Peter Morici :japan selling into US and Euro, unemployment 9.5 &

WASHINGTON, DC (Commodity Online): Should investors cringe or cheer these days when the government -- any government at all -- offers to help a slowly sinking economy?

Japan is a disheartening case in point. The Bank of Japan Monday said it would expand its quantitative easing program by a third. It would also expand its lending and keep its overnight lending rate at a rock bottom 0.1 percent. The government then said it would find a way to spend $10.6 billion as a stimulus measure.

Text book stuff.

The Nikkei 225 index and a host of other Asian markets responded, making solid gains Monday. By Tuesday, investors had other ideas, the Nikkei 225 plunging 3.55 percent on worries the fundamentals have further to go before markets hit bottom.

"The main fear in the market is that we will have some sort of double-dip recession in the second half of this year and into 2011," Philippe Gijsels, head of research at at BNP Paribas Fortis Global Markets told The New York Times.

More pointedly, analysts concluded the size of the interventions were not nearly enough with the stimulus program set at about 0.2 percent of Japan's gross domestic product. But political realities suggest mortgaging the future is improbable on its own terms. Governments that are in the red are spending tax revenues that will be collected somewhere down the road -- and lots of it. That means in the future they'll need a larger tax base -- more workers and workers who are doing well. That can be envisioned. But a lot of things can be envisioned.

Japan, dependent on its export business, may well have sent the $10.6 billion to the United States and Europe and investors are aware of this. Japan, in other words, can only do so much before acknowledging businesses are not going to expand when two critical markets are floundering. Practically speaking, there is no such thing as a healthy Japanese economy when unemployment is 9.5 percent in the United States and 10 percent in the euro area.

That said, it is absolutely untrue that more stimulus spending in the United States would be akin to throwing good money after bad. It would be throwing good, useful dollars in the right direction, but it would also be vaguely futile, as the first $787 billion stimulus bill turned out to be.

Stimulus spending works; it just doesn't work absolutely. If it doesn't work absolutely in a two-party system there will always be pundits who decry the effort.

President Barack Obama said Monday "additional measures" are in the pipeline, centering most of his remarks on tax cuts, including one for small businesses that has been packaged together with a $30 billion loan program. This is right out of the Republican party playbook -- textbook stuff. But Republicans are in an all-huddle, no-play offense at the moment, which is to say three syllables define their mind set: Can you say No-vem-ber?

Economist Peter Morici this week did not say "throw the bums out -- all of them," but he did say neither the Democrats nor the Republican deserved votes for their brilliance or lack thereof in devising an economic strategy.

Morici, a professor at the Smith School of Business at the University of Maryland said first and foremost, with spending set to rise to 23.2 percent of the gross domestic product by 2012, "Congress has no self discipline."

Secondly, with Social Security and Medicaid encompassing 40 percent of government spending, Congress needs to find solutions to U.S. health care and retirement programs to make substantial changes to the federal budget.

Thirdly, he said, "Getting tough with China is not protectionist -- it's self defense."

But with few willing to label China a currency manipulator, "neither party really deserves to lead," Morici said.

In international markets Tuesday, the Shanghai composite index lost 0.52 percent while the Hang Seng index in Hong Kong dropped 0.97 percent. The Sensex index in India fell 0.34 percent.

The S&P/ASX 200 in Australia lost 1.09 percent.

In midday trading in Europe, the FTSE 100 index lost 1.03 percent while the DAX 30 in Germany fell 0.82 percent. The CAC 40 in France lost 1.22 percent while the DJ Stoxx 50, a pan-European blue-chip index, lost 1 percent. (iWireNews ™ and OfficialWire)