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"If The US Can Do It, So Can We": Japan To Keep Pumping Cash And Monetizing Debt Until Deflation Goes Away

Tyler Durden's picture


And with that Japan joins the competitive devaluation currency race, in which both the SNB and Federal Reserve have a substantial head start (the euro and the fat Brussels bureaucrats are in a ouzo daze, with no clue what the hell is going on). Speaking before lawmakers BOJ governor Masaaki Shirakawa, who recently said Japan was powerless to fight deflation on its own, has changed his tune, and today said that Japan will print the kitchen sink if it has to to beat "stubborn deflation."

In a speech before the Lower House Budget Committee Shirakawa said that not only will Japan continue monetizing its debt (at least unlike Bernanke, he admits it), but that they will happily accelerate this action if it means killing the Yen and creating a glimmer of hope for inflation. Carry traders everywhere rejoice.

"Overcoming deflation and returning to a sustainable economic recovery path under price stability remain a vital issue for the BOJ. We will continue injecting ample liquidity into financial markets to  overcome deflation."

Shirakawa noted that monetization is happily chugging along: "We are buying JGBs in order to inject ample funds into financial markets in a stable manner and we are buying Y21.6 trillion of JGBs annually" and he made it clear that adjusting for scale differences, the Japanese monetization program is three times faster than the Fed's Treasury QE - in other words assume that Japan has bought the equivalent of nearly $1 trillion of its own bonds, adjusted for something or another.

And rising the specter of Richard Koo, Shirakawa also added that excess liquidity alone would be insufficient, saying that new initiatives from the government and the private-sectors would be needed to generate new demand.

The US and Japan... soon China and the ECB - why all the concerns about who will buy each other's sovereign debt? In a few months each central bank will purchase every single piece of paper printed by respective Treasury departments. Remember - whoever devalues last, loses.

And as all this is happening, Goldman's pundits repeat every five minutes that China will inflate the yuan... just because, you know, it doesn't really need to export any more.


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Mon, 02/22/2010 - 01:33 | 239898 cocoablini
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Because it's been sooooo effective for the last 30 years...

Good luck on that one

Mon, 02/22/2010 - 02:38 | 239943 Anonymous
Anonymous's picture

This is the ultimate logical end game for the globalization and trickle-down economics nonsense that's been hyped up by the Wall Street Financial crowd these past 25 years.

The outcome isn't pretty. Thank you Alan Greenspan.

Mon, 02/22/2010 - 09:44 | 240083 Anonymous
Anonymous's picture

This has nothing to do with globalization or trickle down economics. It has everything to do with governments that spent more than they could ever repay, and central banks who encouraged it by providing easier monetary policy at every step of the way. This is a failure of socialism and big government, not capitalism nor free markets.

Mon, 02/22/2010 - 01:46 | 239912 scaleindependent
scaleindependent's picture

Hmm, Gold anyone?

Mon, 02/22/2010 - 01:50 | 239917 Harbourcity
Harbourcity's picture

Looking forward to that $80 beer next Friday.


Mon, 02/22/2010 - 01:52 | 239919 tahoebumsmith
tahoebumsmith's picture




... Or better yet, how about a game of " Kick The Can" ?

Mon, 02/22/2010 - 01:53 | 239921 Anonymous
Anonymous's picture


And so we approach the precipice...

...the world barter system is coming
to a neighborhood near you. Buckle up,
cuz it's gonna be a rough ride Amorica.


Mon, 02/22/2010 - 02:07 | 239929 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"Stubborn deflation", now there is a concept.  Maybe if we degrade it first.  "Bad deflation!  Bad!"  

Gold set to kill like a Samurai.  AFter all, the Japanese want their gold back.

This is a cheer from a pep rally led by Governer Shirakawa:

Hyper!  Inflation!  Hyperinflation!  Give me an H!!!!!!!!!!!....Go team!

Mon, 02/22/2010 - 02:04 | 239930 girl money
girl money's picture

Cool!  While our Community Organizer in Chief fixes those pesky health insurance premium increases, Japan's MoreSaki will print enough yen to buy that whole stack of Treasuries to be auctioned this week.  

Stir in the Lufthansa strike, and this week is looking pretty entertaining.

