Some politicians are very good manipulators. Although it is part of their job description, so to speak, one has to applaud when one of them gets away with something big. So kudos to Shinzo Abe who just got brilliantly re-elected despite a largely negative balance sheet! His party took two-thirds of the seats of the House of Representatives, a clear victory. The moniker “Abenomics”, a contraction of his name and economics, is known all around the world. Wow, what a talented politician!
Let’s recall what Abenomics are: Doing more of what did not work previously, i.e. more public spending and more debt. Japan is in a profound economic crisis since the bursting of its real estate and stock market bubbles in the early 1990’s and, since then, there has been no growth to speak of. Budgetary plans and quantitative easing plans have come and gone with no other result than inflating the public debt. But then Shinzo Abe takes power on December 26, 2012, and decides to yet increase public spending and to accelerate the tempo of the printing press! And, at the same time, the government lets the yen lose 20% of its value to the dollar in 2013 and 20% again in 2014.
This sort of Keynesian orgy produces a temporary and superficial euphoria (such as the Nikkei going higher) that points to the country regaining its footing. But hope is short lived: growth does not pick up, trade imbalances get worse and plunge in the red, the high price of imported goods (energy, food) cuts the purchasing power of the Japanese people, and recession and deflation are threatening... so let’s call for legislative elections sooner!
In the United States, Barak Obama did not benefit from the newcomer effect (having been in power for six years, whereas Abe’s been there two years) or the possibility of changing election dates. Thus his party was hit badly by the American people, unhappy about the failure of any real economic recovery, in the November 4 midterm elections. Shinzo Abe has been quite opportunistic by going to elections before becoming less popular by way of his programs not working, all the while promising more and more... a real artist!
The wake-up call will thus be more painful for the Japanese, since the structural reforms promised by Abe, necessary for triggering growth, have not been implemented yet. The same is true about lowering public spending and taxation, notably the tax on profits. On the other hand the VAT, which weighs heavily on purchasing power, has been raised and will be raised again soon. With a record public debt standing at 243% of the GDP, a falling currency and a government elected on false promises, Japan looks more and more like a South American country than a developed country, and we all know how these sorts of things end up... Japan is now Asia’s Argentina, and this is going to end very badly.