Japan's Economy Shows Limits of Keynesian Policies

Daryl Montgomery submits: In what is being billed as a surprise move, the Bank of Japan lowered interest rates back to zero and is planning on more quantitative easing. Along with an unending number of stimulus programs in the last twenty years, Japan has done it all before. If these economic policies actually worked, it wouldn't have to be doing them again. U.S. policy makers are following Japan's lead.

Daryl Montgomery submits: The Nikkei closed at 8995 last night, 77% below its final price in December 1989. The rising value of the yen is what is causing the stock market drop. The yen just hit a 15-year high against the dollar and 9-year high against the euro. A richly valued yen is a big negative for Japan's export-based economy.

Tokyo (AFP) - Japan's factory output fell by a less-than-expected 0.3 percent in March, data showed Thursday, but the still-weak statistics underscored an uncertain recovery in the world's number three economy.

Excerpted from Prem Watsa's Fairfax Financial Holdings investor letter, There is a monstrous real estate and construction bubble in China, which could burst anytime. It almost did in 2011 but China increased its credit growth significantly since then. In the last few years we have discussed the huge real estate bubble in China. In case you continue to be a skeptic, here are a few observations from Anne Stevenson Yang, an American who has been in China for over 20 years and is the founder of JCapital Research in Beijing:

This post Japan’s (Third) Lost Decade appeared first on Daily Reckoning. In the early 2000s, the phrase “lost decade” began to be applied to Japan’s economic performance over the course of the 1990s. The lost decade started with the popping of one of the greatest stock market bubbles in history.

The Liberal government’s case for additional spending may get a boost if fourth quarter GDP comes in worse than expected on Tuesday. It appears that GDP rose by a paltry 0.3 per cent for 2015 as a whole, which would mark the weakest 12-month gain since the final quarter of 2009. “The issue is whether the economy slightly expanded or contracted in the final quarter of last year,” said Derek Holt, an economist at Scotiabank, in a note. “Q4 GDP could increase pressure on Ottawa to add stimulus on March 22nd when the Federal budget lands.”

In 1997, the SE Asian Tigers all faced severe economic stresses, partially triggered by a primarily foreign capital-funded massive real estate bubble in Thailand. Today the EXACT same thing is happening as untempered foreign investment into Thailand’s real estate market has created not a “soaring” real estate market as economists always incorrectly explain them, but massive real estate market distortions better known as a bubble.

I would like readers to consider carefully the fundamental difference between a “real economy” and a “financial economy.” In a real economy, the debt and equity markets as a percentage of GDP are small and are principally designed to channel savings into investments.