Mon, 02/22/2010 - 03:19 | 239956 Anonymous
Anonymous's picture

Eh. A strike at a flag-carrier airline is pretty much business as usual in Europeland, especially during a recession.

Mon, 02/22/2010 - 02:09 | 239932 darkpool2
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Well in a strange dream, the Yuan had doubled and chinese real wages surged---exports held up ok because the manufacturing bases of their trading partners had been wiped out---and besides, China had outsourced many things to their "partners" US import inflation was through the roof and the real standard of living of the average American was off 20% The UK tried to devalue its way to prosperity- fools, it just doesnt work.

Mon, 02/22/2010 - 02:23 | 239936 Miles Kendig
Miles Kendig's picture

Fresh batteries have been installed in the global monetary close and play record player.  But hey, they obtained them from Wal Mart so who knows how many minutes this set will last.

Mon, 02/22/2010 - 02:28 | 239939 godfader
godfader's picture

Where's the hyperinflation in Japan? All the inflation scaremongers can't explain this so they never mention it.

Mon, 02/22/2010 - 03:42 | 239962 Burnbright
Burnbright's picture

Actually its pretty easy. It depends on who is getting access to the money. So for instance in the US all of our QE efforts went primarly to banks to pay off their debts. Instead of wiping the debt out, like would of happend had no one intervined, the money was used to keep failing business afloat. Hence wealth was transfered from everyone with savings to the bankers. So the effects of that are what ever the bankers spend their money on inflates, and everything else deflates because the banks end up representing a larger portion of the market "demand" while the rest of the population gets priced out of those markets that the banks particpate in.

Mon, 02/22/2010 - 10:46 | 240121 Anonymous
Anonymous's picture


Mon, 02/22/2010 - 12:06 | 240199 Anonymous
Anonymous's picture

So hyperinflation cannot happen. Cool.

Mon, 02/22/2010 - 12:48 | 240266 Harbourcity
Harbourcity's picture

You know that is the best explanation I have heard in a long time.  It is succinct in how it explains how inflation and deflation can exist at the same time.

Well done.


Mon, 02/22/2010 - 11:35 | 240163 Anonymous
Anonymous's picture

mista god fodder, in the company of a majority of congress and untold talking heads, another one who doesn't understand:

*inflation is moneysupply.

*price increases is a symptom.

*deflation is a freemarket correction, and a good thing.

Mon, 02/22/2010 - 02:44 | 239946 Anonymous
Anonymous's picture

Should be dollar positive!

Mon, 02/22/2010 - 02:49 | 239947 dark pools of soros
dark pools of soros's picture

silver running out!!!  buy buy buy!!


seriously this is like 7 year olds playing monopoly and handing out money just to keep everyone in the game forever

Mon, 02/22/2010 - 03:03 | 239952 Cyan Lite
Cyan Lite's picture

All the bears tomorrow will claim "Short Squeeze!"  or that the "market will fall apart any day now". 

Meanwhile carry traders around the world rejoice...

Mon, 02/22/2010 - 04:29 | 239969 Anonymous
Anonymous's picture

Defective Toyotas kill 100 Americans in last 10 years...Defective US foreign policy and cover-ups by US government killed 10,000 Americans and 500,000 foreigners in last 10 years.

Which defects should congress be investigating?

Any investigation into the EPA claims that the air downtown on 9/11 was safe, whilst all the rescue workers are now dropping dead? Any investigation as to why they failed to stop those terrorists getting on those planes. Any investigation as to why George Tenet was wrong about WMDs. Any investigation as to why Osama hasn't been caught or killed...

Yeah, lets get Akio Toyoda on the hot seat. Go America, F*ck Yeah!

Mon, 02/22/2010 - 10:43 | 240119 Anonymous
Anonymous's picture

Quit your belly aching and invest in defense stocks moron.

Mon, 02/22/2010 - 14:33 | 240456 VegasBD
VegasBD's picture

Its so cute when Anon's fight.

Mon, 02/22/2010 - 04:31 | 239970 plocequ1
plocequ1's picture

You know the saying, Whatever works.. The goal is to make the stock market go higher and to see the rich get richer. Its working. Nikkei up 2.7%.

Mon, 02/22/2010 - 04:40 | 239972 Anonymous
Anonymous's picture

There is a weird thing about the carry trade. When central banks provide more liquidity than is need to supply the domestic market with its need for a medium of exchange, (thats liquidity right? the medium of exchange), the remainder can be used to purchase foreign goods or make investments on foreign shores.

