In which: Gerard Depardieu skips France, Deutsche allegedly deletes some emails, Japan regresses, Boehner makes a suggestion, and China repositions herself.

Good morning

The headlines:

  1. Japan gets an overhaul. 

    Link: out with the old, in with the older.

    Prime Minister Noda and his Democratic Party of Japan lost 75% of their seats in the lower house of parliament this weekend past. Shinzo Abe and his Liberal Democratic Party are returning to power after a 3 year hiatus.

    For the record, the LDP have had an almost unbroken run in the Japanese hot seat since 1955. There was an 11 month break in 1993/1994; and then the last three years obviously. Which makes them the party that got the Japanese into this mess in the first place.

    Mr Abe is calling for unlimited monetary easing to get the Japanese out of their deflation. And investment in “public works”. So if large debt-to-GDP figures freak you out, then you should avoid the soon-to-be-revised Japanese estimates. A graph:

    Just compare the 2012 ratio to that of Greece, which sits at somewhere between 160% and 170%, depending on which institution you're quoting

    And here’s a map:

    That giant red distortion on the right would be a relative weighting of Japanese public debt. And unlimited monetary easing would just expand the distortion.

    The question most people ask is: “Why, if Japan has so much more debt than Greece, is everyone so worried about Greece and not Japan?”

    It’s a good question, and the answer is that the Japanese debt is denominated in yen, where the Greek debt is denominated in euros. Because Japan retains the right to print its own money (the yen), in the worst case scenario, it could just create the money to settle its debt. Greece surrendered that right. So in its worst case scenario, it has to default.

    In some ways, money-printing your way out of debt is a version of default. But it’s somehow less devastating; probably because it’s more gradual. Frog in boiling water and all that.

  2. China. 

    Link: an update on the social compact.

    The Chinese leaders appear to be “settling for slower growth”. There are lots of buzz-phrases: “sustained and healthy development”, “prudent monetary policy”, “proactive fiscal stance”, “let us not delay economic reform”, “etc”…

    From what I understand, the expert opinion is that the Communist Party maintains its grip on power through its growth social compact with the Chinese People: as long as the Party delivers growth, it gets to rule. But the expert opinion also seems to agree that growth rates of 7.5% are too low for the compact to continue. And seeing as that’s what is being forecast…

    To be honest, I am not sure what it all means. And I doubt that the experts really know either. But there is a definite reframing of the Party viewpoint, and plenty of reference to Deng Xiaoping*.

    Which is both ominous and promising.

    *the Party leader-promoter of economic reform after Mao. Also famous for Tiananmen Square – you know, after the economic reforms caused a little too much civil excitement…

  3. In Fiscal Cliff news. 

    Link: Boehner throws a bone.

    Mr Boehner threw out a suggestion of increasing tax rates on incomes above $1 million in exchange for cuts in entitlement programs (Social Security and Medicare). Mr Obama said no.

    If they want to get this sorted before Christmas, they need to come up with something this week.

  4. These French Actors. 

    Link: highly strung out to dry.

    So long, and thanks for all the fish

    Gerard Depardieu announced last week that he is leaving France for a small village in Belgium which is “peaceful” and about two meters away from the French border. Whatever his “numerous and personal” reasons, the rest of France is fairly sure that one of them is the new socialist tax regime.

    Gerard is now being criticised for being unpatriotic. Also “pathetic”. And the Culture minister says that he is “scandalised”.

    Patriotism be damned. What if we reframed the issue as “if I paid you €XXX* every year, would you move to Belgium and only visit?”

    Everyone has a price. Even patriots.

    *insert tax saved by leaving France for Belgium.

  5. Deutsche and the tax evasion probe. 

    Link: “Sorry chap – I just did that email cleanup whatchamahoozie and lost everything. Bazinga.”

    Deutsche Bank was raided by German police last week in a tax evasion probe, and it seems that some emails have gone missing. 20,000 of them, apparently.

    The suspected tax fraud has something to do with the sale and trade of carbon-emission certificates*. I may be wrong, but I think that someone forgot to tack on the VAT to each trade…

    *The basic idea: each country in the EU is allocated a carbon emissions limit. The country on-allocates the limit to various industries and companies. If the company is producing emissions in excess of its limit, it would need to purchase additional carbon-emissions certificates to cover the excess. If a company does well and comes in below its limit, then it can sell the balance of its allowance. Carbon credits have become a traded commodity in the EU. I think that the eventual plan is for the initial Carbon Emission allocations to be auctioned off by the government. It’s what we would call a “Pigovian” tax – where a bad practice is taxed in order to incentivise good practices. Another example is “sin” taxes on alcohol and cigarettes.

That’s all for now.

Have a good day.