I noticed a news item that ranks very high on my “So what, who cares?” meter.

Economists, politicians, and media folks, who either don’t understand, or don’t want you to understand economics, are all in a tizzy about this:

Japan has second straight year of red ink on trade last year

TOKYO (AP) — Japan logged a deficit for a second straight year last year as its exports were hurt by a slowdown of demand in China amid a tariff war with the U.S.

Government data released Thursday showed Japan’s exports fell 5.6% in 2019, to 76.9 trillion yen ($701.6 billion), while imports fell 5.0% to 78.6 trillion yen ($710 billion).

That left a deficit of 1.6 trillion yen ($14 billion).

Japan had a trade surplus of 6.6 trillion yen ($60 billion) with the U.S. last year, as exports fell 1.4% from 2018, and imports fell 4.4%.

Shipments of computers, construction and textiles equipment and power generating machines contributed to a 3.7% increase in exports of machinery to the U.S.

Vehicle exports, which account for nearly 40% of Japanese exports to the U.S., declined 5.5%, the data show.

Is all of this bad news or good news for Japan? The use of the words “deficit,” and “red ink,” which has pejorative insinuations, would lead one to believe this is terrible news.

If you are associated with vehicle manufacturing you may believe it’s bad news — unless exports to other nations and local consumption increased enough to offset the decline in shipments to the U.S. — and that is assuming exports of vehicles to the U.S. are profitable.

Or then again, if you’re associated with the manufacture of computers, construction and textiles equipment, and power generating machines, you might feel it’s good news.

But in reality, looked at from the whole Japanese nation’s standpoint, it’s no news at all.

A “trade deficit” merely means that Japan as a nation, sent fewer goods and services to the U.S. than the U.S. sent to Japan, and in return, Japan sent more money to the U.S. than the U.S. sent to Japan.

But is that a trade “deficit” or is it a trade surplus?

Trade is an even exchange. Goods and services sent one way, and an equivalent value in money sent the other way.

Since trade is an even exchange, is Japan better off sending more goods and services overseas or sending more money overseas?

Asked another way, which is more difficult for Japan to obtain, goods and services or money?

Japan is Monetarily Sovereign. It has the unlimited ability to create an infinite amount of Japanese yen, at no cost, and at the touch of a computer button. Money is free and easy for Japan to obtain.

By contrast, Japan is a geographically small, island nation, with limited natural resources. Goods and services are costly and hard-to-get.

So again, is it better to produce and send away something that is costly and hard-to-get and to receive something in return that is free and easy-to-get (aka a “trade surplus”) or is it better to receive costly and hard-to-get goods, and send away something that costs you nothing (aka a trade “deficit.”)?

I, for one, would prefer the so-called trade “deficit.”

But, you may ask this good question, “What about the individual industries, like vehicles, that rely on exports?”

They are in a different category from the Japanese government. While the government is Monetarily Sovereign, the private sector is monetarily non-sovereign.  Unlike the government, businesses cannot create yen at the touch of a computer key.

For the private sector, money is hard-to-get. So what’s to be done?

The obvious solution is for the government to fund businesses and their employees. In that way, the private sector would not suffer because of duties and trade deficits.

Yes, I know. International trading pacts frown on government support of business, but these rules are honored mostly in the breach. The vast number of government-owned and government-funded businesses speaks to this.

And yes, this solution would increase a government’s deficit and debt. But, of course, a deficit and debt is meaningless for an entity that can create its own sovereign currency at will.

There was a time when the economically ignorant predicted that if ever the U.S. debt rose to 100% of the U.S. Gross Domestic Product, the stars would fall from the skies, and pestilence would ravage the earth.

Well, here we are:

United States Gross Federal Debt to GDP

U.S. Debt now at 106% of GDP

And as for Japan, it’s more than twice as “bad” (good).

Japan General Government Gross Debt to GDP

Japanese debt now at 238% of GDP

Not only is central government debt meaningless for a Monetarily Sovereign entity, but so is every fraction that includes central government debt, i.e. the ratio of Debt/GDP. It is much referenced and essentially meaningless.

Japan would not need to export one yen’s worth of goods and services, and it could survive very nicely, thank you, via government deficit spending.

“Looking ahead, we think the recovery in exports will be weaker than many expect. That reflects our view that GDP growth in Japan’s main trading partners will remain subdued this year,” Tom Learmouth of Capital Economics said in a report.

Although export growth and GDP growth in trading partners can be connected, the former is meaningless to Japan, and the latter is meaningful to the trading partners.

He noted that an increase in Japan’s sales tax, to 10% from 8%, as of Oct. 1 has also hurt consumer demand and private investment.

Why would Monetarily Sovereign Japan increase the sales tax its own citizens pay? No good reason at all. It’s foolishness at a high level. Japan has no need or use for tax money.

President Donald Trump has thrown out past trade deals, including that with China, that he said added to the U.S. trade deficit and cost the country manufacturing jobs.

In his typical ignorance, President Donald Trump “solves” the jobs problem by raising tariffs, an act which is guaranteed to cost the U.S. private-sector jobs.

A better approach would be to eliminate business taxes, not raise them, which would increase company competitiveness, sales, and employment.

The best approach would be to institute the Ten Steps to Prosperity, which would narrow the Gap between the rich and the rest, put more money into the private sector, and improve the lives of the people.

That, ultimately, is the purpose of government.

Nearly 50 years have passed since President Richard Nixon removed the handcuffs of a gold standard and freed the U.S. government to be a true Monetary Sovereign.

Yet still, we remain shackled by our own fears and ignorance, leaving us not much better than the euro nations, which gave away their Monetary Sovereignty many years ago.

Too many Americans suffer from inadequate health care, inadequate housing, inadequate nourishment, inadequate education, inadequate financial resources — and it all is so unnecessary.

Ignorance and fear. Ignorance and fear.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereignty Facebook: Rodger Malcolm Mitchell

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The most important problems in economics involve:

  1. Monetary Sovereignty describes money creation and destruction.
  2. Gap Psychology describes the common desire to distance oneself from those “below” in any socio-economic ranking, and to come nearer those “above.” The socio-economic distance is referred to as “The Gap.”

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of Monetary Sovereignty and The Ten Steps To Prosperity can grow the economy and narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts A, B & D, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy and narrow the income/wealth/power Gap between the rich and the rest.

MONETARY SOVEREIGNTY