That's the origin of the term carry trade. It used to be gold that had been freed up by the advent of fractional reserve baking that was used. After all who would trust paper from a foreign state?

So theoretically all this excess liquidity gets used by the banks to speculate in foreign markets. They just don't need it domestically. Now these are the too big to fail banks that when their speculations land them in the crapper get bailed out by the government effecting a transfer of wealth form the citizens who save to the naughty banks who speculate.

If I were a Japanese saver, and they are renown for it, I would be hopping mad.

Tue, 02/23/2010 - 09:40 | 241372 Anonymous
Anonymous's picture

But, don't Japanese savers convert their savings into gold regularly from their salary?

Their store of wealth isn't their own national currency. So, inflating their medium of exchange shouldn't affect their store of wealth. This implies that BOJ QuEasing will destine to fail because Japanese simply won't spend regardless of how much inflation is in the money supply.

Tue, 02/23/2010 - 12:18 | 241598 jm
jm's picture

But, don't Japanese savers convert their savings into gold regularly from their salary?


Where did you find this info?  The data I've seen doesn't suggest it.

Mon, 02/22/2010 - 04:46 | 239974 godfader
godfader's picture

The rich lose real wealth with money printing. They own money. The poor get richer with inflation. They owe money (have debt) and get to keep their jobs. The poor hurt in deflation. They get fired and get to stand in the bread lines, while their debt stays.

Mon, 02/22/2010 - 05:00 | 239982 jeff montanye
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good point

Mon, 02/22/2010 - 05:06 | 239987 Anonymous
Anonymous's picture

These days, most rich people hide wealth with tons of debt. How fast they can liquidate their assets to pay off debt, will be an important question.

Mon, 02/22/2010 - 05:23 | 239994 Anonymous
Anonymous's picture

Because the poor hold debts? Oh, by poor you mean US citizens, I get it.

Mon, 02/22/2010 - 05:57 | 240001 faustian bargain
faustian bargain's picture


Mon, 02/22/2010 - 07:42 | 240034 Anonymous
Anonymous's picture

wow, how true. with constant monetary inflation for many years the rich has been getting poorer and the poor has been getting richer.

Mon, 02/22/2010 - 12:56 | 240281 Harbourcity
Harbourcity's picture

Since there is no inflation but instead deflation (seen the cost of a Plasma TV lately) it is the poor who is being affected since Ben is working at creating deflation.


Mon, 02/22/2010 - 08:31 | 240055 TumblingDice
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Rich don't own money, they own capital that is denominated in dollars. The poor get paid in dollars. In a naturally (sans central banker intervention) deflationary environment such as this any attempt to create inflation will lead to the greater growth of debt in relation to wages. That is because there is an order to creating inflation: you have to create the debt first and then you have to move it enough times through wages and commerce. When there is no movement but a lot of debt creation it is those involved in the step of debt creation that benefit the most, while those involved in the money movement benefit the least.

In terms of deflation, there have been so few instances of it in the Fed Rsve history that it is difficult to tell what kind of effect it might have on wage and wealth inequality.

Mon, 02/22/2010 - 09:03 | 240062 suteibu
suteibu's picture

Thanks for some fresh air.  The inflation hawks claim the world will fall apart without inflation.  No one knows the long term effect of deflation.  In a technological world, it seems that deflation of consumer prices should be the result of increased productivity.  As for debt, it will hurt but eventually it will separate the productive debt from the lifestyle debt...which is a good thing.  But it won't hurt any more than the collapse of this current ponzi scheme.

Mon, 02/22/2010 - 10:46 | 240122 trav7777
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The rich gain from inflation...look at global wealth distribution.

This is because the rich can use the inflation availability to lever.

QE is not printing per se, it is the CB buying debt.  Again, the notes issued by the CB have debt tied to them.  Instead of lending to private citizens, they are lending to the gov't and creating dollars/yen/whatever that are still *lent* to someone.

Mon, 02/22/2010 - 11:17 | 240150 Mr Shush
Mr Shush's picture

This is so wrong I don't know where to start.

