Is Bernanke Worried About Japanese Deflation?

Leo Kolivakis's picture

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Leo Kolivakis's picture

**UPDATE: Why Prechter is Wrong on Deflation***

On Thursday, renewed concerns about Greece's credit rating and the future of the EU gave the dollar a boost, with commodities and equities suffering as a result. Broadly speaking, the market action seems to justify Prechter's warning.

Not so fast, says Peter Boockvar, equity strategist at Miller Tabak, who believes inflation remains a bigger long-term threat to the market and U.S. economy.

"It's the reaction to the potential deflation that gets to the inflation," Boockvar says. "The more deflationary type steps we see, the more money printing that will go on around the world that will set us up for that inflation. More deflation will eventually get us more inflation."

It may seem somewhat convoluted logic, but Boockvar's point is that global policymakers will do anything and everything to fight deflation, most definitely including Fed chairman Ben Bernanke.

See Peter Bookvar's interview by clicking here.

AnonymousMonetarist's picture

Perversely, the route to Gold $5000 is Gold $500.

AnonymousMonetarist's picture

Is Bernanke Worried About Japanese Deflation?


Worried? No he is terrified. Deflation is the hemlock of the elites and the midwife to hyperinflation.

If we cross that Rubicon, 'tis financial pornography and the Federales will be gangbanging a string.

It'll be the end of daze.


walküre's picture

The bottom line is this..

There is too much debt in the world. Not only that. There are too many derivatives created on debt default that have absolutely no backing.

Liabilities are off the charts because assets are not properly measured.

Let governments figure this out and revaluate assets on their books.

When the books are reflecting assets properly, the government can borrow against them and more money can be created.

Take all default swaps off the table for good. That's like financial vodoo. It serves no purpose other than steering a government facing near bankruptcy to engage with loan sharks.

Greece for example has a long standing history and culture. It has contributed much to our world. There should be a class of assets for that.

I am not joking.


chet's picture

"There are too many derivatives created on debt default that have absolutely no backing."

Yeah, I'm not sure who is on the other side of these "bets".  If Greece goes down, followed by some of the other PIGS, who is going to be paying out and how much?

ATG's picture

Leo, nice summary.

BB cannot lower interest rates anymore.

Real rates are 10.6% on the long end and

rising to reflect corporate and sovereign

insolvencies. The second leg of the great

credit cleansing has begun. PIIGs and STUPIDs

coming soon to a shopping mall and state

near us.

The only credible tool for ameliorating the

Greatest Depression is government

respecting Constitutional rights to liberty,

property and a stable currency.

Then private enterprise can do its job

putting US back to work, productivity and

savings. No more government theft, including

wars on everything that moves and some

things that don't...




Escapeclaws's picture

The only way private industry can put us back to work is by paying US workers the same wages as the Chinese pay their workers. Private industry shipped jobs overseas during the last 30 years and those jobs are never coming back. What is left are the mostly ephemeral jobs of a service economy. It's a fantasy to think that private industry could bail us out.

Anonymous's picture

Hey, I'm the fed chairman, I know what I'll do> I'll tailor my inflation measurements so I can say there isn't inflation when everyone knows there really is. When you rig the numbers they say what you want.

try adding the 35% rise in insurance, rise in taxes, etc. the onoly people who believe there isn't inflation are the fools listening to him.

To state there is a danger from deflation as we come out of the biggest bubble in history is an excuse. Deflation is the cure to the credit bubble, it whould be welcomed. It means that strapped consumers and those on unemployment can actually pay their bills and support the economy. when you excluse all the measurements that would show inflation you get an outcome. Anyone who says the fed manages monetary stability is a joke. When your currency looses the majority of its value because of your policies you have a problem.

It is also time to put to rest the false god of inflation targeting as a means of adjusting the economy. We've seen the damage this sickening method has done. It allows those idiots to avoid leverage, asset price bubbles. They didn't include home prices in their inflation measurments.

