Obamafying Japan, The Democratic Party of Japan (Part 2)

Overview: Early lower house election results indicate that the Democratic Party of Japan (DPJ) has defeated the long-ruling Liberal Democratic Party (LDP) in a landslide victory. Prime Minister Taro Aso and the LDP had grown unpopular due to their response to Japan's economic woes. Though a new ruling party may not transform Japan's economy overnight, it is a step towards reform and brings many new (and much younger) faces to government in Japan.

Election Results

• The Nikkei reports that early results indicate the DPJ winning 308 of the Lower House's 480 seats. A minimum of 241 seats is required to capture a simple majority. The DPJ has won even more seats than the popular Junichiro Koizumi and his "band of reformists" won for the LDP in 2005.
• NHK estimates that voter turnout was around 69% and was the highest turnout since the current electoral system was introduced in 1996.
• DPJ President Yukio Hatoyama will be elected the country's new prime minister in a special Diet session in mid-September.
• This will be the first time since 1955 that the LDP is not the controlling party in parliament.
• DPJ President Yukio Hatoyama announced in a press conference that the DPJ will begin discussions with the Social Democratic Party and the People's New Party to form a coalition government.
  
• Prime Minister Taro Aso indicated that he will step down as party head. Additionally, LDP's Secretary General, Hiroyuko Hosoda informed Prime Minister Taro Aso that he plans to step down.
• On a Tokyo Broadcasting System (TBS) televised interview, Hatoyama stated that the DPJ would quickly compile an extra budget to restructure the current government's last stimulus package.
• The Nikkei reports that Hatoyama said the DPJ government would soon organize a grand policymaking body called the National Strategy Office which will outline Japan's national budget and set the nation's foreign and security policies.
• Kyodo News projections show the following LDP heavyweights have lost their seats: Ex-Finance Minister Shoichi Nakagawa, current Finance Minister Kaoru Yosano, Ex-Defense Fumio Kyuma, another ex-Defense Minister Yuriko Koike, and Consumer Affairs Minister Seiko Noda.
• Bloomberg reports that former Prime Minister Toshiki Kaifu lost his seat in the Aichi prefecture against a candidate half his age. Kaifu is the first former prime minister to be voted out since Tanzan Ishibashi in 1963.
• Ex-Prime Minister's son, Shinjiro Koizumi, is expected to provide the LDP a win in the Kanagawa No. 11 constituency.
• Eriko Fukuda a 28-year-old member of the DPJ, is projected to win the Nagasaki No. 2 constituency from former Defense Minister Fumio Kyuma. Fukuda is known for filing a lawsuit against the government for people that contracted hepatitis C from tainted blood products. She herself contracted hepatitis C as a child from a blood transfusion.
• NHK reports that Akihiro Ota, head of the New Komeito party and a partner of the ruling coalition, lost his seat in the Tokyo No. 12 electoral district.
• Kyodo News reports that 23 people were arrested on suspicion of election law violations.

What Will a DPJ Win Mean for the Economy?

• Heizo Takenaka, former Finance Minister under Koizumi, notes, "Japan's politics and its economy are just not sustainable in their current forms...something has to give, be it the ruling party, the yen, the bond market, the stock market or a combination thereof."
  
• Naomi Hasegawa, Senior Fixed Income Strategist, Mitsubishi Debt Research Division: The DPJ promises to shun U.S. dollar bonds if elected.
• Sentaku Magazine: "The DPJ's announced economic policy may be summarized as one of 'reckless spending.' It calls for, among other things, making all expressways free of tolls, giving every child 26,000 yen a month until he or she finishes the nine years of compulsory education and providing compensation for farmers who have to sell their products below cost. It is estimated that these policies would cost an estimated 20.5 trillion yen in fiscal 2012."
• The LDP proposed to outspend the DPJ, but the DPJ seemed more likely to rebalance economic growth towards domestic demand. JGB issuance was likely to increase with fiscal expansion regardless of which party won.
  
• Though the DPJ promises it won't hike the consumption tax for another four years, it is highly likely it will need to do it earlier because tax revenues may not keep up with increased government expenditure.

