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Japan’s Inflation Is Hidden Behind Central Bank–Financed Subsidies

Whereas inflation rates in the US and Europe have risen steeply in the course of the year 2021, consumer price inflation in Japan stood at 0.1 percent for October 2021 (Figure 1). Also, Japanese producer price inflation of 8 percent lagged far behind…

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Whereas inflation rates in the US and Europe have risen steeply in the course of the year 2021, consumer price inflation in Japan stood at 0.1 percent for October 2021 (Figure 1). Also, Japanese producer price inflation of 8 percent lagged far behind the US and Europe. Even more, Japan's extremely low inflation has persisted for more than 30 years - despite an extremely loose monetary policy and soaring government debt. There are three reasons for Japan’s “inflation miracle”.

First, Japanese companies have been able to keep prices low because the costs of capital and labor have fallen significantly since the bursting of the bubble economy in the early 1990s. The Bank of Japan's prolonged loose monetary policy has lowered the average interest rate on corporate loans from 7.5 percent in 1991 to 0.75 percent recently (Murai and Schnabl 2021). Public loan guarantees have depressed risk premiums on loans. Unlike in the euro area, Japanese companies do not have to pay negative interest on their deposits with banks.

Figure 1: Inflation in Japan, USA, UK and Germany

Source: Eurostat, Japan Ministry of Internal Affairs and Communications, Bureau of Labor Statistics, UK Office for National Statistics.

In addition, Japan’s permanent crisis has weakened the bargaining power of employees. Labor unions were willing to compromise in wage negotiations in order to prevent unemployment. The proportion of precarious workers (especially young people, women and pensioners), working without union ties, has risen from 20 percent in 1990 to 37 percent in 2020. Since the Japanese financial crisis in 1998, private sector wage levels have fallen by 12 percent.

Second, the Japanese government has kept the prices of many goods low through the generous provision of subsidies to a wide range of industries. According to estimates by the Washington International Trade Association, over 40 percent of Japanese farmers' income comes from the government. Generous aid to rice farmers has contributed to the substantial decline of rice prices. Also, wheat, soybeans, buckwheat and rapeseed (also used as animal feed) are subsidized. Food accounts for 26 percent of the consumer price index.

Other relevant subsidies can be found in rail transport, which plays a vital role in densely populated Japan. The prices for public transportation have remained stable for a long time. So did the prices for education as government aid has pushed down school and university fees since the year 2009. Demand for cars has been repeatedly boosted by subsidies – most recently for electric vehicles – so that car prices have remained largely constant since 1990. Fast-growing government contributions to the health care system have dampened health care price increases. Prices for water and electricity, which are controlled by the government, have risen only moderately. In response to the recent steep rise in gasoline prices, the Japanese Industry Minister Hagiuda has announced subsidies for gasoline wholesalers.

Overall, at least 50 percent of the consumer price index appears to be government-controlled, which is reflected in the significant growth of government spending on subsidies (Figure 2). According to our estimates, subsidies have grown by an average of about 3.5 percent per year since 1990. The growth was particularly strong in crisis years. In the coronavirus year 2020, subsidies of the central and local governments (excluding subsidies for the pension system and social security) peaked at about 78 trillion yen (about 600 billion euros), or about 15 percent of GDP.

Third, by keeping long-term interest rates well below those in the US, the Bank of Japan has maintained persistent capital outflows from Japan (Latsos and Schnabl 2018), equivalent to $127 billion on average per year since 1990. If this huge amount of capital had remained in the country and had been spent domestically, inflation would probably have been much higher. An increase of property prices, for instance, would have pushed up housing costs, which have remained mainly constant since the second half of the 1990s.

Figure 2: Japanese Government Subsidies (Central and Local Governments)

Source: Japanese Ministry of Finance, estimates excluding subsidies for the pension system, social spending and disaster relief.

schna

Thus the government has been only able to keep inflation low, because the Bank of Japan has provided backing by buying government bonds. As the central bank-financed direct and indirect subsidies have helped to keep inflation below the official inflation target of 2 percent, the Bank of Japan has justified its own government bond purchases by making more debt-financed government subsidies possible. The downside is that Japan's government debt as a share of GDP has risen from 67 percent in 1990 to 266 percent in 2020, with the Bank of Japan holding about half of the outstanding government bonds. 