The rich own assets, not money. Cash and fixed income investments represent only a tiny part of their overall wealth. In many cases, they hold vast amounts of debt, either personally or through companies they own outright or have major shareholdings in. Inflation increases their real net worth by increasing the nominal value of their assets without increasing the nominal value of their debts. For the same reason, it is a boon for young-middle aged middle and upper middle class homeowners who have substantial mortgage debts. It is a killer for older middle class people, whose mortgages are paid off and pensions (their other main asset and primary future source of income) are likely to be invested substantially in fixed income. It is also bad for non-homeowning wage earners, as wage inflation at the lower end rarely keeps pace with price inflation in daily necessities.

Deflation is bad for the rich: the nominal value of their assets falls, while their nominal debt remains constant. It is a disaster, above all, for highly leveraged rentiers.

The reason inflation is usually (mistakenly) assumed to be good for ordinary people is that it usually occurs in times of growth, while deflation (insofar as it has existed during the period for which we have meaningful data) has generally coincided with economic contraction. Economic contraction is bad for everyone except would-be dictators, but I am very far from convinced that it is liable to be caused by deflation: I think it far more likely that both are parts of the inevitable hangover from a credit binge such as the one from which the developed world is beginning to (painfully) come down. To pin the blame for depressions on deflation, in my opinion, is rather like accusing your vomiting of causing your nausea.

Mon, 02/22/2010 - 05:05 | 239985 Anonymous
Mon, 02/22/2010 - 05:24 | 239995 Anonymous
Anonymous's picture

Japan has nested their debt within US debt, they are protected.

Mon, 02/22/2010 - 05:45 | 239999 plocequ1
plocequ1's picture

You are right. Im beyond giving up. I only hope one day this Ponzi sceme ends.

Mon, 02/22/2010 - 06:20 | 240006 Anonymous
Anonymous's picture

It's time to buy stocks in paper production plants! :)

Mon, 02/22/2010 - 06:47 | 240011 GlassHammer
GlassHammer's picture

Insanity thy name is Japan.


Japan needs to get back to its 2 long term goals:

-Building Mecha Godzilla 

-Producing the latest season of Ninja Warrior

Mon, 02/22/2010 - 07:03 | 240016 ratava
ratava's picture

Eurocrats seem quite good at competitive devaluation. Why print money or blow it on interventions when you can just spread some rumors, act completely clueless and watch Euro go down as exporters rejoice.

Mon, 02/22/2010 - 07:38 | 240032 Anonymous
Anonymous's picture

Yeah...hear that "giant sucking sound" ?

So the politico economists.....the ones who did not see the debacle have all the answers....

It is like a giant "big rat" experiment....


Let's make this simple....

The are ten neighbors in a neighborhood...

They all owe each other money....and they all have lost their cash flows....which means that their sources of money
are no longer functioning....

So they all get together except for one ...the one who saved money....and agree to fabricate all the money each other needs....The saver hears about very unhappy....but the saver is outnumbered 9 to 1....

They all feel good because they have something to pay....


Ok so how does the story end ?

The story ends when the other neighborhoods stop accepting the fabricated money....and the saver loses along with the fabricators in the neighborhood because the savers money has the same label...

Or is it going to be the case that all neighborhoods end up the way....and thus keep accepting each others fabricated money....

It does not matter about the "hard work" money...because the label is the same....Have the reckless fabricators gyped the real savers ? Absolutely....

So what do the real savers do ?

They lose....

Who wins ? The first fabricators first payouts....

Who loses at the end of the game ?


Loses what ?

The value of their currency....


So what is a solution ?

Scarcity of currency.....

Thus the government can enforce scarcity or abundance of money....

Simply raise interest rates so high that no one can afford more currency....making it more scarce....

Mon, 02/22/2010 - 07:50 | 240038 Anonymous
Anonymous's picture

How come nobody yet introducing QE for gold bullion ?

Mon, 02/22/2010 - 15:08 | 240507 Anonymous
Anonymous's picture

They have W for gold bullion. ;)

Mon, 02/22/2010 - 07:51 | 240039 Anonymous
Anonymous's picture

FFS, what a leadership this world got.

First they moan when a sudden tsunami hits land and the houses shatter by force... (inflation)

Second the 'liquidity' retreats and the 'new normal' has to be sustained so our saviers go and replenish the waterlevel as the water tends to retreat... (deflation)

Third argument: As long as the wreckage stays in place, we haven't lost anything. But as soon as the water heads out of an asset, it never comes back and we have to 'write it off' the map...