ATG's picture

Shadowstats currently documenting 10% CPI

using 1980 methodology...



Anonymous's picture

this is from simon johnson
"The process of deflation – spoken of with terror by some leading central banks around the world today – actually makes industry more competitive, and while there are negative aspects to it (particularly if the household sector is heavily indebted, as in the US), the modest price declines seen in Japan are not a disaster. In fact, real GDP per worker in Japan – annualized over the past 20 years – has increased by 1.3 percent per annum; while the comparable number in the US is 1.6 percent. Over the past 10 years, real GDP per worker (annualized) increased by 1.3 percent in both Japan and the US – and now it turns out that much of the GDP gains in the US financial sector may have been illusory".

this is link:

ATG's picture

There is no free lunch.

What banks, brokers and government take by

fees, front-running, usury and tax, they lose by



Anonymous's picture

One of the greatest myths of all time placed on folks is that deflation is bad. It just isn't true. It is just another way the banksters control policy to their own benefit. It's as much of a myth as the efficient market, and many other myths that have been adopted to suit the banksters.

The only reason japanese have managd to maintian a reasonable standard of living is because of deflation. Of course the banks hate it. There were long periods in american history when e had growth with deflation. But we didn't have banksters making themselves rich by giving out excessive credit.

I just wish the American people would do what has to be done. We need a solution more along the lines of the french revolution. But alas, we are sheep, controlled by a press that resembles 1984, and were brain washed from an early age to adopt double think.

One way that the oligarch can control the masses is to define the debate and get their ideology accepted. No guns or violence needed to keep the masses down. Just don't allow alternatives to enter the public discourse.

ATG's picture

Gentle deflation is the natural state of affairs with a

productive economy and stable currency. Usury

is theft leading to drastic defaults proscribed by

most scriptural traditions.

As if the 30% mafia loan shark credit cards were not

a clue of what is coming.

Macchiavelli, Gustave Le Bon and Sigmund Freud's

double nephew Edward Bernays who invented Madison

Avenue knew how to control and dazzle the crowd

with Advertising, PR and propaganda.

Hitler and Mussolini used LeBon's book The Crowd...


jc125d's picture

Ben, you want to shrink that balance sheet? Then mark that crap you're holding to the market. And these guys talking about inflation as if the value of the USD will remain constant, while the presses are smoking. Bong hits for them all.

ATG's picture


Government can fool some of the people

some of the time,

but not all of the people all of the time...

the grateful unemployed's picture

have you read the Fed's Preventing Deflation:Lessons from Japan's experience in the 1990's available at the their website in pdf? Krugman and Bernanke are cited throughout.

Prechter has been correct in the general direction of the market. My only complaint with his method is that Socionomics is nutcase psychology, and psychology is a discredited science, (like economics).

Looking inside the recent CPI numbers provides a different view of things. New autos lost value, while the price of used autos was up, and Health care was up, naturally, and is pretty much out of the ICU on Reform. The government interventionists have been busy at the commodity exchanges keeping speculators, hedge funds, from running up prices (or assigning fair market value, take your pick)

As far as housing is concerned I expect RENTS, the official measure to drop much slower than core housing, but that measure is thoroughly corrupted.

In the final outcome what we have is wages and income falling faster than non core, food and energy, and those measures falling not as fast as core, asset prices.


Deflation helps the average working guy, assuming he has savings, and is not in the stock market, but mass marketing of pension funds, and 401K has pretty much sold everyone a share of the Titanic.



ATG's picture

Another way to look at this is CPI up and PPI down

due to government costs, with CPI eventually

reflecting the real economy, which has been

contracting since the 8+% GDP peak under Reagan...

asteroids's picture

There is nothing the FED can to about unemployment short of hiring millions of people to work for it. If FNM and FRE did not exist then there wouldn't be an easy way for it to fix housing. See how hard it is for them to fix commercial mortgages?

