The bankruptcy filing of the Japanese -formerly national- airline JAL gets surprisingly little press beyond a litany of numbers. This may not be so wise, since the fact that the Japanese government lets the carrier go down is not exactly without meaning. Tokyo sends a message. And while that can vary from a strong message (we won't pay anymore) to a weak one (we can't pay anymore), there can be little doubt that the intended signal is that Japanese industries, even those too big or too beautiful to fail, may find themselves all alone when they get into trouble. And that is not what they've gotten used to over the past 20 years.
The message may, however, not -only- be for the companies. The liabilities that brought down JAL are to a large extent related to pensions. A slew of respective Japanese administrations has managed to keep the ship afloat and the country quiet by making sure that unemployment rates remained 'passable' and pension obligations stayed intact, if only in name. When JAL could not renegotiate its obligations with retirees (present employees had already accepted huge cuts -some reports claim as much as 50%-), Tokyo said simply: domo origato, but we will not make up the difference.
The first impression is that Japan simply can't pay. Or perhaps that can't and won't are closer than you might think. The country is, according to many reports, headed for a cliff. It’s had three finance ministers in a matter of months. The first died, and the cause was never clarified. The second left weeks ago, after mere weeks of service, because of stress and blood pressure issues. Maybe they know what's coming. And maybe all of Japan should too, when they take a good look at what happened with JAL. Which will continue to fly in a business as usual mode, by the way. Just with less or no debt to shareholders, bondholders and pensioners, and with a massive injection of taxpayers' money.
There's something in that picture that looks frighteningly similar to the US. Remember, Japan kept its head above water for 2 decades on borrowing and public funds, and it now has debts piled up sky high everywhere you look. But it achieved all this against a backdrop of a explosion of cheap credit among its customers, which allowed carmakers and electronics giants to exponentially grow their exports, which in turn poured badly needed tax revenues into public coffers.
That is one thing the US will not have going for it. Or the EU. Or anyone else for that matter. Everybody dreams of financing their deficits with more exports. Everybody dreams that hopefully China will be that next market that will pick up the slack left by the usual clientèle. But make no mistake.
America has run into overwhelming trouble for the simple reason that it has become a land of people who consume but don't produce. China, on the other hand, is a land of people who produce but don't consume. Neither is a viable concept in the medium- to long term. If you can't pay, you can't consume, and if you can't sell, it's no use producing. The one positive thing to take away from this for the Chinese is that they have a much less steep fall ahead of them. They remember where they came from.
So do the Greeks, presumably. Like for all nations that were once grand, it's hard to accept you're no longer king, though. Still, the demise of Greece is highly exaggerated. As I said earlier this week, Greece's financial troubles have become the tool the EU needed to bring down the Euro from its overvaluation vs the US dollar. I since found out that I'm not the only voice to address the issue. So does EU economist Paul De Grauwe :
Works like a charm so far. The Euro got hammered again today. Still, look at the numbers. Greece has 11 million people, Germany, the most populous EU country, has 82 million. The EU has over 500 million. Greek 2008 nominal GDP was $357 billion. Germany's was $3.65 trillion, the EU as a whole $18.4 trillion, the Eurozone (countries that use the Euro) about $12.5 trillion. The size of the Greek population and GDP is far too small to even entertain the notion of allowing it to break up the union. Germany, France, Holland wouldn't dream of letting Greece fall. It's not even sure they could if they wanted to. They just don't know. A December 2009 paper by Phoebus Athanassiou at the European Central Bank says this:..... Germany, France and other countries have too big a stake in the long-run viability of their new currency to see Greece do what its politicians might feel they have to do to preserve their alliance with the public sector trade unions - drop the euro, and re-establish their national currency, sufficiently devalued to stimulate exports and economic growth. It is unlikely to come to that - there is so much political capital invested in the euro by the political class that even the stern and parsimonious Angela Merkel will in the end contribute to a bailout fund if necessary. With conditions that turn effective control over Greece's fiscal policy to the ECB or some comparable organization in return for help from fellow members. Meanwhile, Paul De Grauwe, a Brussels-based economist who advises European Commission President José Manuel Barroso, displayed more than a wry sense of humor when he told reporters:
"If there are fears now that a breakup of the euro zone will lead to a weakening of the euro, then that is good news. So we should congratulate Greece for getting us out of … having a euro that is too overvalued."
This paper examines the issues of secession and expulsion from the European Union (EU) and Economic and Monetary Union (EMU). It concludes that negotiated withdrawal from the EU would not be legally impossible even prior to the ratification of the Lisbon Treaty, and that unilateral withdrawal would undoubtedly be legally controversial; that, while permissible, a recently enacted exit clause is, prima facie, not in harmony with the rationale of the European unification project and is otherwise problematic, mainly from a legal perspective; that a Member State’s exit from EMU, without a parallel withdrawal from the EU, would be legally inconceivable; and that, while perhaps feasible through indirect means, a Member State’s expulsion from the EU or EMU, would be legally next to impossible. This paper concludes with a reminder that while, institutionally, a Member State’s membership of the euro area would not survive the discontinuation of its membership of the EU, the same need not be true of the former Member State’s use of the euro.
In other words, the EU was conceived like a marriage without pre-nups. It’s turned real quickly into a cat and mouse game. As long as Brussels doesn’t signal it will bail out Greece, in whatever form, the markets will go after Athens. CDS spreads grow like rabbits. The primary result of that is the downward pressure on the Euro, which happens to be just what Brussels wants. Of course it's a dangerous game as well. Still, all the ECB has to do is signal at the right moment that Greece is indeed covered. Brussels, Berlin, Paris play a game with the markets: though they would never let Greece fall, nobody except them is sure that they won’t. That way they do controlled demolition of the Euro. An indication that Europe might indeed have the smarts to pull this off comes from New York. That Greece game is just as smart as the French banking regulator, the Commission Bancaire, telling the New York Fed in late 2008 that French law prohibit Crédit Agricole and été Générale from receiving anything less than full face value, 100 cents on the dollar, on their AIG trades. Société Générale got more US taxpayer AIG bail-out funds than any other bank, including the American ones. Now that is pretty clever from the French, But even way smarter is that they did it while a few blocks down the road US monoline Ambac was settling its AIG paper for 28 cents on the dollar. With the exact same banks. That is so well played by the French it makes you want to applaud. Of course the New York Fed boss at the time was Tim Geithner. And this must really be the last straw for him. But then we’ve likely entered a new phase anyway for the Obama government, one in which heads will roll and bodies thrown overboard to satisfy the hungry pack of wolves that’s chasing the sledge. For all we know, by revealing this tidbit, Ben Bernanke threw out Geithner before they could get to him (he has a hearing scheduled on Friday). And also for all we know, Geithner may have been well aware of what was going on, and seen a great opening to get his Wall Street friends a great deal. It's all water under the bridge now. Pretty soon, Obama can't afford to be seen with Tim in public anymore.
http://theautomaticearth.blogspot.com/
Nessun commento:
Posta un commento