This page has been archived and commenting is disabled.
Japan and the US Ten-Year
A bond trader I know sent me this at the end of the week. He is obviously in the bull camp:
I
expect the 10yr UST to be closer to 1.50% than to 2.50% by this time
next year. Deflation, deleveraging, and risk-aversion will likely
continue for closer to a decade than a few years. Add in QE and the
Fed’s desire to keep rates low, and we should see a yield curve with
even lower yields than today in the coming years.
A significant argument in favor of this outcome is Japan. We are following their path in so many ways. From the bond guy:
The US
situation in 2010 is not all too different from Japan’s in 1990 – yes
there are differences, but many similarities, and most importantly, our
“solutions” are nearly identical to what Japan tried. Japan has wound
up with 2 decades of deflation and a 10yr yield that hit 1% for the
first time in 1998, and now sits at 0.95%.
This general view of the future is widely held. It’s hard to ignore the
fact that in many ways we are mirroring Japan. I see the similarities,
but I also see the differences. For me, there are enough of those
differences to come to a different conclusion. A few to consider:
Store of Wealth
Looking at the long-term graph of USDJPY says it all on this key issue.
The US has had policies that encouraged deficits; this results in a
chronically weak currency. This dynamic is very supportive of bond
prices in Japan. True, investors get little return, but they also get an
FX gain. If a country that measured its financial reserves as a store
of future purchasing power the dollar loses hands down.
The US continues to follow a weak dollar strategy. Therefore by
comparison we lose to Japan on the store of wealth issue. That does not
support long term US yields at sub 2%.
Debt and who owns it
Japan has a GDP of~$5T and public sector debt of ~200% so they are
swamped with debt. US public sector debt is ~$13.7T or 93% of GDP. This
“favorable” comparison has been pointed to again and again as evidence
that the US can handle a much higher PS debt. I’m not convinced.
Consider the ownership of Japanese debt. 5% is foreign owned.
On the other end of the spectrum is the US. The following is a list of
holders as of late. The US debt to public is $9.1T, of that 4.2T or 46%
is in foreign hands. We have 9x’s as much debt in hands outside the
country. This reality is not supportive of a long-term bull market in
bonds. Hostile bondholders are going to be a factor against sustained
low rates. Do you see anyone on this list that might get hostile?
Reserves
The US functionally has none. The CIA puts the number at $140b. But when
you have $4.2T of foreign creditors that much in reserves only covers
about one year of interest. There is no margin for error. Japan has $1T+
in reserves. It has enough money outside the country to buy in all of
the debt held by non-residents and still have a ½ trillion to spare.
Again, if you were running the “Fund for Future Generations” you
would be willing to accept a lesser return from a borrower that had the
ability to pay you back 2Xs over versus the other who had not a foreign
penny on the shelf.
The typical response to this is, “The US can print as much as they want”. True, but it is this “compelling” logic that makes the US a fundamentally bad credit. One that will be forced to pay more for borrowed money than Japan.
Demographics
This issue has nothing to do with market rates in any short-term period.
But it is a powerful long-term one. Japan has had stable/declining
population while the US continues to grow. This factor will come to bear
at some point. The increasing population in the US supports growth,
with growth will come natural inflationary pressure. That is not an
environment where interest rates can remain low for an extended period.
My
friend the bond guy thinks there is a play in the ten-year area. He
looks for the curve to flatten as deflation and POMO do their work. He
provided this graph of what has happened so far:
Looking
forward, there is all the reason in the world to think that THIS
FLATTENING WILL CONTINUE, even if on QE alone, further pushing down
rates in the 5-10yr part of the curve…
To me this is a crowded and dangerous assumption. I am not suggesting
that one should short bonds. That is a risky bet that has a very
significant negative carry to hold. I never recommend negative carry
trades.
On the flip side I consider a buy/hold to maturity of the ten year at
the current yield to be one of the dumbest investments the market(s)
have ever offered. The best way to play bonds is not to play them at
all. Find another sandbox. The one filled with bonds is dirty; some big
dog took a crap in it.