ATG's picture

Fed and Treasury already hired more economists

than any other entity, reportedly 1000, and they

still did not report the economy accurately to

the people they allegedly serve, the US Taxpayer.

Bernanke, Geithner, Greenspan, Paulson, Romer

and Summers claimed they never saw it coming...

Thoreau's picture

The only Japanese issue Bernanke is worried about is hiring the right gardener for his Zen garden in Switzerland. The man, like his contemporaries, is simply playing another game of monopoly with other peoples play money. When the game is up, his maid will bring him some fresh cookies and milk and crayons to while away his worries.

Anonymous's picture

Looks like interest rates are only going DOWN.

USD is only going UP.

Gold and silver look like SUCKERS trades (down 10-15%... headed down another 10-15%).

ATG's picture

Real interest rates are the -6% GDP contraction

last year plus nominal rates from 0 to 4.6%, 

ie 6 to 10.6%.

They are rising not due to inflation, but increasing

credit risk...


Madcow's picture

There is nothing Ben, et al can do about the growing deflationary vortex.  The money supply is vaporizing. As cash disappears from the system, all the rents will collapse. Stuffing money into the government-banks won't help anyone but the government-banks.

Increased taxes only add to the deflation. "Stimulus" at this point is counter-productive, as it can only add uncertainty to those with any remaining capital. 

They will try to stretch the deflationary collapse out over 30 years (Japan) so as not to suffer a brutal 2 year adjustment. The markets will force the adjustment to happen more quickly. 

The only weapon the Fed has is monetary destruction. And you can bet they will TRY to use it. But it won't help the economy. The ship has already sailed over the falls. It just hasn't yet crashed upon the rocks below. 

Don't believe me? Take a look at bank lending. And realize that debt=money. A rising dollar and rising taxes = parabolic increases in unemployment, bankruptcies, foreclosures, asset liquidations, etc. The only "escape" would be massive debt and tax relief. And that's not going to happen, because our political leaders are too arrogant and corrupt and delusional to admit they are wrong.

Supply chains WILL break down in those industries not taken over by the government - Just like car engines break down without motor oil. If I lived in a big city on the coast, my "investment strategy" would be to get the f* out before looting, car-jacking, and cannibalism no longer make the local news.  

jbcorwin's picture

And you would move from the coast to?

walküre's picture

How tragic. Make it a movie script for it will never come to that in real life.

"Supply chains WILL break down in those industries not taken over by the government"

Are you suggesting that it's a good thing when government takes over industries? You're saying that supply chains will break down unless government takes over. You're implying to favor that scenario. But you're also saying that we're staring down a deflationary rabbit hole and increasing taxes would make it worse.

Which is it? More government = more taxation or more debt. Both will result in inflation. When government runs things, people either turn to a different currency or gold to store their wealth. Just ask former Soviets how they handled their decades of centrally planned economy. Their own money was worthless. Anyone that could convert into Dollars or Deutschmarks or Gold did so.

I'm sorry, I really can't share your negativity. People that don't have education or that don't have any assets will be poor. That's the story of their life.

Now, if a populist comes along and tells these people that they somehow DESERVE to participate in the economy the same way the rich folk do, then we might have a problem.

As long as people have a roof over their head, get fed and can watch TV they won't get any wrong ideas.

Shit happens. Life is NOT fair.


mikla's picture

Very nicely said.

hettygreen's picture

Mr. Prechter is a thoughtful, intelligent man, whose views I generally agree with and respect. That said, he is still not known to be infallible and from what I've been reading, the US Treasury market is about as hated right now as gold is loved and inflation worshipped.

Ok which one is it that is in a bubble?

ATG's picture

Both are bubbles.

Bonds government guaranteed certificates of

confiscation. Gold hyped beyond credibility...

curbyourrisk's picture

Listen's not just unemployment, but it the quality of those jobs.  You need GOOD paying jobs to reverse the depression you idiot.  Without wage increases, INFLATION CANNOT RISE.  Go back to school, forget your Chicao economics classes and attend some Austrian classes you dope!

