It’s rather amusing that Japan cannot destroy its currency even though it has tried, and tried and tried.
Abenomics has been a huge failure. Keynesian “solutions” of all sorts have failed to rid Japan of the alleged scourge of deflation.
Some think handing out free money is the obvious solution, but what if people don’t spend it?
I can help.
On April 8, I wrote Central Banks Fail in Efforts to Destroy Currency.
In that post I offered simple advice.
Try harder, is inadequate. Japan needs specific recommendations. Today, I happen to have some.
Mish’s Four Pronged Proposal to End Japanese Deflation
- Negative Sales Taxes
- One Percent Tax, Per Month, on Government Bonds
- National Tax Free Lottery
- Hav-a-Kid
Negative Sales Taxes
People hoard cash, especially the miserly wealthy. We need to unlock that cash and put it to work.
To free up this money, I propose negative sales taxes. The more you spend, the more money you get back as a direct tax credit against income taxes.
I leave specific details to economists Larry Summers and Paul Krugman.
What can possibly go wrong?
One Percent Tax Per Month on Government Bonds
Negative interest rates are in vogue. However, all negative interest rates have done is to get those with money to hoard bonds.
Bond buyers effectively bet on capital gains of still more negative rates.
Phooey!
Just yesterday I noted Bank of Japan Corners 33% of Bond Market: All Japanese Bonds, 40 Years and Below, Yield 0.3% or Less.
33% cornering of the bond market is truly inadequate as this sentiment implies:
Makoto Yamashita, a strategist for Japanese interest rates at Deutsche Bank AG’s securities unit in Tokyo said “There are investors who have no choice but to buy.”
We need to end this “no choice” hoarding sentiment right here, right now.
I have just the solution. Tax government bonds at the rate of 1% per month.
No one will want them. Hedge funds and pension plans will dump sovereign bonds en masse.
This will allow governments to buy every bond in existence immediately, if not sooner. As soon as the government corners the bond market (at effectively zero cost), debt and interest on the debt will truly be owed to itself.
Once the bond market is 100% cornered, I propose government debt be declared null and void annually. This would effectively wipe out the entirety of Japan’s debt.
Japan’s debt-to-GDP ratio would immediately plunge from 250% to 0%.
National Tax Free Lottery
Japan desperately needs to get people to spend, continually.
Once again, I have a logical proposal. For every purchase one makes on a credit card, that person gets a free lottery ticket for a weekly drawing worth $10,000,000 tax free.
Each week, a random day of the week is selected and separately a random taxpayer ID is selected.
If the person drawn made a credit card purchase exceeding $10 on the day of the week drawn, they win $10,000,000 tax free. If there is no winner, the amount rolls over.
This beautiful plan will cost no more than $520 million annually, peanuts these days.
Hav-a-Kid
Demographics in Japan are a huge problem. Although various incentive have been tried, none of them have gone far enough.
I propose a reduction in income taxes for everyone starting a family. The following scale applies.
- One new child: 50% reduction in income taxes for a period of ten years.
- Two new children: 100% reduction in income taxes for a period of twenty years.
- Three new children: Subsidized housing, free healthcare, free schooling, and no income taxes for thirty years.
- Those with one new child in the last five years get full credit if they add at least one more child in the next five years.
Guarantee
I absolutely guarantee my plan will end deflation in a jiffy.
Some of you may be wondering “How the heck do we pay of this?”
That’s a good question, but please refer to the key linchpin of my plan: a “One Percent Tax, Per Month, on Government Bonds“.
No one will be in Japanese bonds so no one will be destroyed holding them.
All Japan has has to do is print the money to pay for any tax shortfalls. After all, interest is truly owed to itself.
Curiously, once the bond market is cornered, Japan can reinstall negative interest rates, effectively paying itself money on bonds before it wipes them out in debt revision procedure annually.
Literally, this scheme pays for itself.
Ultimate Keynesian Wet Dream
My plan is the ultimate Keynesian wet dream.
There’s no need to promote cash-for-clunkers or any other winners or losers.
Negative sales taxes and a national lottery ensures people will spend money on something they want.
A tax on bonds coupled with negative interest rates ensures the coffers will always be full of cash.
Meanwhile, “Hav-a-Kid” will do wonders for Japan’s aging demographics.
My Price
My price for this amazing plan is $0. It’s free for the taking.
Yet, zero seems woefully inadequate for such a brilliant plan that is absolutely guaranteed to work, especially when Japan has tried and failed for decades to produce inflation.
Moreover, paying nothing hardly seems correct for a country so desperate to get out of deflation.
Thus, if offered, I will graciously accept $1,000,000 for each one-tenth of one percent rise in Japanese inflation if Japan simply follows my plan.
All I ask is Japan pay upfront in gold rather than yen in arrears.
Mike “Mish” Shedlock
B-r-r-rilliant! Where do I sign up to impregnate young Japanese women?
Ditto. I’ll take 3 plus the houses.
“Negative Sales Taxes” – brilliant!
I started over 10 years ago with 3 kids.
Mish forgot to mention his new laws shall have retroactive effect.
