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Guest Post: Japanification
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Trilateral Commission is Japanification. It's been going on for decades.
The Japan model remains a deeply imperfect sign post for what ails the United States and it has become very tedious to see it trotted out even now, when the map of the US is already diverging from the Japan experience. Simply put, the BOJ was never able to counter the mountain of private savings that still exists and stands behind the Yen. Additionally, Japan never really experienced sustained deflation or if it did, it was hardly painful. The country would have another 15+ years post 1990 to export goods to a growing world, thus frustrating even more the BOJ's attempt to debase and spark consumption.
America is as hollowed out as an eggshell with its contents sucked out. No savings, no industrial machinery base, not enough energy supply, and unpayable levels of debt on on every public and private level. In other words, in Japan there is still a "there" there. In the US there simply is not enough underlying either the currency, or even the tax revenue base to even support the income stream needed to pay interest on our obligations.
The Japan example is useful, but anomalous. The US is actually much more in the mainstream, 20th C example of failed states which ended in currency crises--or, from a longer perspective--fallen empires.
One thing which needs to be mentioned is that a national policy dedicated to devaluing your currency is an act of Economic Warfare.
Japan's been successfully at war with the rest of the world for the past 15+ years. And it's succeeded in keeping its economy and power brokers in place.
The same can be said for the U.S., recently.
Eventually the other economies will wake up and respond. But the ChiAmerica combination is unbeatable.
It will be interesting to see how this all pans out.
I agree completely. I view the article as just another volley in the "engineered gold bubble / bust / fiat USD is the greatest thing since sliced bread / time to buy Treasuries" monologue that has been flowing out of officialdom, and that will continue to flow out of officialdom until the bitter end.
There's an excellent chance that this is the beginning of the final deflationary sag before the currency explodes. Things to watch: further extensions of unemployment benefits, further degradation of tax revenues, fiscal deterioration, all while the looting end game continues to play out.
There is no Japan scenario for the U.S. We have armies overseas engaged on the ground, troops in 130 countries, global reserve currency. This event is a reserve currency failure; I used to call it a reserve currency shift, but that is not IMO as assured as the failure of USD as reserve currency.
My hope is that there is a happier ending to the fractured fairy tale.
It is possible if governments align their commitments to revenues. We'll just have to see if it happens.
What measures can be put into place that would result in your hopeful outcome? I'd love to hear them. Whatever they are, from where will the political will emerge to implement them? I don't think they can be implemented until the system has already collapsed, and such a collapse reveals government and central banking to be incompetent frauds. Once the paradigm is broken, we are talking revolution not evolution.
The real bottom line is that the world is bankrupt.
Peak oil = no future growth in income.
No escaping this. Nice article at IEA showing 60% decline in production in existing fields by 2030 with the deficit made up by "fields yet to be discovered." The growth needed to support today's debt does not exist and will not exist absent the perfection of fusion power. Period.
The US is just the most egregiously bankrupt State; Japan is quite bankrupt too. As is the UK.
Bear in mind, this is ALL paper. Compound interest is a mathematical concept with no REAL force.
Time to go back to a real economy; this is the death phase of fiat. Fiat worked ONLY so long as the future promised more than today.
The assertion that America has no industrial machinery base remaining is a wee bit of an exaggeration. However, given another 15-20 years on the current trajectory, such an assertion may be closer to valid. At that point, we may be reliant upon the service sector, and it is rather questionable how resilient an economy a nation might have if we are all servicing one another. Wait, that didn't come out right. What I mean to say is that, in a service-based economy, your employment base might be subjected to the fungible nature (i.e., readily outsourced) of it's jobs if there is a misguided presumption that you can compete with leverage if you are in fact just servicing yourself. Damn! I'd better just quite before I dig the hole any deeper.
Well, since we're more closely examining the macro argument, the energy assertion is tenuous as well. We may find we have an abundant amount if sufficient need and desire are both put on display.
No, we won't.
EROI is the real world, not the desires of men.
It doesn't matter how much you WANT more net barrels of oil out of a past-peak well, you CANNOT get them.
You can try harder which means expending more input energy to raise the production, but your NET OUTPUT is always lower.
This is the immutable reality of EROI. Gravity will not decrease on the earth simply because we desire it to. The rotation of the earth will not slow. Water will not run uphill.
We have confused ourselves into believing that whatever we desire can be made to come to pass; this is the fatal self-DELUSION of...economics. The economics profession, that of a pseudoscience, is what has convinced people that demand and monetary policy bend reality. In every case, they ASSUME that demand leads to supply. Economics is the most dangerous bunk ever foisted on man.
I think we are beyond just Japanification. The easy money from the Gov encourages people, those that still have resources, to be overleveraged and live beyond their means. In reality, someone is wealthy not because they have the largest home in the hood, but because their house is paid off. So they don't have to waste 1/3 or more of their salaries on their imaginary castle. In addition, once you lose your salary, not having to pay 1/2 or more on your shelter is a huge safety net.
