Japanese Deflationary Spiral...

[Colonâ„¢]

Originally posted by DanS
Also, Japan just nationalized its #4 bank, Resona.

http://news.ft.com/servlet/ContentSe...=1012571727313

Stephen Roach has a good comment about this.

I'm still sanguine Japan will return to its old self. They have a skilled labout force and abundant capital, it's just a matter of utilising these properly.

Re GE, yeh it's sort of a weak comparison, but it's the best I could do! American companies know better than to get into money-losing businesses!

Like the internet? (sorry, just couldn't resist!)

[Colonâ„¢]

Originally posted by Tingkai
Here's a radical thought. The Japanese economy is fine. Sures there's no GDP growth, but unemployment is only 5.5%. It's not like the problems the US economy went through in the 30s and 70s.

I was in Tokyo in Japan last week. Things look better there compared to a lot of Western economies that I;ve seen recently.

Maybe we put too much emphasis on economic growth.

I mean who is doing better? The US with its great GDP growth in the 90s, but stagnant wages for the majority and extensive poverty levels or the Japanese who don't have any slums and have a high level of education?

Well its all relative isn't it? Before the USSR imploded they didn't got any poorer either, they just stagnated while the West rushed ahead.
I doubt many Japanese are happy with the fact they've seen their status degrade from economic miracle to the world's sick man.

And the actual employment situation is much worse, is just doesn't show up like that because of underemployment and unemployed who have been written out and don't get unemployment benefits. (those aren't very generous in Japan)

I think the slow-motion pace of the crisis is deceiving. The situation deteriorated only such gradually it may not occur that Japan is in a deep mess. (take Japan's national debt for instance, it's at 130-140% of GDP, and there's no way they can decrease that if growth doesn't revive - in that case: how the hell are they going to fund the pensions of a rapidly greying country over 20 years?)

[Dinner]

For those of you thinking deflation isn't so bad please allow me to disabuse you of that notion. Here is an article from this week's Businessweek which discusses the effects 12 years of deflation have had on the Japanese economy and the Japanese standard of living. Trust me we don't want to follow in their foot steps.

[Dinner]

Of course in the 1980's Japan was a highly regulated market with some of the highest prices on Earth. As the economy has stagnated and the government has been forced to let in, even a modest amount, of foreign competetion the prices could only go down. Germany and China don't have the problem of starting their possible deflationary period with the highest prices on the planet so if they do get hit with deflation it will be very mild.

[Richard Bruns]

Could someone answere a question I´ve always had about deflation: Why is it so hard to get out of? It seems that all you have to do is print money and spend it. This starts up the economy, gets people spending, and makes jobs. By inflating your currency, you can also shrink your debt obligations and weaken your currency, thus promoting exports. What am I missing? I know inflation is bad, but it seems that deflation is worse, so why don´t they just start printing money?

[TheStinger]

I maybe wrong but I think they have tried this and it just hasn't worked

[Sava]

How do you say "viva la revolution" in Japanese?

[TheStinger]

Originally posted by Sava
How do you say "viva la revolution" in Japanese?

by a freak co-incidence it is Viva la revolution

[Sava]

[Tingkai]

Originally posted by Oerdin
For those of you thinking deflation isn't so bad please allow me to disabuse you of that notion. Here is an article from this week's Businessweek which discusses the effects 12 years of deflation have had on the Japanese economy and the Japanese standard of living. Trust me we don't want to follow in their foot steps.

That article seemed to show that deflation was not a terrible thing. People are still spending money, just differently. It quotes one person who says she takes a couple of vacations a year. Salaries have stagnated, but prices have dropped so purchasing power is up.

Property owners have lost money. The hostess bars have lost business (meaning there's fewer stupid men willing to pay hundreds of dollars just to have a woman sit beside them while they drink).

Sure, Sogo in Ginza closed, but there are still a dozen big department stores there.

Unemployment is up, but still below US official levels.

And what has inflation done for North Americans? It's just a smokescreen to make people think they're earning more money now than 10 years ago when in fact for most people, their real income is up about $100 a year.

Of course, people don't understand inflation. They think, well I was earning $35,000 10 years ago and now I earn $45,000 so I'm ahead. When in fact that $45,000 just buys the same thing $35,000 did 10 years ago. (Numbers are just examples and not reflective of actual inflation and wages).

[DanS]

Colon: By my reckoning, Roach is cheerleading. It's not that he doesn't have some small basis for it--the nationalization is a good thing, as it injects some reality into the system. And you are right to point out Japan's strengths, which are substantial.

But even by his own admission, Japan is "[p]lagued by excess capacity of capital and labor and underpinned by a failed financial system" and that "Japan now finds itself caught in the worst of all possible macro dilemmas — a deflationary liquidity trap."

[Colonâ„¢]

Originally posted by DanS
Colon: By my reckoning, Roach is cheerleading. It's not that he doesn't have some small basis for it--the nationalization is a good thing, as it injects some reality into the system. And you are right to point out Japan's strengths, which are substantial.

But even by his own admission, Japan is "[p]lagued by excess capacity of capital and labor and underpinned by a failed financial system" and that "Japan now finds itself caught in the worst of all possible macro dilemmas — a deflationary liquidity trap."

Yes, he says that, and he says the nationalisation gives reason for hope there will be fundamental reform in the financial system. How is that cheerleading?

And that quote doesn't contradict my optimism in the long run. As I said, it's just a matter of utilising Japan's resources properly (by resolving the problems in the financial sector - and if they won't reform voluntarily, I'm sure an implosion of the financial system will force them to)

[Colonâ„¢]

About India again, Microsoft is investing $400mn in a supports centre for high end products.

[Dinner]

Originally posted by Richard Bruns
Could someone answere a question I´ve always had about deflation: Why is it so hard to get out of? It seems that all you have to do is print money and spend it. This starts up the economy, gets people spending, and makes jobs. By inflating your currency, you can also shrink your debt obligations and weaken your currency, thus promoting exports. What am I missing? I know inflation is bad, but it seems that deflation is worse, so why don´t they just start printing money?

That would work as long as a country's debt wasn't in a foreign currency. Thus very few countries could actually do it successfully. Do you remember the east Asian debt crisis of 1997 or the Latin American Debt crisis of 1998? In both cases countries defalted on debt causing the local currency to crash and crushing the economy. Like you said this can have some positive effects in fighting deflation. So what was the big problem? Most of the major international debts had to be paid back in dollars, D-marks, Pounds, or Yen. That meant deflating the currency caused national debts to explode many times over and bankrupted several nations.

[MichaeltheGreat]

Originally posted by Tingkai
I mean who is doing better? The US with its great GDP growth in the 90s, but stagnant wages for the majority and extensive poverty levels or the Japanese who don't have any slums and have a high level of education?

The Japanese have slums. They just don't like to advertise that fact or even admit it to themselves, just like they like to pretend there's no homeless, or a plethora of other socioeconomic ills don't exist.