»
- advertisements -
"Japan had/has a much higher personal savings rate than the US."
The Japanese also have a very small youth population relative to their history. If the Japanese were previously able to sell their own government bonds to retirees as savings, they are not going to be able to in the near future and so the math would dictate that the necessary support for the government would have to come from outside...and soon.
The Japanese are running a debt ratio of over 200% of their GDP. In order for them to be able to finance this in any way, they will have to have competitive market yields on their long bonds in the global marketplace, otherwise there would be no investment and the whole kit-n-kaboodle goes down in flames.
I can foresee that the Japanese will be forced to raise rates, while the US government must keep theirs low for extended peroids. Sound familiar? Sounds like the "dollar carry" trade to me.
As you pointed out the other day, to focus solely on the short end of the bond spectrum would put the knife in any real estate recovery, tank the SPX and the "wealth effect" that Bernanke seems so intent on delivering would be dead-on-arrival.
I think the knife is already in for the real estate recovery. Barring some actual leadership and decent regulatory moves accompanying monetary ones, the future for US real estate looks to me like Japan. Dead. Let me know if you see anybody up high who looks as if they have an ounce of leadership in them, but so far, I see nobody. The fact that the Fed is sitting on MBS means that a large number of mortgage defaults can be handled without causing systemic failure. Those homes will stay dark for years, or the Fed will hand them over to the govt in some sort of "affordable renting" program.
At this stage, as I see it, the urgent issues are the pension funds and a continually dying world outside the financial sector, hence we have QE2.
Given this, the Fed should stay the hell away from long bonds, let the yields recover to more natural levels.
Regarding the "wealth effect", it's a load of crap, nobody at the Fed *really* believes it (apart from the link to retirement funds), and I don't know why people at ZH keep going on about it!
Regarding tanking equity markets, well, it has to happen eventually, as soon as the Fed does *anything* that looks as if it will stop intervening. I see this as a good thing, returning markets to reality because nothing good comes of them being detatched from reality for too long. Given the GDP numbers coming out of the Consumer Metrics Institute (which I trust), the S&P needs to fall by about 50% to get to something even remotely resembling reality.
I'm in a weird situation of agreeing with the conclusion (that buying the 10yr is a bad idea) but not with the reasoning that leads to that conclusion. Actually, I use opposite reasoning to reach the same conclusion.
Japan had/has a much higher personal savings rate than the US. Japanese retirees are much more able to support themselves on that cushion than US retirees are, the latter must depend more upon pensions or government support.
Suppression of the 10yr yield (and longer) has eroded the support system for US retirees. In my view the Fed should avoid longer dated paper like the plague and let yields rise if it wants to avoid a catastrophe. Yes, this leads to more mortgage defaults but as I stated above, since the Fed took on MBS during QE1 the danger from mortgage defaults is now less than the danger of pension fund defaults. The Fed can mark the underlying on MBS to fantasy indefinitely (refuse to sell properties, let them sit dark).
I see the Fed as having no option but to stick ultra-left on the yield curve.
Regarding the comparison of the composition of foreign debt holdings. I don't think it's fair to compare Japan and the USA. This is apples and oranges. How many nations use the Yen as a domestic currency? The Yen is not the world's dominant trading currency. The Chinese don't have a currency peg against the Yen. Given these differences it is completely unsurprising that foreigners hold more US paper than Japanese paper. The key point is (as Bruce points out), will this change?
I say, not rapidly. There are too many factors that have to line up, each of which has a low probability alone. The US still has the dominant vote in all IMF decisions so, although the USD will ultimately be replaced (perhaps by SDR2), it won't result in a system shock for the US, it will be managed. If a foreign power turns hostile, what is the chance that they all will together? If China dumps (or refuses to roll), I'm certain that the BoJ, ECB, Fed and others would combine forces to maintain orderly US bond markets. They will allow a tolerable rise in the 10yr yield, but they won't let it moonshot.