Our middle class American dream is not really middle class dream anymore. We all have overstretched ourselves with the largest rat race of modern times. And EASY MONEY is something that made such a race probable and temporary achievable.
http://news.ino.com/headlines/?newsid=120620090012
"
Homeowners availing 35-year loans from an affiliated lender will have the mortgage rate reduced by 1 percentage point for the first 10 years. The offer will be available only for those taking loans next year for energy-efficient, handicapped-accessible or quake-resistant homes.The Japan Housing Finance Agency reportedly charges a fixed annual interest rate on the loan, which was developed jointly with private lenders. As the rate stands at 2.6% per annum now, those who participate in the program will have to pay only 1.6% interest on their loans for the first 10 years."
Who`s JM?
off topic
Carbon Capitalists Warming to Climate Market Using Derivatives
http://www.bloomberg.com/apps/news?pid=20601086&sid=aXRBOxU5KT5M
and Jamie Dimon`s contribution to Global Warming
http://www.jpmorganclimatecare.com/
ArchCriminals!
This labeling by a Chicom official of western investment banks which peddled toxic derivatives to Chinese enterprises ( and many others ) appears especially apt.
ArchVillains bring to mind the 007 genre, with the vampire squid integrated into Spectre.
I doubt that Lloyd or any other law school product would be convincing as Number 1, but he could be easily visualized with poisoned metal spikes on his shoes.
ArchCriminals!
This labeling by a Chicom official of western investment banks which peddled toxic derivatives to Chinese enterprises ( and many others ) appears especially apt.
ArchVillains bring to mind the 007 genre, with the vampire squid integrated into Spectre.
I doubt that Lloyd or any other law school product would be convincing as Number 1, but he could be easily visualized with poisoned metal spikes on his shoes.
Nice article, thank you.
The WSJ this weekend had an extensive piece on the Japan Post system that is a must read for all of us. The link is here but it's a subscriber piece: just do the cut and paste thingee on the headline into google and voila, you can read it.
For those not familiar, Japan Post started off as a postal service but has morphed into banking, insurance and they are now talking about using it for health care services (i am not shitting you....). The plan was to privatize it a few yrs back but the new Japanese overlords are shit canning it for now.
When i read the article, all I could think is that someday, like Japan, we will all visit our local Bank of America branch to have it stuck up our asses twice: one by the banking side and one by the inhouse nurse under the public option doing a rectal.
Y'know, sometimes being older like I am is a blessing: the good news is that I am likely to be dead before all this shit hits the fan.
http://online.wsj.com/article/SB125991789252076421.html
Oh no you don't DH! You can't leave before the party really kicks up! Some of us youngsters need the old fogies around to tell us about the good old days! You guys are our connection to reality, that things weren't always this insane. I talk to my friends my age and we are of the same mind that we must be living a Twilight Zone episode.
There is no man alive right now who remembers reality. The insanity has been going on for a hundred years.
Guy in Barron's says we can't compare it to Japan because our corporate debt is not as big a problem as their corporate debt has been. Can that be right?
Not sure anybody can really say just what our aggregate corporate debt problem is relative to anything at this point. See FASB about appropriate methods to hide write-downs and fudge stuff.
The author seems to ignore the fact that Japan got away with much for decades because of its export trade. That export trade made Japan look better than it actually was, and encouraged Japan to continue down that same road.
But if the entire world becomes Japan, who are we going to trade with? Mars? I don't think the entire world can do a Japan style wreck for an extended period precisely because there is no export safety valve.
Greyzone, you are exactly right, the Japan Japanification too IMHO is a pipe dream; the last and only rhetoric of the desperate ... Got Gold???
Japan isn't just an export oriented economy. An equal measure of their model success is protectionism of domestic markets. Expect it everywhere.
Well, medium-long term colonising and trading with Mars is a vastly important goal for humanity, but it's certainly not going to help right now . . .
I think the author ignores, too, that Japan is not an end-state. It has persisted for a long time, not least for the reason you give, but ultimately (probably soon) it will fall off the cliff. We (by which I mean the rest of the developed world - I'm not American, but it'll be much the same for almost all of us) won't get to stick around on the only-marginally-unpleasant ledge for anything like the time they did.
There isn't even a Japan scenario for Japan this time around; the American consumer, the other side of the equation, is dead.
Direct Quote:<
The author seems to ignore the fact that Japan got away with much for decades because of its export trade. That export trade made Japan look better than it actually was, and encouraged Japan to continue down that same road.
But if the entire world becomes Japan, who are we going to trade with? Mars? I don't think the entire world can do a Japan style wreck for an extended period precisely because there is no export safety valve.
No. There is no safety valve. Consolidate, protect, reduce., It`s coming, people.`n Be ready.
Agreed. The data I present suggests this too.
The price of gold has little or nothing to do with inflation or deflation.
The primary driver of gold's valuation is the degree of investor confidence in the world around them.
As long as the investor is reasonably confident that the government has an alert administration holding a stable rudder, gold's price will stay anemic.