The Japanese model of hidden inflation control via a close cooperation of the government and the central bank could soon be adopted in Europe, where some euro countries such as Spain and France have already launched energy subsidies in response to hiking energy prices. However, this hidden inflation does not prevent the loss of purchasing power that is widely attributed to consumer price inflation.

In Japan, the loss of purchasing power has been materialized via falling nominal wages, lack of interest on savings, and capital flight. Additional risks for the decline of economic welfare have emerged from the zombification of Japanese corporations under the persistently loose monetary policy of the Bank of Japan as reflected in declining productivity levels. Therefore, the Japanese model of hidden inflation control would not be a wise economic policy for taming high inflation which can be currently observed in Europe and the US.

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Economics

Global Industry Statement on the WTO Moratorium on Customs Duties on Electronic Transmissions

Global Industry Statement on the WTO Moratorium on Customs Duties on Electronic Transmissions
PR Newswire
NEW YORK, May 17, 2022

NEW YORK, May 17, 2022 /PRNewswire/ — The United States Council for International Business (USCIB) joined today nearly…

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Global Industry Statement on the WTO Moratorium on Customs Duties on Electronic Transmissions

PR Newswire

NEW YORK, May 17, 2022 /PRNewswire/ -- The United States Council for International Business (USCIB) joined today nearly 100 other global trade and industry associations to urge WTO members to renew the Moratorium on Customs Duties on Electronic Transmissions at the 12th WTO Ministerial Conference in June.

According to the statement, allowing the Moratorium to expire would be a historic setback for the WTO, representing an unprecedented termination of a multilateral agreement in place nearly since the WTO's inception – an agreement that has allowed the digital economy to take root and grow. All WTO members have a stake in the organization's continued institutional credibility and resilience, as well as its relevance at a time of unprecedented digital transformation.

Continuation of the Moratorium is critical to the COVID-19 recovery. As detailed by the United Nations, the World Bank, the OECD, and many other organizations, the cross-border exchange of knowledge, technical know-how, and scientific and commercial information across transnational IT networks, as well as access to digital tools and global market opportunities have helped sustain economies, expand education, and raise global living standards.

Continuation of the Moratorium is also important to supply chain resilience for manufacturing and services industries in the COVID-19 era. Manufacturers – both large and small, and across a range of industrial sectors – rely on the constant flow of research, design, and process data and software to enable their production flows and supply chains for critical products.

The Moratorium is particularly beneficial to Micro, Small and Medium-Sized Enterprises (MSMEs), whose ability to access and leverage digital tools has allowed them to stay in business amidst physical restrictions and lockdowns.

Failure to renew the Moratorium will jeopardize these benefits, as customs restrictions that interrupt cross-border access to knowledge and digital tools will harm MSMEs, the global supply chain, and COVID-19 recovery – increasing digital fragmentation. As UNCTAD has explained, such fragmentation "reduces market opportunities for domestic MSMEs to reach worldwide markets, [and] ... reduces opportunities for digital innovation, including various missed opportunities for inclusive development that can be facilitated by engaging in data-sharing through strong international cooperation.... [M]ost small, developing economies will lose opportunities for raising their digital competitiveness." 

The rest of the statement can be found here.

Media Contact: Kira Yevtukhova, kyevtukhova@uscib.org

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SOURCE United States Council for International Business

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Government

“The Real President Is Whoever Controls The Teleprompter”: Musk Delivers Scathing Criticism Of Biden

"The Real President Is Whoever Controls The Teleprompter": Musk Delivers Scathing Criticism Of Biden

Authored by Jack Phillips via The Epoch…

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"The Real President Is Whoever Controls The Teleprompter": Musk Delivers Scathing Criticism Of Biden

Authored by Jack Phillips via The Epoch Times,

Tech billionaire Elon Musk this week warned that the United States must take steps to address inflation or it will end up like socialist Venezuela.

Musk, who is currently in the process of acquiring Twitter, told a virtual conference that he believes the government has printed too much money in recent years.

“I mean, the obvious reason for inflation is that the government printed a zillion amount of more money than it had, obviously,” Musk said, likely referring to COVID-19 relief stimulus packages worth trillions of dollars that were passed in recent years.

U.S. inflation rose by 8.3 percent in April, compared with the previous year. That’s slightly lower than the 8.5 percent spike in March, but it’s still near the 40-year high.

“So it’s like the government can’t … issue checks far in excess of revenue without there being inflation, you know, velocity of money held constant,” the Tesla CEO said.