So, in summary, I'd be looking for a longer term rise in the 10yr yield, in all probability not much action at all, and I agree with Bruce that buying the 10yr at this yield is not wise.
This post is semi-interesting for the opinions, but in the end Bruce only gives us a vague picture. If Bruce is willing to give us an exact forecast number for inflation 1 year from now, an exact forecast number for inflation 5 years from now, and an exact forecast number for inflation 10 years from now then I can respect that. But just some vague thing that says "Well, it won't play out like Japan" that gives him an easy out----Is that useful for market decisions at this crossroads???? I don't think so.
Bruce if you want to piss in Krugman's sandbox, then you need to stick out your neck also with some inflation numbers. Anybody can sit in the back of the room throwing tomatoes at the main act.
Exact forecasts? Who does that? Not me. I have not been exact about a forecast in years!
Here are my forecasts:
1yr= 2%
5yr=3%
10year= 3%
Not crazy numbers. but if you compund these numbers you will see that all prices are about 40-50% higher than they are today. That is enough inflation, we do not need QE.
In all deference to Bruce, his posts are "thrown out there" so that we can think about it, discuss and learn.
He is a "what-if," kinda guy.
:D
The USDJPY pair was fascinating to watch last week. The greenback tried repeatedly to wrest away from the yen its status as a global reserve currency. By the end of this trading week, I expect that the re-polarisation will be quite far along.
____________
The markets have finally lost support from the POMO-induced ramp that has so skewed currency markets over the past several months. Many pairs will be correcting from their extremes moving forward, making for a very exciting and profitable time to be trading in the foreign exchange.
If I may, I would like to say how I believe the correction in currency markets will pay out this week and for the next several weeks. The timing couldn't be more difficult, of course, but the levels are there and the trade signals are in place for some massive moves.
The Key Cross this week is the EURUSD pair. I would expect the Euro to retrace some of its losses of the past week and try to breach the 1.4 level again. It may reach it and breach it but it will not hold.
The second level to watch this week in the EURUSD cross is the 1.356 level. A break below this level indicates that the pair has broken to the downside and will probably not stop until it reaches the downside target area.
Using the EURUSD as a signal-proxy, take the signals of breaches of these levels to get short also on the AUDUSD, the AUDJPY and the GBPJPY pairs. If the EURUSD reaches 1.4, sell all these pairs. If there is a break below 1.356 on the EURUSD, also sell all these pairs.
The downside targets are phenomenal and a very, very sharp reversal will probably come once the targets have been reached. Pay special attention when the pairs in question reach the target area for a sharp reversal! It may happen in the blink of an eye.
The downside target areas are:
EURUSD: 1.283
AUDUSD: 0.8586
AUDJPY: 76.82
GBPJPY: 127
And, as an extra-special bonus for all of those playing our game, it is also possible to short the EURJPY and the CHFJPY. Those target areas are:
EURJPY: 102.72
CHFJPY: 78.8
These pairs, along with the GBPJPY cross, are pushing extremes, so volatility may make you queasy. The best way to play it is to set-and-forget a small-lot position.
____________
Back to the USDJPY pair...
Just a fascinating thing to watch (and, yes, I am also fond of watching grass grow and paint dry...). Expect the USDJPY pair to retrace back down to 81.373 or so. This level could be breached by Tuesday night/Wednesday morning.
Do not put it past the Japanese to announce another currecny intervention at that time.
I believe they have dry powder and are willing to use it. Sort of a, "Don't let the door hit ya where the good Lord split ya," kind of thing. Or they can do a "Biff" in a really thick Japanese accent, saying, "Hey, dollar, make like a tree and get outta here." They will play into USD strength and then defend the Fibonacci levels like pregnant wolverines.
I think this will bring in the new/old paradigm in which the USD grows stronger over the coming months, by taking its old place as a global reserve currency and relegating the JPY to its rightful place as relegated. :D
Getting long the USDJPY pair now is a good bet. Any break above 82.8 confirms this move and the upreach could be terrific over the next several months.
