeping existing tax rates the same still generates higher tax revenue".

That said, Spending Money and raising Government Debt, in order to stimulate an Economy is fine, PROVIDING the end result of stimulating Economic Growth via higher Demand & Consumption can be achieved.

Controlling Expenditure is Integral to the Economic System
The author notes that a large portion of Expenditure relates to -
Social Security Defense
Medicare/Medicaid (Health Care Costs)
Unemployment
Interest on Debt
Federal Pensions
& hopes that smarter economists, politicians and business CEOs can fix these issues.

However, Growth in Tax levels & reductions in Expenditure have a few major obstacles to overcome -
1) Baby Boomer Generation
The largest cohort in US & Global history has already commenced a lengthy process of Retirement, which entails
achieving maximum assets, with which to fund Retirement, then
moving to a much more frugal lifestyle (ie - less Demand for a large range of Products & Services),
whilst relying on a resonable return on their investments, which is NOT currently there & won't be for some time, due to problems funding the Federal Debt,
And, of course, this entire process actually requires removing very large amounts OUT OF THE FINANCIAL SYSTEM, TO PAY FOR THE BOOMERS TO LIVE.

That said, by far the greastest impact is saved, for WHEN THE BOOMERS START LEAVING US, IN INCREASING NUMBERS & DEMAND & CONSUMPTION START TO CRASH, BIG TIME, AS THE TOTAL POPULATION ACTUALLY GOES INTO DECLINE, WITH BIRTH RATES IN SERIOUS DECLINE & THE DEATH RATE (owing to Boomers) RISING SUBSTANTIALLY!

2) Declining EROEI on Energy
Whilst all of the above is going on, there are also other dilemma's, primary of which is the Declining EROEI (Energy Return On Energy Invested), which has been in falling for quite some time, BUT that Decline has escalated seriuosly over the last decade or so.
Both Crude Oil & Coal are steadily moving towards a higher cost per capita & a lower EROEI, with Production costs rising, whilst the NET Energy Produced is in serious Decline & the overall effect is that CONSUMER DISPOSABLE INCOME IS IN DECLINE, thus seriously reducing Consumer Demand & Consumption!       

Talk about Dilemma's!
Talk about Gordian Knots!! 
Talk about smarter economists, politicians and business CEOs, GOOD LUCK WITH THAT!!!

The author did also say that -
"GDP = Consumption + Investment + Government Spending + (Exports - Imports)"

BUT the above should read -
GDP = C + I + G (Spending - Deficit/Debt) + (E - I)

All Actions & Inactions have Consequences & therefore Governments can not Spend what they don't raise in Revenue and not expect there to be Consequences, from that years Deficit & accumulated Debt Costs, BOTH IN THE PRIVATE & PUBLIC SECTORS!