This page has been archived and commenting is disabled.

"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.

 


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 02/22/2010 - 01:33 | Link to Comment cocoablini
cocoablini's picture

Because it's been sooooo effective for the last 30 years...

Good luck on that one

Mon, 02/22/2010 - 02:38 | Link to Comment Anonymous
Mon, 02/22/2010 - 09:44 | Link to Comment Anonymous
Mon, 02/22/2010 - 01:46 | Link to Comment scaleindependent
scaleindependent's picture

Hmm, Gold anyone?

Mon, 02/22/2010 - 01:50 | Link to Comment Harbourcity
Harbourcity's picture

Looking forward to that $80 beer next Friday.

 

Mon, 02/22/2010 - 01:52 | Link to Comment tahoebumsmith
tahoebumsmith's picture

Tick,tock,tick,tock,tick,tock,

Tick,tock,tick,tock,tick,tock,

Tick,tock,tick,tock,tick,tock

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

Mon, 02/22/2010 - 01:53 | Link to Comment Anonymous
Mon, 02/22/2010 - 02:07 | Link to Comment 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 | Link to Comment 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 02:09 | Link to Comment darkpool2
darkpool2's picture

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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 12:06 | Link to Comment Anonymous
Mon, 02/22/2010 - 12:48 | Link to Comment 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 02:44 | Link to Comment Anonymous
Mon, 02/22/2010 - 02:49 | Link to Comment 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 | Link to Comment 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 10:43 | Link to Comment Anonymous
Mon, 02/22/2010 - 14:33 | Link to Comment VegasBD
VegasBD's picture

Its so cute when Anon's fight.

Mon, 02/22/2010 - 04:31 | Link to Comment 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 | Link to Comment Anonymous
Tue, 02/23/2010 - 09:40 | Link to Comment Anonymous
Tue, 02/23/2010 - 12:18 | Link to Comment 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 | Link to Comment 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 | Link to Comment jeff montanye
jeff montanye's picture

good point

Mon, 02/22/2010 - 05:06 | Link to Comment Anonymous
Mon, 02/22/2010 - 05:23 | Link to Comment Anonymous
Mon, 02/22/2010 - 05:57 | Link to Comment faustian bargain
faustian bargain's picture

mindboggling.

Mon, 02/22/2010 - 07:42 | Link to Comment Anonymous
Mon, 02/22/2010 - 12:56 | Link to Comment 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 | Link to Comment TumblingDice
TumblingDice's picture

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 | Link to Comment 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 | Link to Comment trav7777
trav7777's picture

Wrong

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 | Link to Comment 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 05:24 | Link to Comment Anonymous
Mon, 02/22/2010 - 05:45 | Link to Comment 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 06:47 | Link to Comment 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 | Link to Comment 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 07:50 | Link to Comment Anonymous
Mon, 02/22/2010 - 15:08 | Link to Comment Anonymous
Mon, 02/22/2010 - 07:51 | Link to Comment Anonymous
Mon, 02/22/2010 - 07:55 | Link to Comment Anonymous
Mon, 02/22/2010 - 08:16 | Link to Comment Anonymous
Mon, 02/22/2010 - 08:20 | Link to Comment 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 | Link to Comment 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 09:36 | Link to Comment 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. http://wallstreetpit.com/5059-krugman-monetary-base-expansion-doesnt-nec...

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 | Link to Comment 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 | Link to Comment 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 | Link to Comment jm
jm's picture

Arigato gozaimasu.

Mon, 02/22/2010 - 13:40 | Link to Comment 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 | Link to Comment 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 | Link to Comment order6102
order6102's picture

thanks. I will look into it. Cheers

Mon, 02/22/2010 - 09:08 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 this...it's sugar into a bucket of water.  Start small, keep the growth rate of sugar dissolution.  Don't grow the water by the same rate...at 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 | Link to Comment Anonymous
Mon, 02/22/2010 - 12:49 | Link to Comment 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 else...plus interest.

Mon, 02/22/2010 - 13:14 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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".

 

So

  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 | Link to Comment order6102
order6102's picture

fair. thank you for reply

Mon, 02/22/2010 - 10:43 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment 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 | Link to Comment Tom123456
Tom123456's picture

Good Linux hosting option package offered by ucvhost which not only provides the best in terms of hosting packages but also believes in truly being there for the customer, 24x7. cheap vps Moreover , they offer unlimited bandwidth as well as nearly 1GB storage along with database maintenance, email facility along with storage, availability of sub domain and many other important features for a very low price. ucvhost thanks

Thu, 03/17/2011 - 06:57 | Link to Comment Holte
Holte's picture

http://www.businessinsider.com/remember-how-the-japan-crisis-was-going-to-crack-up-the-eurozone-2011-3

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

Do NOT follow this link or you will be banned from the site!