Once that confidence begins to erode over time, the gold price rises over time, and as loss of confidence accelerates, the gold price increases dramatically. When approaching Weimar or Zimbabwe levels, the differential becomes infinite.
The steady rise in gold price over the last decade has everything to do with the gradual, and now accelerating, decline in faith of ANY government's ability to stabilize the economic environment.
Gold in Yen has been in the dumps over the last decade. The data seems to say that flat prices/very mild deflation doesn't generate enough fear factor to make gold attractive as an investment.
If you were a perfect timer, in and out of equities was optimal. Treasuries were steady performers consistently, as the yields kept going down.
huh? 10-year chart has gold up 263% in yen.
steady rise until 2006, then it really took off as the world began to enter crisis phase.
Gold was steadily UP in yen terms throughout most of their deflation phase simply because the japanese trusted it as a savings vehicle.
Japan did the same thing we did, lever up their national balance sheet with debt
The scale on the chart isn't % change. It is the price denominated in Yen. Should have labeled this, sorry.
My point is not to say that gold sucks. But it does not provide good risk/return profile compared to equities or JGBs in Japan during what I consider a period that mirrors our own.
Statistically, the data at the end says that gold isn't correlated to equities or bonds. This in itself is a nice property.
Japanification is best case scenario - jm showed us in his last essay that he thinks we can buy paper and muddle through. I don't agree - all paper will burn and the conflagration will resist containment. He brings resources to the table that I do not, so kudos. Place your bets.
ZH, come clean.
How could this scumbag have any influence over you? Unless you are in fact him.
http://retardzone.com/2008/02/06/1234-i-declare-a-retard-war
Why am I a scumbag? I assure you I work for a compnay that had seen $0 of bailout money. I'm not a bondtrader. The only thing you can accuse me of is talking my book. So does everybody.
I'm a great guy. You should see my kids' faces light up when I make pancakes and ganja butter...
The above link has some of the pertinent info but this link has more:
http://www.meatspin.com
You fed GANGA butter to your kids. Guy, I have to tell you, I wouldn`t just put you in jail, YOU WOULD be `DEAD. You are NOT a great guy, the way I see it. Fucking up young children is criminal and I personally would take a Baseball bat to you to stop such ABUSE`. Bang..., Bang..., Bang.... Stop and think for moment what that would be like. Does that sound unplesant. Does that sound Nasty. It certainly does to me. This stupid keyboard driver prohibits me from from keyboarding a question with a question mark. That`s OK. It certainly out to. MotherFucker, Do you even grasp the extent of my revulsion. Do not make the mistake of assuming that ANYONE would support you. They won`t. Sooner (I Hope) or later diseased indiividuals like you are GOING DOWN. I entertain the hope the most people in the world are GOOD people. (Maybe futile, But I am a Optimist) I am sick to the core of my being that psycophopathic losers like you are what our children have to look forward to as mentors.
Whoa, somebody must have gotten a gerbil stuck in their arse over the weekend. Calm down, internet tough guy.
Woah, buddy. Go back to YouTube. In fact, go outside and get some D3.
I like your approach David. It's candid and refreshing. Thanks.
JM aka Timothy Sykes is universally hated by the whole Internet. He's like an up and coming bad infomercial. No one wants to hear or see him.
Oddly enough ZH warmly embraces him like he owns the place...
Nice to see Sykes working over at meatspin. It's a shame Baracks stimulus plan doesn't seem to work for him.
It's a joke.
I think I'm turning Japanese I think I'm turning Japanese I really think so ...
The price of gold has little to nothing to do with inflation or deflation.
Gold's price has everything to do with investor confidence in a stable administration with a firm hand on the economy. If investors are secure that the government is in reasonable control of the economy, then gold's price will be anemic. If investors lose that confidence, the gold price rises.
The steady increase in gold price over the last decade coincides with the decreasing certainty that governments' have the capability of stabilizing anything in the economic universe. As that loss of confidence accelerates, so does the gold price.
First statement is false, second statement is true.
Indeed, if there's stability, investors will go after risky assets. Two decades prior to '99 saw general market stability, and the price of gold declined. And yes, when there's fear and uncertainty, gold does well. However, if there's a lot of dollars in existance and there's fear an uncertainty, then there's a lot more money being driven into gold, which makes gold go up a lot more than the amount of money was lower. Likewise, if there's less purchasing power available due to deflation during economic uncertainty, then gold will go up but not as much.
Bottom line: Uncertainty/Certainty in markets may determine the direction of gold prices, but the inflation/deflation of the moneys will influence the magnitude of the price movements.
& the magnitude of uncertainty & larceny created by the
International Wall St/City Crime Syndicate. did we forget to highlight that?
So America is supposed to become like Japan? We are going to become a nation of hard working, healthy, savers? We are going to have an economy that is at least in part export driven that makes and sells real products? We are going to fund our massive deficits with domestic savings? I just don't see it...I mean I think I could see tentacle porn and hentai catching on here but that's about it...