ATG's picture


And without constitutional protections of free

markets and property, we will not have savings.

And without savings we will not have investment.

And without investment we will not have growth.

The fastest way to productive jobs, savings,

investment and growth is replacing unproductive

income, payroll and property taxes with the 1%

transaction tax and government spending freezes.

We had a transaction tax from 1916 to 1966 that

was doubled during the last Great Depression...


Anonymous's picture

There is inflation in the top strata that Ben caters to. High end cars, real estate, diamonds (up 30% this past year), gold, Platinum, palladium,stocks, bonds----all these have inflated over the last 12 months.

Unemployment is not a worry for the top tier. They never worked so being without work is a non-starter.

His only interest is his Tribe and they are doing for the most part just dandy.

Anonymous's picture

One thing that's a complete mystery to me is how Japanese fiscal authorities retain the least shred of credibility after 20 years of epic fail.

Hara-kiri, the only remaining solution.

Anonymous's picture

Japan's been trying to engender inflation for the last 20 years.

I wonder when economists here will understand that what they've really done is to misdiagnose a secular demographic shift as a liquidity and confidence issue?

chet's picture

Has cash been a safe position in Japan during their deflationary period?  With 20/20 hindsight, what were the right positions for someone to take there when their bubble burst?

Honest question.  Anyone know a good source discussing that issue?

Leo Kolivakis's picture

If I remember correctly, Bianco Research once did a study of this and found that the number one asset class during Japan's lost decade of deflation was Japanese goverment bonds (even with the low yields).

ATG's picture

Bingo bango bongo...

Anonymous's picture

Worried?? Worried for whom??

Certainly not for himself, not for his puppeteers at JpMo, Goldman Sucks, Gensler at CFTC. Not for Soc Generale and the rest of those he has paid off in full and managed to transfer trillions to his benefactors.

The only possible thing he could be worried about is which country his bank account is safely lodged in.

Anonymous's picture

My friends....

Write this down....

Nothing will improve....until there are scores of
bankable valuations added to the economy....

This means dramatic downsizing of government....and
the total restructuring of taxation....such as the elimination of both corporate and individual taxes to be replaced with a small competitive consumption tax....

All other venues to raising taxes and maintaining or increasing the size of government....has failure written all over it....

Want a smaller government ?

How about the debt destruction of the over $1 Trillion in worthless paper on its books....happily transferred to the tax payers....

BB and clan....just do not get it....

Let the massive debt destruction games begin....

CASH is king....

Anonymous's picture

ahhh... sleeping better every day on my mattress stuffed with cash.

JimboJammer's picture

Ross  Perot   said :   the  Nafta  plan  will  move  jobs  out  of  the  usa.

well  now ,  we  can  see  it.   Those  shoe  factories  are  not  coming  back.

Anonymous's picture

Oohh, how I long for a shoe factory job.

- 8 yr old kid, posting from my iPod touch.

Harbourcity's picture

I compare Bernanke to Nixon.  Nixon meant well at first but after awhile it all about feeding the beast.  The Fed is Bernanke's Watergate.  We just need somene to break that story.



Chopshop's picture

great read Leo.  am rather obviously rather partial to the DE camp n RrP ... thanks for highlighting ben shalom's written.

Leo Kolivakis's picture

Thanks but what camp are you talking about? Hard to decipher code this morning...still on my second cup of coffee.:)

rubearish10's picture

Does one get the feeling there's a few too many "balls in the air"? Heli Ben has the daunting task of driving a truck through the eye of a needle. This will not end well.


As for Prechter, if the bond bubble blows, wouldn't one want to be in gold? Don't get it! Perhaps the "Carry" gets blown out but watch how the "yellow metal" turns on ya! It'll be quick and then runaway.

ATG's picture

Gold declines during defaults and deflation.

Look at every margin call decline since 1980...