Hows that for retarded logic!? That our leadership...FFS.

Mon, 02/22/2010 - 07:55 | 240041 Anonymous
Anonymous's picture

This can't end well.

Mon, 02/22/2010 - 08:16 | 240050 Anonymous
Anonymous's picture


The last time this happened, they ended up creating the IMF to stop it happening again. Turns out the IMF is great for helping us to rob the 3rd world blind, but totally useful at the main mission.

Great how we learn from our mistakes.

Mon, 02/22/2010 - 08:20 | 240051 jm
jm's picture

JGBs differ from USTs in its fewer and smaller numbers of marginal buyers, and the level of gross govt debt to GDP.

Whereas China and Japan govs may tolerate QE and dollar kill for the long-term good of their manufacturing overcapacities, persistent yen kill will not be sustainable for long.


Mon, 02/22/2010 - 08:42 | 240057 dan22
dan22's picture

Japan's fiscal crisis- An Anatomy of a Keynesian Failure

The crisis and the stimulus packages of Japan’s government boosted the budget deficit to more than 10% of GDP in 2010. The reduction in the budget deficit – from 8.2% of GDP in 2002 to 3.2% in 2007 has rapidly been reversed, making the target of a primary budget surplus for central and local governments by FY 2011 a sick joke. Gross government debt is projected to rise to 200% of GDP in 2010, and to 100% in net terms. The December 2008 program to upgrade the social welfare system would make fiscal consolidation even more challenging as it implies increasing public social spending from its current level, which is below the OECD average.

2. Japan’s government borrows from Japanese households. But Japanese households are retiring, and traditionally retirees run down their savings. 3. In the past, the Japanese government had a captive domestic market in which to place its debt. A large pool of domestic savers, made cautious by prior painful experience with risk assets and an increasingly fragile economy, was happy to own as much government debt as possible. But those savers are now retiring, and running down their assets.  Source:
Mon, 02/22/2010 - 08:45 | 240058 Anonymous
Anonymous's picture

Why not do it?

There is no one to hold them accountable.

In fact, I would suggest they print enough to buy China.

Mon, 02/22/2010 - 09:36 | 240064 order6102
order6102's picture

1. Sensation headline in this case, just simply wrong. Japan been pumping up M0 from 1999 so its at least 10yrs late.. For graph of monetary base vs GDPI deflator you can look here.

2.95% JGB domesticaly own. Japan doesn't look for overseas funding.

3. Japan applied both monetary and fiscal stimulus for as far as 1998 and it did not help ether. 

4. To see what austerity and higher rates done to it, please loook at Hayami Rate Hike and how Hayami kill fragile recovery and lost his job...

5. I would recommend R. Koo Book Balance Sheet Recession as good introduction in Deflation and Japan

Mon, 02/22/2010 - 12:24 | 240221 jm
jm's picture

Hello again, order6102.  I would like you views on the following observation.

The path of the Nikkei 225 over the last 25 or so looks like a damped spring. 

Seems to me that there is little bounce left for price appreciation.

In infer from this that government policy is at the end of its rope.  




Mon, 02/22/2010 - 12:57 | 240290 order6102
order6102's picture

OH man, this is bad bad question, so its time horizon depended.

1. As trade its good buy under 10K. There are big domestic bids up there, and look like big domestics commited to own it at this level.

2. As 6-12M holding, i think it should do OK, bare global meltdown. I am mildly bullish USD/JPY on this horizon, and if it goes up, and stabilized above 100 it will lift NKY and help exports.

I have following macro view: 35% deflation (fed fail)  55% slow recovery with gradual tightening cycle (fed done job and reflated) and 10% some sort of meltdown people write about on this site (and for me 10% meltdown is HUGE, normaly i keep it under 5%) . In both main scenarios USD will rally agains JPY on this time frame this why i am mildy bullish this pair and as result mildy bullish NKY

3. I never look past 6-12 month, but from there Japan is doomed. Demographic start to kick in, and asset repatriation will take effect at some point. So USDJPY has to go down and NKY will collapse.


Hope this helps

Mon, 02/22/2010 - 13:02 | 240301 jm
jm's picture

Arigato gozaimasu.