What Will a DPJ Win Mean for Domestic and Foreign Politics?

• DPJ wants to turn the bureaucrat-driven government into a more cabinet-driven one.
• Gerald Curtis, FT Columnist: "The DPJ talks about replacing bureaucrats with politicians in key ministerial positions but says virtually nothing about what policies these newly empowered politicians would implement.".
• Japan may become slightly more pacifist and less pliant to the U.S..
• American Enterprise Institute fellows Dan Blumental and Gary Schmitt believe, "Tokyo's foreign policy is unlikely to change drastically," but caution that "the fact that Japan will now have truly competitive political parties means that Japanese policy makers will be more attuned to public opinion.".

p/s photo: Fiona Xie

Ideologies, Financial Markets & Personal Values

Which camp do you belong to? Republicans or Democrats, Socialist or Capitalist... many in the Western world often know what they are or what they stand for ... e.g. "he is a left leaning republican ... blah-blah..." People in Asia do not usually ponder these matters, the most important political consideration is whether you are a Communist, and as long as you are against Communism, you are ok. Now here is a case which caught fire over the weekend. If you are honest and admit whose side you are on - it basically tells a lot about how you view the world and people around you.

On CNBC, Rick Santelli complained and ranted that the president’s housing plan rewarded “bad behavior” and suggested creating an Internet Web site to allow Americans to vote on whether they wanted to subsidize “losers’ mortgages.” The rant captured many's attention, some for and some against. Over the weekend, the notable and fiery Robert Gibbs, Obama's press secretary, launched a strong rebuttal against Santelli.

Mr. Gibbs decried Mr. Santelli for what he called a rant and made these observations:

“I’m not entirely sure where Mr. Santelli lives or in what house he lives but the American people are struggling every day to meet their mortgage, stay in their job, pay their bills, send their kids to school. You can’t stay in this program unless you continue to make mortgage payments. That’s important for Mr. Santelli and millions of Americans to understand. Mr. Santelli has argued, I think quite wrongly, that this plan won’t work for everyone. Now every day when I come out here I spend a little time, reading studying the issues, asking people who are smarter than I am questions about those issues. I would encourage him to read the presidents plan and understand that it will help millions of people many of whom he knows. I would be more than happy to have him come here and read it. I’d be happy to buy him a cup of coffee — decaf.”

Before you read on, which camp do you think you are in. Decide now, it should strike a chord in you immediately. Are the things Santelli said always at the back of your mind?

All things being equal, Santelli's diatribe is quite Republican, let the markets correct itself. You made a bad decision, you should have to pay for it yourself. Surprisingly, or rather, unsurprisingly, Santelli did not make the same rant when funds were doled out to banks via TARP!!! That is so Republican, the corporations and businesses are supreme, not the masses.

The key phrase in Santelli's rant was "losers' mortgages". That implies that if you were not smart enough, you deserve to rot in hell. Anyone who ends up on the losing side will be called "losers", not when the bet is still on. That camp always believe investments and funds should go to the deserving, not the needy, hence they are generally against "crutches" and "safety nets"... try pushing through a bill to give single mothers' benefits, and you would have big problem persuading the Santelli's camp.

What is a government but a collection of people under one nation, entrusted to take care of the economy, social infrastructure and prosperity of those people. Its not a business. You cannot lay off your own citizens when the going gets tough.

The assumption that an individual is entirely responsible for their own decisions and actions is false and flawed. You can be a hard working individual with normal commitments, who ends getting caught up in the credit implosion tidal wave that is greater than you can fight off or predict. If you have a mortgage, a car loan, and is supporting two kids in college, and find that your property is now in negative equity, and your job no longer exists - is that entirely your fault? I am not making excuses for those who have lost their jobs and/or in negative equity property loans - some may have taken on more risk than they can or should shoulder. Some have taken on mortgages greater than their ability to pay, but its hard to decipher one from the other.