I remember that "Japan", but what you describe is hardly the Japan of today. Twenty years of economic malaise, an aging population, and an extended period of horribly low interest rates have changed the country markedly.
The savings rate has tumbled from 17% in 1989 to below 2% today, even less than the US. In regular polls conducted by various organizations in Japan, the top choice for males' "Ideal Job Sought" has remained the same for the last decade: Hair Stylist. They are not their fathers' sons. Their goal is not to be buried in the company plot. While they smoke at about the same rate as the fathers (daughters more than the Moms), the diet has also changed...more Mac donna rudo and less natto and gohan, so even Japan's legendary osteoporosis-ridden 95-year olds may pass into history.
I knew their savings rate had collapse. I also knew their young people are worthless, finding out about herbivore boys showed me that. Didn't know about their health though.
I was trying to make the point that when they did the hellish economic sin they did they were in a better place to ride out the damage. I'm one of the crowd that thinks Japan is in for a world of hurt. They have to deal with the old, the massive debt, and the worthless youth...sounds a lot like America doesn't it. The difference is at least Japan went into their crisis a bit more prepared, it took 20 years of insane policies to grind them into dust. America went into this crisis extremely week and dialed up the insane policies to 11.
I think that getting 20 years of Japan stagnation is one of the better case scenarios for America. I may not agree with a lot of what he says but Denninger has a fun debt to GDP chart. Persoanlly I would thank God if we had a Japanese style mailaise, don't see it though.
I'm in agreement with you here. If we are only so lucky as to escape with a Japanese style malaise---and I mean what they have experienced up to now, not what they may be about to experience---I'll go to Meiji Shrine and light a joss stick or two.
I sometimes wonder if the so-called horrible demographics in Japan are a result of the economic policy. Give a wealthy, well educated population an endlessly hopeless, bleak economic future and the population will decline, I am sure.
The really criminal fundamental of the Japanese model and now perhaps world model is that private debt, which has the means to be extinguished in a capitalist system, is transferred to the state, where it lives in perpetuity. Capitalism will not, and cannot survive where debt is not extinguished. I am surprised that the pundits continue to overlook this fundamental and deadly flaw that emerged globally for the first time in modern world history in September 2008.
Those who have been involved in this disgusting ploy should be considered enemies of the free world, cast as treasonous criminals and hunted down like rabid animals.
I marvel at the economists who discuss Japan's having a "demographics" problem.
LOL and puke - um, the population CANNOT GROW FOREVER.
WTF is it about economists that they cannot comprehend that exponential growth has LIMITS within this FINITE system we call earth?
JFC, we hit an oil peak in 2005 and people are still talking about mfing GROWTH and how failure to GROW population to consume ever goddamned MORE is a problem!
Growth IS THE PROBLEM.
Debt and population - same thing. The problem is always "solved" by more growth. Got an issue with population? Grow. Debt? Grow. Just grow, grow, grow, no matter what. Hey, never fking mind if you already have 1.2B in your country; China has a "demographics" problem of too LITTLE population?!?! Why? Because they will have to DOUBLE that to support the debts of the present?
Good lord, when you have a problem that requires terminal exponential growth as a solution, then your entire philosophy is bankrupt.
Rapid changes in population in either direction cause severe problems, except perhaps for a population boom in a vastly underpopulated resource-rich region (North America in the 19th Century, for example). A birth rate heavily below replacement creates a population with an unmanageable dependency ratio and, as first Japan, then continental Europe and finally China will discover, the consequence is almost unimaginable human suffering. The problem is as much about the uneven distribution of fertility as the extent of it.
That said, the natural medium-long term outlet for global population growth is other worlds. Most natural resources are not limited in any sense that will be meaningful for thousands of years at the least. We may very well be facing a short term bottleneck in energy (the only resource that does appear to be somewhat meaningfully limited), but I have very little doubt that a technological solution will be found, be it high efficiency solar using nanomaterials, nuclear fusion, or something else entirely.
Good post. Good food for thought. Gold as a risk asset? Just the opposite - people flee to gold to avoid risk - seeking the safest financial haven of all.
Japanification. I like the sound of that. Agreed that the globe is heading in this direction, but not before much more currency destruction through quantitative easing has occurred - to the point of where the masses lose all confidence in paper currencies. At which time people will pull back and retrench with a localized micro-economy operating on barter to service their needs.
This will be a major social upheaval, calling on reinvention of the established social model, which those in power will attempt to formulate and control. This will fail. Resulting in a completely new paradigm, holding some old parts that work and discarding others that don't. Will it be bloodless? Who knows? One can hope, however optimism usually loses out to pessimism when the sky is the darkest.
problem w/ gold is sometimes it is a risk asset. over the past month or two its hard to argue it is a "safety" asset. bugs love gold because a case can be made for outsiders to bid up the price in ANY economic environment. While i have serious doubts about gold being a true asset in true "upheaval" scenarios (ie target on your back if you are known to have gold), its probably not a bad play at times, and definitely is good for momentum players.