Mon, 02/22/2010 - 13:40 | 240373 order6102
order6102's picture

you welcome. main issue for me at the moment, what trades to have on in case of global meltdown. so, if you have any idea - can you share? there is no cheap downside protection left anywhere in the world. CDS are wide, puts are rich... so i am so so lost...

Mon, 02/22/2010 - 14:31 | 240453 jm
jm's picture

CDS is rich, but think about pairing CDS with digital default swap if you have a view that recovery values will be low.  If event is triggered, buy the debt on market and deliver into contract.  Pocket diff.

There's a lot of C-rating-in-name-only shit out there right now.

Mon, 02/22/2010 - 14:48 | 240471 order6102
order6102's picture

thanks. I will look into it. Cheers

Mon, 02/22/2010 - 09:08 | 240065 suteibu
suteibu's picture

Japan dumped it's long-time ruling party for a new party of hope and change because of their stagnant economy.  So what does the new party do?  It doubles down on the very policies that put them in that position in the first place.  The government of Japan went from high approval to dismal approval in record time.  All the hope and change for the Japanese is gone.

Gee, that all sounds too familiar. 

Mon, 02/22/2010 - 09:15 | 240069 SWRichmond
SWRichmond's picture

They just needed to act like they had no choice, and only printed away everyone's savings once the boogeyman of deflation had caused enough pain to thwart public outcry.  Bernanke will do the same.

Got Popcorn?

Mon, 02/22/2010 - 09:30 | 240073 JimboJammer
JimboJammer's picture

This  is  what  Jim  Sinclair  and  others  said  would  happen..

They  print  more  fiat  money... 

Mon, 02/22/2010 - 09:33 | 240074 JimboJammer
JimboJammer's picture

Yesterday  ,  the  whitehouse  threw  a  big  party,  everyone  was  there..

Eating  Jumbo  Shrimp ....  Drinking  good  wine...  Why  not....  just  print

a  few  more  sheets  of  100  dollar  bills...  and  pass  them  out...

Mon, 02/22/2010 - 09:45 | 240084 order6102
order6102's picture

Can somone kindly explain to me how to fight deflation, except increasing monetary base and fiscal stimulus? Please no links if possible, just in few words. Thank you. 

Mon, 02/22/2010 - 09:50 | 240088 SWRichmond
SWRichmond's picture

Framing the debate?

Can someone kindly explain to me why deflation is bad?  Prices naturally fall due to productivity gains.  This is bad because.....?

Mon, 02/22/2010 - 10:09 | 240098 order6102
order6102's picture

because except in das Kapital, broadbase price decline is not happening due to productivity gains, its happened in Japan and US, as far as we know due to contraction of consumption, investments and credit. I would recommend to read some modern econ 101, as das Kapital a bit dated

Mon, 02/22/2010 - 10:36 | 240114 SWRichmond
SWRichmond's picture

due to contraction of consumption, investments and credit.

So then, your question really is, how do we re-blow the Fed's credit bubble without monetizing and fiscal stimulus?  In other words, now that you've framed the debate in such a way that your question can only be answered in the manner you want, you'd like someone to explain why the statist central bank policies (what you call "modern econ 101") that got us here aren't the right ones to move us forward?

Do you expect to get away with that, really?  Never read das Kapital, by the way.

Mon, 02/22/2010 - 10:56 | 240132 order6102
order6102's picture

OK i should of asked following. There is country XYZ that already in deflation due to contraction of consumption, investment and credits, How you escape from deflation? i am trying to stay away from slippery issue of how we got there. 

in das Kapital you have case of deflation due to productivity gain when we transfering to Communsm and price of everything goes to 0. Nowever else, deflation due to productivy gains been seen so far

Mon, 02/22/2010 - 11:02 | 240138 trav7777
trav7777's picture

You actually have to helicopter drop it.

IOW, you have to conduct unsterilized injections, IOW, brute force devaluation.  You have to introduce money not backed by debt.

Interest rates are like catalysts...but a mature economy with overcapacity is like a supersaturated liquid.  You cannot expect to get more solute dissolved into that as it's already well past saturation.

The deflationary spiral is when the solute starts to precipitate out.  We are trying to goose things to try to not just get a *little* more solute in but to exponentially grow it.