Most individuals are not "specialised or informed enough" to read prospectuses, to understand the actual make up of CDOs, or what credit default swaps are, many are not aware the regulators are not doing their job well, many have been relying on those fucked up credit rating agencies that put a AAA stamp on those CDOs, many more are deluded that they can afford a$500,000 loan when their monthly salary is only $5,000 by mortgage finance companies, ...

People have government to put in place specialised regulators, laws and enforcement officials to "protect individuals" from excessive mania or maniac behaviour. When you keep offering huge loans to people with little capital and affordability, it is very difficult for the individuals not to be caught up in the spiral. Governments and responsible officers in industry are there to "not allow" these things to get out of hand - they did not do their jobs.

Individuals also have to share their burden of their follies, its not all one sided, but to trash Obama's mortgage renegotiation plan as taxpayers funding those "losers' mortgages" is plain irresponsible and cruel.

CNBC has taken the place of Fox (Republican) network. CNBC is so biased towards the ancient Republican policies that it is ridiculous. Michelle Caruso-Cabrera is the female Rush Limbaugh as some would say. Gasparino is not far behind. Somehow those people in the Santelli camp tends to be owning more than a couple of paid off houses - coincidence? To be fair, there are rich people who are Democrats too, so you need to differentiate. Just that Democrats, even when they are rich, still feel a bigger need to have a fairer society; while a Republican thinks that you need to be pro-business so that the rich can employ the poor.

The housing bill, stimulus bill and TARP are not perfect, but they are a starting point to pull together. Santelli stated something like “you can’t spend your way to prosperity” to which his audience of traders applauded and whistled approvingly. Well, Santelli and his band of traders had no problem leveraging themselves to prosperity over the past 5 years.

No prizes for guessing which camp I belong to.

p/s photos: Aum Patacharapa Chaichua

Critics Of The Stimulus Plan

Its often been said that you cannot please everyone. Having watched CNBC, I can finally confirm that they have too many Republicans on the show as anchors. I am not saying that Obama's stimulus plan is perfect, far from it, but it is never going to please the majority because there are not just two sides to the stimulus plan. There are many sides you can take. If you put the top 10 economists into a room to debate the plan, I would bet that there would be 11 views.

I also think I have to put a strong protective layer on my TV screen as I am very very close to throwing things at my TV everytime Gasparino or Kudlow speak.

We have to appreciate that beneath our views and opinions on the stimulus plan are our very unique assumptions of what will work and where our inherent priorities and biases lie. Safe to say that most people who like to say things on business channels will have a view, and believe that their understanding of economics are the appropriate school of thought.

It is easy to bash the plan if you are a conservative, hence you are unlikely to find favourable articles reading Wall Street Journal. Not calling everyone is wrong but that we all need a broader context to appreciate the enormity of the task at hand. My words in purple below.

WSJ: There's $1 billion for Amtrak, the federal railroad that hasn't turned a profit in 40 years; $2 billion for child-care subsidies; $50 million for that great engine of job creation, the National Endowment for the Arts; $400 million for global-warming research and another $2.4 billion for carbon-capture demonstration projects. There's even $650 million on top of the billions already doled out to pay for digital TV conversion coupons.( OK, the Amtrak thing and Arts facility are a bit silly but the child subsidies sounds ok for those who require them in times like these. The global warming and carbon capture are ok as part and parcel for the US to further their advancement in cutting edge arena - the US not only need to boost employment but also invest for the long term to boost their competitive advantage in technology and other cutting edge industries).

In selling the plan, President Obama has said this bill will make "dramatic investments to revive our flagging economy." Well, you be the judge. Some $30 billion, or less than 5% of the spending in the bill, is for fixing bridges or other highway projects. There's another $40 billion for broadband and electric grid development, airports and clean water projects that are arguably worthwhile priorities. (Both are essentials, although one can argue for a greater deployment for infrastructure). Add the roughly $20 billion for business tax cuts, and by our estimate only $90 billion out of $825 billion, or about 12 cents of every $1, is for something that can plausibly be considered a growth stimulus. And even many of these projects aren't likely to help the economy immediately. (That's the bone of contention for most critics, that only 12% of actual plan is for actual stimulus. If thats the basis for judging the stimulus plan, then its a short sighted view as what brought the US to its knees is the lack of savings, lack of proper regulation, voracious appetite for debt... the plan needs to address the future as well, if not, then even after recovery the US will be left behind in many cutting edge industries, and investing in broadband, education, science are necessary to go hand in hand with jobs creation in order to sustain a more competitive USA of the future).