Gold lovers currently are of the mind that the money supply is too huge and will make the USD worthless as soon as next week. This article is a good example of the slow sucking sound that happens in a deflationary environment. How much CRE debt must be refinanced/rolled in the coming years? Is that amount > or < the amount of $'s printed so far? Some of that debt will not be refinanced, and losses will be realized. Every bad debt that cannot be refinanced is a destruction of dollars (by definition, why are all these banks are insolvent? its because they don't have enough dollars, not that they have too many dollars!).
An interesting thought experiment is to think about the price of a house/condo in one of the overheated metro-areas in 2006. When will those homes re-attain their bubble prices? Can you even fathom when that will happen? If not, then what you have just realized is there is no inflation, nor any risk of inflation (in fact rental rates are falling everywhere and household formation is slowing/falling as people lose their jobs and consolidate with family/friends/street bums).
The Fed has printed a ton of dollars, and will print more, but they have just barely been keeping up with the amount of dollars being destroyed every day.
Do you believe that real value can be created by a printing press? If so, then everyone should quit working and we should merely print our way to prosperity. If not, then the newly printed currency-thingies coming off the press do in fact dilute the value that used to be in all the then-existing currency thingies, no matter whether or not the new ones are released into circulation (and they are released into circulation when they are created and deposited in banks' reserve accounts). Dilution of currency-thingies means real things cost more.
This is completely consistent with value declines in leveraged assets (houses etc) while food, oil etc cost more.
I understand where you are coming from about gold being the opposite of risk, and when it correlates to the dollar, it does behave this way. For it to behave this way, there has to be palpable fear. Fear of that magnitude is psychologically unsustainable.
At other times, gold correlates with risk assets like equities, which it is doing now.
The statistics I presented show that it never strongly correlated to a natural expression of the Yen: 10-yr JGBs.
Fear of that magnitude is psychologically unsustainable.
Tell it to Argentina.
Bro:
There are so many other countries less credit worthy than the US.
Argentina was a country with debt to GDP ratio higher than 100%. The US ratio is around 80% off the top of my head. Most EU countries have way higher ratios than the US.
There are so many other countries less credit worthy than the US.
...and I'd be willing to bet that none of them have anywhere near the consumer debt that the U.S. has, being consumer of last resort and all. And I am certain that none of them maintain an empire with troops, naval and air assets in all corners of the world, a space command, and are actively engaged in two ground wars. Your comparisons fail.
So is the point you are making that America is okay even though we are missing our feet because other nations are missing their legs? It's a race to the bottom. I don't even think America will hit the bottom first, but it's still a race to the bottom. I think we will see big swings in the gold market, but in an environment where nations are trying to debase and destroy their currencies the gold bet seems safer then others. If you have an investment that will beat gold even in the face of currency collapse, please tell me and we'll make a fortune!
America will not pay it's debt off legitimately.
Also do you really believe our GDP numbers? How boned would we be if they were misstated by 5%? 10%?
If I thought everything was OK in the world then treasuries wouldn't be a great idea. I'd go Jim Cramer all over the place.
Everyone is so hot about currency crises, but where is it going to come from?
Hyperinflation? Read the article for why this is bogus. There is a specific section with a heading about why money-printing won't work.
The US economy is worse than every other? Don't make me laugh.
Wall Street wants it? Funny for businesses that live off the skim to plot the demise of the system that feeds them.
Every other nation hates the US so much they are out to kill the dollar in a coordinated fashion? This is just silly, and the open interest in UUP disproves it.
Some hunch feeling that things are bad and thus they must be so bad that everything is going to fall apart? Just because people have strong emotions about something doesn't mean it will come to pass.
If people are dead-set on about getting out of the dollar because it is imminently dead, why the hell pay a uber-premium for gold? Why not buy oil which is somewhat cheap right now, or grains which are downright cheap?
You are talking about how it will be harmful to capital so the banks won't do it, since when has the central banks acted in the best interest of a nation? If central banks refused to do harm to a nation, their capital, or their currency it would be a wonderful world. Do you have a way for me to journey to this Heaven?
Your only argument about why inflation wont happen is because it is harmful to capital, but then you ignore M1, well what happens when the money starts to move? Zimbabwe Ben can blast deflation whenever he wants. The printing press can and will always beat credit destruction if the man behind the press wants it to. All it takes is for Uncle Ben to spaz the 10 pad and boom trillions of dollars are created, hell Ben could go on a shopping spree or just drop a few trillion in GS and JPMs lap and tell them "Equities to the moon" and that should do it. When in the history of mankind has printing money ever helped in the medium or long term for an economy? Sure it helps a little in the short term but show me where it helps in the medium or long term. All money printing will do is lead to a crackup boom.
The US economy is in bad shape, but did I say it was worse then every other? I even made the comment that we are not as worse off as others but still in a race to the bottom. When all nations are debasing their currency how is buying that currency a good idea? Would you buy an investment when you knew it's value was guaranteed to go down tomorrow? One only needs to look at the trend line of the dollar to see that it is going down and that the piddly returns in treasuries will not make up for it. If I was zany and wanted to buy treasuries I wouldn't buy them here, maybe Switzerland, and I don't even feel strongly about that. Fortunes are never made in treasuries (unless you are a dealer), but they are often lost. If I'm going to wander into the global casino I'm at least going to try to get a win.