Think about's sugar into a bucket of water.  Start small, keep the growth rate of sugar dissolution.  Don't grow the water by the same some point the solution saturates.  Beyond that you have ways to supersaturate it but they become increasingly difficult and precarious.  That's our economy.  We went beyond capacity saturation, debt saturation.  So the whole thing wants to revert to a different state but we're not letting it.  We're trying to not only maintain a saturated situation but pour exponentially more sugar in.

Mon, 02/22/2010 - 11:29 | 240157 Anonymous
Anonymous's picture


We need to let deflation run it's course, anything else makes the end result worse.

Mon, 02/22/2010 - 12:49 | 240268 trav7777
trav7777's picture

No; I cannot agree with this at all.

What we need to do is forgive the debts.  We have to default.

We *cannot* permit accounting ledgers saying "this debt is owed" to destroy our entire monetary base.  Without money of some kind, our economy will collapse into barter.

Mark my words: if we let deflation run its course, people will begin using Euros or CAD for transaction needs.

Deflation will run its course to a ZERO monetary base; that is what the spiral concludes at.  There is more owed than can be borrowed by somebody interest.

Mon, 02/22/2010 - 13:14 | 240322 order6102
order6102's picture

first thank you for your time. if i understand correct: 1 Debt has to be transfered back from public to private institutions (back to banks) 2. After that banks shoud be defautled on it. 3. ???? Am i right so far?

Mon, 02/22/2010 - 11:47 | 240174 order6102
order6102's picture

so what you saying, no matter what you do it can not be avoided? its very possible. at least Japan was not able to avoid it, so it might be impossible to reflate economy...

Mon, 02/22/2010 - 12:46 | 240263 trav7777
trav7777's picture

Credit must be requested.

If the realities of the economy make that impracticable, then there is no way to reverse it.

It's not so much a matter of unwillingness to lend as it is unwillingness to borrow.  The interest component of debtmoney makes continuous credit growth at least by the prevailing interest rate ON the money mandatory or else the interest repayments will begin to cannibalize the monetary base.

This is a simple math problem.

The "solution" to the math is to make the repayment worth less dollars.  To devalue it.  Basically you just say this debt is worth less now and you heli unsterilized currency.

You CANNOT change the economicalness of a business climate or region with inflation.  Cannot be done.  Money cannot make water flow uphill using less energy than it gives back flowing downhill.

Mon, 02/22/2010 - 14:47 | 240470 Mr Shush
Mr Shush's picture

I think that would be my view, yes. The choice is pain now or worse pain later - and without the favourable global environment Japan enjoyed I doubt it will be possible to delay the pain anything like as long as they have. Moreover, if Japan had allowed a major economic contraction, their current GDP would in all likelihood be far higher than it actually is. Supposing a post-collapse growth rate of around 2% a year on average (conservative, in my opinion - the early years would likely be very much faster) they would have caught up to their prior state only 5 years after a 10% collapse in GDP, or around 9.5 years after a cataclysmic 20% collapse in GDP, with the prospect of further growth going forward (give or take normal cyclical recessions). Instead, they've had almost no growth since God knows when, and are right back to staring into the face of deflationary depression, only with vastly worse demographics and all sorts of other problems besides. There may be people who benefited from Japan's approach to this problem, but overall I think it's hard to see it as anything other than a major net lose from the point of view of global utility.

Mon, 02/22/2010 - 11:08 | 240145 SWRichmond
SWRichmond's picture

Except that the issue of how we got here is central.  The solutions put forward amount to a policy of "more of the same", virtually guaranteeing another, larger bust later.  The losses must be realized before we can begin to grow again.  No one wants to be the one to realize losses, so the rich use their political leverage to foist them onto the public via bailouts, with taxes to pay for them.  Fiscal stimulus = taxes to pay for more government debt.  Monetization = theft by inflation.  Steal from taxpayers, and steal from savers.  Government is not supposed to be primarily in the theft business.

in das Kapital you have case of deflation due to productivity gain when we transfering to Communsm and price of everything goes to 0.

I realize that your characterization is necessarily an oversimplification, but if it really says that, I find it incredible that anyone could believe that (least of all me), because that notion completely negates anything new ever coming onto the economic scene (which would have to be priced), and negates any human ever wanting to create anything new.  Now I know why I never bothered to read it.

