Turning Japanese

A great article in the FT with which I agree 100% - http://on.ft.com/1xrPK4T . In short, the current QE34 (I think.mi may have lost count somewhere along the way) in Japan is doomed to fail, like all the previous QEs, because the problem in Japan is not inflation vs deflation, but demographics. 

You can't fight demographics.

QE in an economy with an aging population simply adds ever more debt to an ever smaller working tax base. In GDP per capita terms Japan is growing well. It is only in GDP total that it is struggling.

The same will soon apply to lots of Europe.

If you enter into this phase of an economy's Developemnt with high levels of government and/or personal debt then it's a road to ruin. The trick is to have strong finances with high savings than an aging population can draw down on to finance their retirement and healthcare.

Politicians mistake is to look at total or outright GDP,not HDp per capita. The latter is what makes people feel rich and consume, the former is what gives politicians bragging rights at G7 or G20 love-ins. They are focussed on the wrong measure.

From Russia With Love

I said in my last post on Russia that it was all getting a bit Cold War. Now it seems they're back in space and developing the capacity to take out enemy satellites - http://on.ft.com/1xf4h3N 

Hard to get much more Cold War than that. Fortunately history teaches us that these sort of acts - unsustainable spending by a paranoid state - are often the final hurrah before the state concerned collapses. Just as long as they don't decide to fire off a few nukes before they implode I think we can safely ignore them.

Chinese Whispers

China is, and pretty much always has been, a huge house of cards. A giant Ponzi built on the assumption of ever faster growth and ever higher property values.

It was always going to end in tears. The only question was when. Seems it may be sooner rather than later. Anyone who believes differently should read this at the FT - http://on.ft.com/11mpTyh Sums it up superbly.

And if China goes.......  Anyone else here old enough to remember the last Asia crisis? Stay out of asian emerging markets.

Russia.

What a mess. Rates hiked to 9.5% from 8%, inflation at 8% and rising, currency plunging despite the rise in rates reflecting a fundamental lack of confidence in the economy. And possible worst of all -
Oil price falling to what is widely believed to be a level which makes the Russian budget unsustainable.

Sanctions take time to bite - it looks like they are finally hitting home. The Black Swan for the next 12 months could be the implosion of the Russian economy. That's make a few high end hoteliers and yacht charterers in Southern France wince.

Putin wanted to recreate the USSR. Looks like he's succeeded - complete with the inevitable collapse.