When did I say it would be coordinated? The only coordination I would expect is people following the first guy through the door and panic selling. Japan or China would be insane to try and coordinate a sell off as it would only result in them getting a worse deal.
Hell I would love to buy oil or grain right now! I agree with you they are cheap! I think people will make a fortune in commodities! I happen to like PMs because there is no counter party risks and I don't have to worry about the ETF but I'm very bullish on commodities. With oil running out and possible problems in farming I think people will make more money in oil and food then they will in gold. Its just my opinion that these long bonds will get eaten alive by Uncle Ben's printing press, after all bond yields can't get much lower...well until we are paying Timmy to hold our money for us.
Also what makes you think the Fed is not monetizing the treasuries, after all isn't that inflationary? We know they are devouring toxic MBS and I know that's inflationary as there is no way they will get what they paid for them, well unless they already fired up the press to a moonshot. I understand credit is being destroyed, but when that money is in the system the Fed really can't get it back out, not competently anyway.
Also you did not address how America will pay off it's debts. Or are you agreeing that we won't and we will just float more and more. Does the world have an infinite desire for our debt? Even by optimistic Gov forecasts the total will be 20 Trillion in 10 years. Sure that might not be a lot to the bailout bankers but when you re asking Japan and China to float that turd it might mean something to them.
Alright, alright. I appreciate that you clearly have thought about this issue, and I respect the time you put in being the yin to my yang.
It really is too large an issue to compress into soundbytes.
Let me think on how to best reply.
Cool man, I'm all for the exchange of ideas that's why I'm here. Shit like I tell people IRL, I pray to God I'm wrong and mis-forecasted this bad boy. So I'm even trying to keep an open mind, but this is just the way I see the crazy would we live in. I most certainly could be wrong, first to admit it.
Everyone is so hot about currency crises, but where is it going to come from?
http://www.zerohedge.com/article/guest-post-japanification#comment-154758
"There's an excellent chance that this is the beginning of the final deflationary sag before the currency explodes. Things to watch: further extensions of unemployment benefits, further degradation of tax revenues, fiscal deterioration, all while the looting end game continues to play out."
As revenues continue down, and demand for social spending continues to rise, deficits continue to grow. The questions really are ones for you to answer: where will the capital come from to fund the deficits? What happens socially when social spending is drastically cut? What happens to the reserve currency when its host is forced to bring its armies home? And even if leveraged asset prices continue to fall, if we continue to resort to the printing press, what happens to the buying power of the currency-thingies?
When GDP counts stimulus spending, how much worth as a figure is it?
I still think NDP or NNI is a better figure (if one needs a single number).
Take a look at the Medicare and SS graphs and tell me you really believe that.
The US is staring up a vertical incline of payments obligations; other nations aren't.
Far too often, people have a good arguments for an aquarium but make the mistake of applying it to the ocean.
Yes, there are similarities but the differences are in the expanded environment.
Japanification may be the "goal", yes. But chaos theory suggests a different outcome is likely.
Japan was one nation. Conducting a simultaneous 'controlled crash' of dozens of doomed aircraft on the same runway is bound to have some unpredictable results.
You make a valid point. The real test is upcoming when some large economy central bank balance sheets (and implicitly treasuries/MinFis) indicate insolvency. This hasn't happened yet, and it is unclear what will happen.
Perhaps this is why the Fed doesn't want to be audited. That, and the gross misconduct, of course.
Little of column A little of column B. Even the numbers they give us they are packed to the gills with MBS, and we know they re the prime buyer of MBS. So what happens when they look to unload all that toxic waste? But without an audit and the ability to make money out of thin air the Fed cannot be insolvent, as it would be possible to brute force paper over any problem, even if it kills the currency.
I believe history will show that the UK banking system suffered a mortal blow with the collapse of Glitnir, Kaupthung and Landsbanki. Dubai could be the Coup de grace.
The pilots however still put their helmets on.
Japan was able to execute an orderly deflation while the rest of the world experienced the greatest credit expansion in history.
The powers that be may *want* Japanification, but what they'll get is something much uglier.
This has to have been written by Hugh Hendry, just too similar an argument gone wrong.
Gov't bonds went kaput hard in the first great depression. Sovereign default and devaluation were everywhere.
What we see now is rampant manipulation of equities, bond offerings that MUST be underpinned by disguised self-buying by gov'ts to mimic free market demand (no one can afford the open contempt of gov't bonds by the free market at present pricing.), and currency raids upon nation's means of greatest exchange as relational gaps and volatility between national fiat are exploited.
What asset in the last ten years can boast a near 500% return? Not gov't bonds anywhere.
No, the IOU game is over. The king's horses and men are furiously attempting a cover-up and papering over, but the truth will OUT!