I am thinking for a fourth (not same woman!). Does it provide bonus like zeroing calculations (one more zero to your tax credit on income tax or lottery win)
To speak truth, Japan is indeed going to uncharted territories and outside this fantasy world of negative rates and monopoly money, demography is about to collapse: working of age is at its full and soon to diminish hard, so expect the worse.
Seems to me that Japan should simply convert it’s auto industry to the manufacture of home printing presses so that folks wouldn’t need to hoard any longer, they could simply print as much as they wish anytime they wish. These things could probably be made for a few hundred dollars each, and the return on investment could be unlimited.
No! No No No!
The solution is simple and obvious. Japan needs to join the EU and Eurozone and adopt the Euro as their national currency. It’s the only logical and sane solution to their problems.
Japan gets an outlet for exports. Their mighty central banks, the BOJ and ECB, can combine like Power Rangers into an animal persona that overwhelms deflation with interstellar level force . Power Ranger ECB can go after deflation with the force of a black hole that only eats debt. Power Ranger BOJ can unleash Godzilla powers that vomit helicopter cash instead of nuclear fire.
Combined, they are 1+1= 3 or more. Just ask their economists. The math adds up. The mighty Euro must prevail and Brussels can show Japan the way out of deflation.
Surrender Japan … to 2% inflation by assimilating to your shared common goals with the EU and eurozone. What can go wrong???? Nothing, I’m quite sure. And I’m also an economist and a CPA.
Negative tax? How can you make a plan that might reduce the incomes of pols & bureaucrats? It’s only savers and investors who should cover the cost of resurrecting the economy.
“Some think handing out free money is the obvious solution, but what if people don’t spend it?”
I don’t know how much of a problem that would be in the U.S. considering how many people apparently live paycheck to paycheck (I don’t know about Japan). If it proved to be a significant problem, pay credit card companies to create helicopter money debit cards that can only be used for purchases (no cash) and expire in 90 days. Refill them quarterly (or not) to allow finer control of inflation results. Any funds not used before the expiration date would be lost giving a great incentive to spend. Only taxpayers would get them, about 122 million in the US. Current card production capacity would probably be an issue, but a one time payment by the fedgov to increase it through the purchase of more card making machines would most likely be minuscule compared to the amount of “free money” given out.
BTW, like you, I’m against central bank or government manipulation of markets and money, but who listens to us?
Forgot to mention that first issuance and refills of cards would be staggered, 122 million/3 = 41.67 million per month on, say, the first day of each month. This serves to allow finer control of the amounts being spent over time.
Cash? This is the time when you buy cash substitutes, like PM’s, liquor, ammo, tobacco, fuel, business equipment, etc. I’ll spend helicopter drops on that in a heartbeat.
You didn’t mention the tried and true attack and occupy a country strategy. If you fund it with a tax cut there will easily be Trillions in extra spending for years and years. But I suppose your ideas would be better for national security though.
Regarding the lull in population growth: Since the Japanese like to copy what America does, move Mexico to be contiguous to Japan. BINGO
The Japanese fully stopped caring about, admiring and copying what America does, over a generation ago. Young Japanese ( all three of them… 🙂 ) are fascinated by traditional symbols of Americana, but only in the same sense US upper middle class college kids are fascinated by African tribal dances and masks.
And so are, increasingly, the rest of the world. “We” used to be the Shining City on the Hill. Now “we’re” just the fat bully with skidmarked undies, that everyone laughs about behind his back.
A country that walks on the moon when the rest of the world still depends on it as their main lightt source at night, is pretty universally impressive. Not so much a country that can’t build a proper pair of shoes, and is now just drawing down the resources created by their grandparents’ generation and prior.
This is a masterpiece. The only question is how long before it all actually comes to pass?
Have fedgov guarantee a job for everyone and increase social security to a minimum of $50,000/year/household.
Voila, no need to hoard.
Love to see the COLA on that $50K/yr …
I know Mish is just being humorous, but I wish he would consider the danger to our country if Bernie or his supporters read these proposals. Ideas have consequences!
Interesting
Read the post waiting for the snark …. which never came.
Then I remembered you’re a gold bug.
The fly in the ointment … how do you control inflation (it will be hyperinflation) going forward? With QE central banks can allow assets to run off / reverse repo / sell to sop up liquidity. The only tool left will be massive interest rate hikes … how will economy handle that? Or are you planning price controls, as well? Japan imports many natural resources … how are they going to pay for those? Yen? What exporter will want them? Currency hedge? How do you hedge a “Zimbabwe”?
pshhh, They wanted inflation, so they get inflation.
One problem – how do the banks get paid?
Or take Steve Keen’s advice. To every tax ID holder pay something big, say $50,000. If you have no debt you are free to spend or invest it. If you have debt you must use it to pay down debt. Fund this program by deficit spending not by taxation. Fund the deficits by issuing bonds paying normal interest rates. 3% or so.
Those who spend it increase demand and raise prices, thus inflationary.
Those who invest it bid up asset prices and others sell assets realizing capital gains which adds to their income increasing demand thus inflationary.
Those who pay down debt owed to banks shrink bank balance sheets and bank profits eventually reducing earnings of the finance sector. Finance returns to being a small cost of doing business instead of the obscene bloated profit center it is now.