“If the federal government writes checks, they never bounce. So that is effectively creation of more dollars. And if there are more dollars created, then the increase in the goods and services across the economy, then you have inflation, again, velocity of money held constant.”

If governments could merely “issue massive amounts of money and deficits didn’t matter, then, well, why don’t we just make the deficit 100 times bigger,” Musk asked. “The answer is, you can’t because it will basically turn the dollar into something that is worthless.”

“Various countries have tried this experiment multiple times,” Musk said.

“Have you seen Venezuela? Like the poor, poor people of Venezuela are, you know, have been just run roughshod by their government.”

In 2018, Venezuela, a country with significant reserves of oil and gas, saw its inflation rise more than 65,000 percent amid an economic crash that included plummeting oil prices and government price controls. The regime of Nicolas Maduro then started printing money, thereby devaluing its currency, which caused prices to rapidly increase.

During the conference, Musk also said the Biden administration “doesn’t seem to get a lot done” and questioned who is actually in charge. 

“The real president is whoever controls the teleprompter,” he said.

“The path to power is the path to the teleprompter.”

“The Trump administration, leaving Trump aside, there were a lot of people in the administration who were effective at getting things done,” he remarked.

Musk’s comment about the White House comes as Jeff Bezos, also one of the richest people in the world, has increasingly started to target the administration’s economic policies. Bezos, in a series of Twitter posts, said the rapid increase in federal spending is the reason why inflation is as high as it is.

“Remember the Administration tried their best to add another $3.5 TRILLION to federal spending,” Bezos wrote on Monday, drawing rebuke from several White House officials. “They failed, but if they had succeeded, inflation would be even higher than it is today, and inflation today is at a 40-year high.”

Tyler Durden Tue, 05/17/2022 - 15:05

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Economics

Summit Healthcare REIT, Inc. COO/CFO Elizabeth Pagliarini participates in the 9th Annual IMN Real Estate CFO & COO Forum

Summit Healthcare REIT, Inc. COO/CFO Elizabeth Pagliarini participates in the 9th Annual IMN Real Estate CFO & COO Forum
PR Newswire
LAGUNA HILLS, Calif., May 17, 2022

LAGUNA HILLS, Calif., May 17, 2022 /PRNewswire/ — Elizabeth Pagliarini, COO…

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Summit Healthcare REIT, Inc. COO/CFO Elizabeth Pagliarini participates in the 9th Annual IMN Real Estate CFO & COO Forum

PR Newswire

LAGUNA HILLS, Calif., May 17, 2022 /PRNewswire/ -- Elizabeth Pagliarini, COO/CFO of Summit Healthcare REIT, Inc. ("Summit") joined five other industry leaders on the Executive Roundtable at the 9th Annual IMN Real Estate CFO & COO Forum at the Monarch Beach Resort in Dana Point, California. The panelists shared their thoughts and experiences regarding the post pandemic environment, namely the recovery progress and how businesses are changing, trends in tenant lease terms, and the transition back to working in the office and its implications for new hires. They also provided insights into the availability of financing and how terms have changed over the past six months, how they are managing supply chain crises, rising costs of sourcing and materials, and staffing shortages, the changes made to core processes over the past 18 months and whether these changes would be permanent, and how investor communications have changed in recent months.

About Summit Healthcare REIT, Inc. 
Summit is a publicly registered non-traded REIT that is currently focused on investing in seniors housing and care real estate located throughout the United States. The current portfolio includes interests in 53 facilities in 14 states. Please visit our website at: http://www.summithealthcarereit.com

This material does not constitute an offer to sell or a solicitation of an offer to buy Summit Healthcare REIT, Inc. 

This release may contain forward-looking statements relating to the business and financial outlook of Summit Healthcare REIT, Inc. that are based on our current expectations, estimates, forecasts and projections and are not guarantees of future performance. Actual results may differ materially from those expressed in these forward-looking statements, and you should not place undue reliance on any such statements. A number of important factors could cause actual results to differ materially from any forward-looking statements contained in this release. Such factors include those described in the Risk Factors sections of the Company's annual report on Form 10-K for the year ended December 31, 2021, and the quarterly report for the period ended March 31, 2022. Forward-looking statements in this document speak only as of the date on which such statements were made, and we undertake no obligation to update any such statements that may become untrue because of subsequent events. We claim the safe harbor protection for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

CONTACT
Chris Kavanagh
(800) 978-8136
ckavanagh@summithealthcarereit.com

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SOURCE Summit Healthcare REIT, Inc.

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