Time dilations allow the inside traders to game play the weak, but they can only forestall, NOT PREVENT, the inevitable and foreordained fall.
I'm sorry but I fail to see how the graph of gold to JPY makes sense? I can see how the ration fell as the Yen rose, but unless the Yen was 400 in 2000, the graph takes no account of gold's rise since then.
What am I missing?
TIA
W
It's not gold to Yen. It's the price of gold denominated in Yen compared to the Nikkei 225, it's like their S&P 500.
For the moment gold seems to agree with you
Japan encountered their downfall with the backdrop of a world covetous of their goods and a world full of expansion. Their debt spiral was one beaker in a laboratory full of countertrending beakers.
All the rules fall by the wayside, all the surmised lessons learned from Japan's experience are confetti on the floor.
Japan was held up by a robust world, a carry trade, a sustained demand for their exports.
The world is synchronized in downfall; Quantitative and Credit easing, competitive devaluations, and wariness on accepting foreign exports amalgamate with the pure insolvency suggested by debt loads have the wise carving headstones, fitting coffins, and hammering plowshares to sharp edge.
A dilatory Japan in decline could be countenanced in an expanding world. The world's transverse and longitudinal waves have made harmonic convergence and bring an amplifying surface wave of claim to balance the books.
It may not be a wave that this system is designed to survive.
back here in Czech, we call that black hole a tunnel
Not precisely comparable but a good reference point.
China, on the other hand, is exactly like Japan of 20 years ago. A one-way
trader, a currency manipulator but without the high-quality products afforded
by the Japanese ethic. China's ethic is "if you are stupid enough to buy our
junk then shame on you". Japan would be ashamed to sell the crap that comes
out of China. (On an aside, I see that China has enlisted Madison Avenue,
to assist in selling their crap.)
However, the U.S. as a country, is a voracious importer, a money printer, a
blind beggar, and has slowly and completely succumbed to the "free lunch"
economy. Somehow we are supposed to borrow and print ourselves out a
disaster that was created from borrowing and printing in the first place.
Until this country re-embraces the work ethic, individually and collectively,
then it will be forever lost.
Easy money has always been easy come, easy go. All the currency manipulation
in the world will not change anything unless your citizens respect your currency.
It is easy to destroy that respect- lend it out at Zero percent.
All the excess spending of the last decade has helped China (and others)
while committing the cardinal economic sin of gutting America's means of
production.
P.S. I watched Fight Club last night and the idea of liposuctioning the fat
out of GS and the cartel, seemed like an intriguing idea.
http://en.wikipedia.org/wiki/Status_quo_bias
Well said. That right there is perhaps the easiest way to explain this to those that just can't seem to grasp the issue.
pivot - Agree. The Fed does not have enough cash to stop the destruction from occuring - no matter how much they print. The destruction of the currency will occur first.
They are pouring these vast quantities of money into the top of the economy, only to find it leaking just as fast out the bottom in the form of debt destruction. They won't win. They will raise rates and firewall those entities that they want saved as a last resort - then call out the military to control the masses.
So far they have been able to print enough money to control the collapse.
In my view, the outcome in Japan, currency crisis or otherwise, will indicate the the outcome for other economies in the same deflationary-liquidity trap situation.
Where they go, we will follow. Here's to thinking they wise up and stop fighting the way of all things.
Some of us who lived in other countries heard stories from grand-parents who survived by hoarding British sovereign gold coins as a wealth preservation.
When Bedouins make money, they buy 18k gold wire in the local gold market, which is looped and crudely made into bracelets which their wives were in their arms under their loose Bedouin clothes. When they need money to shop they sell one or more as needed.
Real estate and other assets can be eroded by costs and taxation and are not transportable. Gold is eternal. Just make sure is well hidden.
Buried concrete pipe (the storm drainage type) will resist even metal detectors.
how deep do you recommend pipe?
Regarding Kampo (Postal Insurance) and Yucho (Postal Savings) noted in a comment above, these have long been the primary avenues for the country's once massive savings. I do not know if the reason the PTB gave up on privatization has less to do with politics and more to do with the fact that both entities are massively underfunded and would pose an enormous risk to any non-government entity who chose to control them. Remember that these entities were the means by which the government began directing forced investment into the equity market in the early 1990's in order to attempt to halt the slide in the Nikkei. At the time of the purchases---hundreds of billions of dollars worth---the Nikkei ranged from 18000 to 22000, suggesting positions are deeply underwater with the Nikkei just popping above 10K. That surface view is only part of the story, however. One needs to understand the odd accounting system Japan uses for these funds, as well as pensions. The contractual payout rate (in the 1992+ Price Keeping Operation this averaged 6%, well above the JGB level at that time) must be met yearly from "winners". Winners are defined not as paper gains, but as closed positions. All winners must be offset by losers, which again are not paper losses but actual realized losses. It is kind of like how retail investors view their own portfolios ("If you haven't sold, you haven't lost.") Thus, what most funds are left with is a collection of losers (think Hikari Tsushin at 200,000+ yen) which can never be sold unless gains on other assets are massive. The real Nikkei equivalent of the equity portion of the Kampo/Yucho funds is probably at a level higher than the Nikkei ever reached (38,915.87, 28 Dec 1989). While their have been gains over the years in JGB's, it is not enough to offset the equity component, which in some portfolios reached an allocation of 40%. As the aging population goes to pull funds from their lifelong savings in Yucho, or cash insurance from Kampo, the day of reckoning will arrive. Private pension funds operated in the same manner with the same rules, so there is hardly safety there. Combine this shortfall with the need to refinance Japan's government debt, and one can guess that the printing presses in Kasumigaseki will need to work overtime. Of course Japan could decide to buy cheap homes in the US and Dubai and ship all the retirees there, but it is likely this problem will soon present an even larger problem for the country than economic stagnation. Japan is only ahead of the US in this regard because Japan's population is aging faster than the US.