As the finance sector shrinks profit is shifted to non financial firms and to workers share of output. Wages climb. Firms value climbs. Inflationary by wage cost push and by rising demand driven by realized capital gains.
Paying for this by printing both bonds and currency rather than taxing is obviously inflationary.
Normalizing interest rates restores price signaling and forces banks to once again do their fundamental job of allocating capital to its first highest use. Many banks will go under because they suck at this. Good. Long overdue. Speculative investing will end. Banks will return to being judges of character in borrowers. Way overdue.
For all these reasons just a little in this direction should work to reverse the current slide into debt deflation.
Note the main effect is to shrink the bloated finance sector. Since they own the government it won’t happen there or here. Pity. It would work in both places.
The problem with all this monkeying about with nothing, is that debt deflation is in fact a good thing. In fact, the only thing that will correct the wrongs of the preceding credit inflation.
Millions of lawyers and self righteous credit boom beneficiaries will do their darndest to gum up the much needed deflation, hence introducing too much friction. But that doesn’t alter the fact that the only solution to excessive credit inflation, is corresponding debt deflation. It just means much cheaper, quicker and more universal bankruptcy procedures are called for. Getting the whole mountain of silliness resolved one way or another, and the “assets” back on the market, rather than in some legal limbo. ASAP, pronto, right now.
Right after WWII allied command declared all German private debt null and void. Most of the paper was held by former Nazis anyway. Bankruptcy on steroids. Worked like a charm. Never going to happen of course. Too bad. Would probably work. Michael Hudson is your go to guy for this aspect. He writes about the fall of Rome being caused by creditors controlling the Senate and blocking attempts to resolve unpayable debts. This has been going on for a long time.
The only upside to literally all wealth, power and privilege being concentrated in ever fewer hands, is that eventually, it WILL happen. The indoctrination racket aimed at making kids believe they have some sort of “duty” to “pay our debts”, where “our” means debt incurred before they were even born, won’t last forever. At some point, they’ll realize why God gave them a middle finger. And then, why he gave them a trigger finger….
“Or take Steve Keen’s advice. To every tax ID holder pay something big, say $50,000.”
I see. ANOTHER fan of unsound currency.
The economy will crater.
Guess what happens to those holding dead end jobs receive a 2 yr paycheck in the mail?
Cue up Johnny Paycheck …
So start with $5000. See if the needle moves in the right direction. For some reason this is the experiment that must not be allowed. Why do you suppose that is? Who in power is so afraid of this experiment? Hint: it’s not small fry like us.
So after 9 years half of what I have said is the solution…becomes your solution. As I have always said Mish…you’re all nascent social crediters.
A negative sales tax is the essential mechanism of social credit’s retail discount mechanism, and the concept behind it is Grace as in monetary Gifting, and forgiving as in forgiving of price.
Excellent call Mish. Wisdomics/Gracenomics is the philosophical basis for the new monetary paradigm of Grace as it applies to economics, and is the integration of orthodox and Austrian economics.
A+++++++++++++++++++++
Japan could also tell the world that Japan is the most INSOLVENT country on the face of the planet with government debt at 250% of its GDP and that it is headed towards bankruptcy and total collapse and that the Yen isn’t worth a tiny fraction of what it is current trading for on the FOREX. But why should they have to state the blatantly obvious to anyone?
Why end deflation? Deflation is good for consumers. Products get cheaper every year. Consider it a productivity bonus.
Great stuff, Mish, but taking a serious look at the BoJ QE/Buy Up Bonds & Equities program reveals that it is actually a stealth Marxist/Leninist Communism program to put all Japanese financial instruments and industry into government ownership. As you point out, fiat money can be used for payment, and all government debt can be cancelled once purchased, so the cost of acquisition will be zero.
Once Japan’s national debt is reduced to zero and its balance sheet bulked up with corporate bonds and stocks, the Yen will look rock-solid, and Japan can then embark on vast investment programs World-wide, acquiring resources and production facilities all over, not to mention increasing their political influence.
A very clever program, but conventional economists have failed to grasp what Kuroda is up to. Japan has found a way to rival China’s development. And you thought you were just joking.
“All I ask is Japan pay upfront in gold rather than yen in arrears.”
Even without Mish’s plan I think the yen is toast. Though there is still the formality of making bonds and the central bank printing money and buying bonds, we are clearly at the stage where the government is really printing and spending like crazy. This never ends well for the currency.
I think a couple more earthquakes will help stimulate the economy.
Have you ever even set foot in Japan?
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One Percent Tax Per Month on Government Bonds Mish
Since Japan is monetarily sovereign (unlike Greece, for example), its yen denominated debt is risk-free. Therefore the MOST interest that debt should pay is 0% (unless one believes in welfare proportional to wealth) so negative rates are not that odd at all.
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You should be running the BIS, the FED, and Japan. Simply brilliant, how do we vote you in?
Looks like the BOJ is reading your blog: http://www.reuters.com/article/us-japan-economy-consumption-idUSKCN0XM12E
Congratulations
The obvious becomes apparent the pragmatic when stupidity and pain becomes general.
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