Most of the rest of this project spending will go to such things as renewable energy funding ($8 billion) or mass transit ($6 billion) that have a low or negative return on investment. Most urban transit systems are so badly managed that their fares cover less than half of their costs. However, the people who operate these systems belong to public-employee unions that are campaign contributors to . . . guess which party? Here's another lu-lu: Congress wants to spend $600 million more for the federal government to buy new cars. Uncle Sam already spends $3 billion a year on its fleet of 600,000 vehicles. Congress also wants to spend $7 billion for modernizing federal buildings and facilities. The Smithsonian is targeted to receive $150 million; we love the Smithsonian, too, but this is a job creator? (OK, the Smithsonian is not necessary but please, look at the bigger picture, its only $150m, same with cars, its $600m... if you guys want to get bogged down in small stuffs you will be missing the bigger picture. As for renewable energy and mass transit, these low yielding investments are necessary as backbone for business and seeking alternative energy sources.)

Another "stimulus" secret is that some $252 billion is for income-transfer payments -- that is, not investments that arguably help everyone, but cash or benefits to individuals for doing nothing at all. There's $81 billion for Medicaid, $36 billion for expanded unemployment benefits, $20 billion for food stamps, and $83 billion for the earned income credit for people who don't pay income tax. While some of that may be justified to help poorer Americans ride out the recession, they aren't job creators. (This is where the Republicans come out whingeing ... you need safety nets strengthened during difficult times. Its not a yes/no question for the stimulus, and as conservatives you would shy away from supporting these measures, but they are not wrong or bad, just what you believe in and what is fair).

As for the promise of accountability, some $54 billion will go to federal programs that the Office of Management and Budget or the Government Accountability Office have already criticized as "ineffective" or unable to pass basic financial audits. These include the Economic Development Administration, the Small Business Administration, the 10 federal job training programs, and many more. (Obama has already promised for more oversight and accountability. The ineffectiveness of these institutions has more to do with the previous government or rather the Republicans, so shut up... I guess if I was American I would be a Democrat).

Oh, and don't forget education, which would get $66 billion more. That's more than the entire Education Department spent a mere 10 years ago and is on top of the doubling under President Bush. Some $6 billion of this will subsidize university building projects. If you think the intention here is to help kids learn, the House declares on page 257 that "No recipient . . . shall use such funds to provide financial assistance to students to attend private elementary or secondary schools." Horrors: Some money might go to nonunion teachers. (I don't see the issue here, you need to invest in education. God knows how far behind the US is lagging behind many other countries. So what if some of it goes to teachers, you want better teachers, and people who are properly incentivised).

The larger fiscal issue here is whether this spending bonanza will become part of the annual "budget baseline" that Congress uses as the new floor when calculating how much to increase spending the following year, and into the future. Democrats insist that it will not. But it's hard -- no, impossible -- to believe that Congress will cut spending next year on any of these programs from their new, higher levels. The likelihood is that this allegedly emergency spending will become a permanent addition to federal outlays -- increasing pressure for tax increases in the bargain. Any Blue Dog Democrat who votes for this ought to turn in his "deficit hawk" credentials.

This is supposed to be a new era of bipartisanship, but this bill was written based on the wish list of every living -- or dead -- Democratic interest group. As Speaker Nancy Pelosi put it, "We won the election. We wrote the bill." So they did. Republicans should let them take all of the credit.

(Well, to all the conservatives, I know one thing the Republicans won't do if they were in office... they wouldn't freeze their own pay. Let the change begin, let they guy do something, you buggers had your chance, in fact, you buggers fucked it up royally during the last administration).

p/s photo: Noon Wongsawan