Thanks very much Chindit!
i think your brain was just a little crazy in december. closing out 09 maybe.
i think you go beyond Math.
this is a little time capsule.
if you ask me a lot of you people should be seriously thinking about documenting a lot of your content. your unbelievable actually, always coming in for the final word. it is pretty profound.
well i have always been quite intrigued with men that can express themselves.
you do it really really well. pop culture style.
i mean experience plus +
Nice post JM.
I don't know what this guy said, but I think I can agree about the gold. The problem isn't credit though, it is debt and the capacity to ask for credit plus the desire for more debt. Until something comes about that creates a situation where enough solvent people ask for more credit creation, this thing is going to continue. The Fed buying assets isn't anything other than exchanging who owns the collateral, as the other side of the equation is still there.
Who wants to borrow money? Broke people mainly and a few people that need to roll debt. The rest of those people are speculators, speculating on stocks, bonds, real estate and other type bets. I contend that the IRS should keep careful track of who gets these recent bonuses as unwinding the debt taken on to speculate in commodities and other wall street games isn't going to be any easier than the mortgage CDO's. In the meantime, overpriced stuff is going to pile up as speculators pay above future market.
Yes! Poor credits want to borrow, but banks won't lend. Higher credits reduce their borrowing. And a wounded financial system requires higher collateral from everybody.
The system is deleveraging. Central banks think they can stand in the way of it, and provide sufficient releveraging.
This is why they are the only buyers of MBS.
Nice article. The parallels are there. It seems like many economies and currencies are at a tipping point right now though, while Japan over the past 15 years existed in a more (artifically) stable environment. If we are at a tipping point, and especially if multiple countries are at a tipping point, chaos reigns and lessons from that period of Japan's past will be much less relevant to our future.
Nice article. The parallels are there. It seems like many economies and currencies are at a tipping point right now though, while Japan over the past 15 years existed in a more (artifically) stable environment. If we are at a tipping point, and especially if multiple countries are at a tipping point, chaos reigns and lessons from that period of Japan's past will be much less relevant to our future.
The Japanese immense debt is the effect. The inability of both the internal and external markets to continuously gobble up the Japanese goods is the cause, as formed by the feudal land ownership system, un-dying population, no immigration, low population growth, and fierce competition oferred by the "hungry" economies (China, etc). The US is in the early stages of same - the economic obesity disease, aka deflation. Stimulate that with peaceful measures... Ain't gonna happen.
Good article.
However, one possible solution to US decline was not mentioned: war.
Hate to say it because I served proudly for 25 years but I am getting cynical in old age. Could war be the solution to the problem of economic malaise/public disgruntlement?
What does big war accomplish?
More government control (has to coordinate economy--ration consumer goods), check
Increased industrial production (we have excellent defense industry manufacturing base), check
Lowers unemployment (women work, men fight), check
Focuses anger on enemy (not government), check
Encourages populace to sacrifice (makes declining living standard acceptable), check
Can't happen under Obama? American involvement in both world wars occurred with "pacifist" Democratic, statist (consolidate power in federal gov.) presidents (Wilson and FDR). Most think we were dragged into these wars against our will but a careful reading of history says not so much.
Just a thought to cheer you up on a cold Monday morning.
Following up on OutLookingIn's post, the inevitable damage to come will be inflicted most severely on the financial sector, but as the author points out, the USA will survive. We should have taken the medicine in the fall of 2008 - allowed the collapse of the ponzi financial industry but taken equally decisive steps to firewall the conflagration and preserve the 95% that would have been left standing, in much better shape. Corruption of our political organs by the banking industry (and their infiltration by agents for the banks) made that prescription a pipe dream.
ponzi finance is a lot bigger than 5%
do a thought experiment on everything that the housing bubble fed, or the china export/petrodollar ponzi fed.
you have downstream beneficiaries like CAT, for example that built machines to help build shit in Dubai or the Inland Empire that nobody really needed.
Artificial demand was created ALL OVER the globe in order to sustain artificial growth rates. FIRE economics merely ran as a parasite on that.
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