When on Wednesday night Takatoshi family of four walked out of the historic Nan Nan town shopping centre in Osaka, the third most populated city in Japan, with visibly empty bags, the Japanese lawmakers discussed 32.8 billion dollar supplementary that included another stimulus package.
Shinzo, 79, with his wife Akira, 77 and their unmarried children Haruki 45, and Reiko, 39, said that they are cutting back on their expenses and buying necessities. They were hoping to purchase some discounted winter jackets at the shopping mall. – We had a modest dinner instead – said Shinzo Takatoshi.
Takatoshi family of four like many other Japanese consumers, with little extra to go around, were hoping for cheaper products and price cuts. Housewife Yuko Narita, 38, said that she is keeping family budget tight and opting for purchase of discounted daily goods and clothing: “There’s a sense the economy is stalling and companies’ earnings are bad this year, so I’m holding off from spending on big items”, she said.
Discounted stores owners saw their operating profit raising more than 3 percent in the last two quarters. Restaurant chains, which cut their prices on items like “a family meal” or “a dinner for two” expect a profit to raise more than 4 percent in the year to next June.
Japanese exports fell last month at the fastest pace since the global financial crisis and overall Japan’s growth stall in the second second quarter. The mood among businesses and investors decreased to the so called “pre-Abenomics” levels, the courageous stimulus program.
The pessimism is broadening beyond exporters hit by the renewed strength of the yen, which drove down the US dollar to about 100 yen – around 25 percent below levels a year ago.
“We are seeing renewed fears of deflation as the environment surrounding consumption is worsening” said Aikihiro Ito, senior executive officer at Kirin Holdings.
“The deflationary mindset appears to be returning”, added Hiroshi Ohnishi, CEO at Isetan Mitsubishi, the biggest department store chain by sales in Japan.
Extra budget spending to help impoverished consumers
Government of Japan argues that Abenomics’ strategy lifted economy from the stagnation because it focused simultaneously on fiscal, monetary and structural reforms.
The effect of these policies is indeed visible in bolstering of Tokyo stocks. But it is almost unnoticeable in a real economy. It has barely recovered from the hit to consumption in April 2014 resulted in 0.9 percent contraction in fiscal 2014.
This month Finance Minister Taro Aso announced $135 bln fiscal stimulus package to finance swelling social security costs among a rapidly ageing society.
Aso hopes the stimulus package will help improve consumer and corporate sentiment, as the government will promote large-scale investments such as infrastructure by utilising low interest rates. The fiscal stimulus package includes payouts to low-income households in a renewed effort to spur growth.
A strategy for non-inflationary economic growth
As sluggish economic growth and rapidly growing unemployment rate are on minds of the global central bank leaders, who begin today their annual conference in Jackson Hole in the United States, will focus on methods to cope with another economic downturns as “Designing Resilient Monetary Policy Frameworks for the Future,” the title of the symposium, suggests. Central bankers should reach outside current paradigm of economic growth to one private, American think-tank, which voice is still not heard loud enough as it deserves in the public debate.
Unlike majority of economists including global central bankers, who were invited to the Jackson Hole symposium, the Co-Founder and President of Centre for Economic and Social Justice, a private think-tank, Dr. Norman Kurland turns beyond traditional monetary policy instruments as low interest rates and fiscal stimulus for non-inflationary solutions to spur growth, raise confidence on international markets and cope with inequalities.
“How can we begin to finance future capital needs in an inclusionary manner?” – asked in the Capital Homesteading for Every Citizen in 2002, a book that describes monetary, fiscal and legal reforms needed to introduce economic democracy that he called the Just Third Way . “Is there a way to expand the role of private sector and enable excluded citizens to accumulate enough savings to purchase that growth capital and gain the right to share in profits as owners?”.
His answer is a pure credit, which involves among other things utilisation of “discount rate” that Federal Reserve charge on the loans it makes to member banks. It is one of the instruments that grants the money-creation powers to Federal Reserve in the United States and to central banks in other countries under similar regulations. Dr. Kurland argues that Fed and other central banks should use of its discount rate more efficiently to make direct loans to banks to meet their liquidity needs in fostering commercial and industrial development, instead of only controlling the money supply and interest rates. How?
He proposes to shift the backing of currencies from government debt to newly created private assets. In other words an American economist and lawyer argues, the global economy needs a new model for capital formation that would include every child, woman and man allowing them to become owners of productive capital. It would result in non-inflationary growth, the economic independence of many impoverished households. It would create condition for the necessary budget cuts, which would not have to be severely painful.
The reality of another severe financial crisis facing prolonged time of jobless growth should suffice to start public debate on strategies for global economy’s growth that include more than natural rate, negative interest rates, inflationary fiscal stimuluses, targeting inflation or even Fed Chairman’s Jennet Yellen speech.
/Reuters, NHK, NWSC/