Mon, 02/22/2010 - 12:40 | 240171 order6102
order6102's picture

Sorry, i did not understand it. Today is Monday 22 Feb 2010. What you think should be done in steps to avoid deflation in beloved XYZ? It has to be constructive, i.e. bashing somone for not doing that and that, is not very productive, I love to hear step by step plan. thanks 

Mon, 02/22/2010 - 18:11 | 240729 SWRichmond
SWRichmond's picture

The losses must be realized before we can begin to grow again.

The losses must be realized before we can begin to grow again.

The losses must be realized before we can begin to grow again.

IOW, screw the goddamned banks, they made the bad loans, they can eat them.  This is probably the only way that we can guarantee that, at least for a time, there will be no banks that are "systemically important".



  1. Mark everything to market.
  2. If you're broke, you're broke, tough shit.
  3. If you're a bank and broke, you're broke, tough shit.
  4. If you've lived prudently and saved money your entire life while everyone else was going into debt and partying, buy assets with your cash for five cents on the dollar and hire former investment bankers for fifty cents an hour to wipe your ass.
  5. There is no international claim on governments / taxpayers when private banks go BK.  It's tough shit all around, bubba.
Mon, 02/22/2010 - 23:35 | 241116 order6102
order6102's picture

fair. thank you for reply

Mon, 02/22/2010 - 10:43 | 240120 taraxias
taraxias's picture

It's bad because it ends the CB's Ponzi scheme.

Uncle Ben hasn't gone turbo yet. He will, once you start down this road you have no other option.

Inflate or die, he knows that better than anyone

Mon, 02/22/2010 - 10:10 | 240100 Seer
Seer's picture

It's kind of like asking how one fights gravity.  Inflation HAS to end at some point.  "Fighting" deflation just means running around looking like you're doing something about "gravity."  The response so far hasn't been to help us descend, but to try and reinflate for the ruling elite*.

* There was a discussion about the affects of inflation on the rich and on the poor.  I believe that people overlook the fact that it's all in transactions, and that by the goverments opening up the cash register to select "winners."  It's pumping up the action.  Unfortunately, with all these distortions we are sure to encounter the need for ever-larger fixes as dwindling capital (read "resources") continues to be misallocated.

Mon, 02/22/2010 - 10:54 | 240128 trav7777
trav7777's picture

Japan hasn't realized the liquidity trap paradox, apparently.

Their cheap credit is going right into forex and ending up as investment ELSEWHERE.

Does everybody not yet get WHY that is?

It is because the RETURNS elsewhere are SUPERIOR, even including the forex drag.  Rates of interest in various economic regions reflect PROFITABILITY there.

Rates MUST roughly match the aggregate profitability of a region, otherwise loans cannot get done.

Japan simply IS NOT that economical as it is overcapacitied.  The QE is just keeping the government funded, any yen loans are not being deployed in Japan - why WOULD they be?

It's MUCH more profitable to take the yen, swap to reais and do business in Brazil.  Brazil CAN charge 10% for overnight money because Brazil is ASTOUNDINGLY more profitable in the aggregate as a growing economy with green-field development prospects, than is a mature economy like Japan.  Japan *cannot* effect a rate regime of 10 or even 5% because Japan as a climate is not even 5% ROI in the aggregate!

Rates MUST *follow* profitability.  If you want to start a business with a ROI of 5%, you cannot borrow at 6%.  It's really as simple as that.  This is why the QE and rate regimes are not causing credit inflation where desired; we already had our boom and now we have overcapacity or unprofitable activity compared to other areas.  It's useless to try to fight this, capital flows MUST NORMALIZE.

Mon, 02/22/2010 - 11:02 | 240140 Greenhead
Greenhead's picture

Mises pointed out nearly 100 years ago that the poor and middle class are net lenders not net borrowers because their savings are deposited in banks, credit unions, savings and loans and life insurance policies.

Inflation hurts them even more as one of the goals of inflation is to reduce real wages even though nominal wages may creep up.

Sat, 04/17/2010 - 10:48 | 305588 Tom123456
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Thu, 03/17/2011 - 06:57 | 1065779 Holte
Holte's picture

To me thats the first signal the Eurozone is need to survive withou the help of Japan in the near future ?

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