Or not...
As always, happy trading.
Olexsandra
Addendum: The USDJPY pair has already crossed the threshold many hours before expected. Apparently, the Chinese central bank is warning about inflation concerns, so the JPY is responding lower across the board.
In general, a simple break above or below the indicated levels will not do as a signal. There must be a close above or below the line on a one-hour candle (I prefer the H4 myself, just to be sure...). Once the close is in, get into the trade provided that the directional signals are still in place.
This looks like a head-fake in the USDJPY but watch for the close of the four-hour to confirm. Either way, these are going to be giant moves, so you'll have plenty of time to profit.
:D
Addendo edit: The USDJPY is not acting at all how I expected it would in the overnight. You have already made 33 pips on the long trade but I am highly suspicious. Kill the position and wait for some sort of pullback to at least 81.5. A retracement was necessary for the trading plan to work properly but it hasn't materialised.
Sorry to be micromanaging the trade but these are hairy times in 4X.
"?
I'm confused. Is this Orly, Hulk or John? So many god-damn people stealing names and avatars that I can't keep track of who the real Orly is.
Nucking Futs!
I know. It's sad, isn't it?
I had an extended "conversation" with these idiots last night. Unfortunately, they are a bunch of frat-boy ass-clowns who won't be with us much longer for the simple reason they're not going to be able to say, "Gold bitchez!" without looking utterly stupid.
This is Orly. Notice that the Avatar remains but the name won't change. So when you see "Hulk" with my picture on it, you know it's bogus. Problem is, most people don't pay attention to that. We are visual creatures. You see my face and see what I have to say.
When I wrote ZeroHedge to complain, Tyler said that there was "not much" they could do about it.
Not much? How about turning their asses off? JonNadler, Hulk, tmosley (not sure if he is stealing avatars but he is one of their gang...).
It's just sickening. I was wondering why I haven't seen familiar faces with some expertise and knowlege around here. Maybe it's because they got tired of getting ripped-off? Hmmm? That would be my wager.
And I told Tyler this would happen. People who have come to look forward to my very, very bad 4X picks for a good laugh will start to wonder, "Now, is this Orly or who?"
Or they can get up there and say, "Buy EURUSD @ 1.4!" which could be logical, I suppose, but exactly 100% wrong. Lies. Stealing. I have zero patience for that stuff.
Ah, get over it, they said. "Ignore the guy," was what Tyler said. Well? What? Excuse me? I'm supposd to sit here and allow these morons to take over the site and just sit, shut up and take it? I soooooo don't think so.
It's how thuggery starts. They start to brutalise some kid with glasses and the teacher says, "Oh, just ignore them." Next thing you know, your school is overwhelmed with gangs of idiots.
I really don't want to see that happen to ZeroHedge. Unfortunately, there's "not much we can do about it."
________
I do appreciate your noticing and I apologise for my rants and my profane language. If I offended you, I am very sorry.
But I do feel strongly that these things should not be tolerated at all. Hell, Denninger kicks you off just for disagreeing with him! I'm not saying to censor true opinions but these lies must stop!
They know exactly who these guys are and it wouldn't take but a click of the mouse to end this nonsense once and for all.
The Japanese government 'owns' 40.2% of its own debt? Making the Japanese Government the largest holder Japanese Government debt?
How the fuck does that work?
Aud,
The Fed owns 2.2T The intergovernmental account holds 4.6T. the toal governmental in the us is therefore 6.8 out of a total of 13.6T. So we are at 49% today. Bigger than Japan by a fair bit.
Between QE-Lite and QE-2 the fed holdings will go to 3.1T (minimum) in 2011. So Pro-Forma QE-2 the US government will hold 56%. This is the crisis know as QE in my opinion.
Because the Japanese government owns 55% of the Bank of Japan and because much of that listed as 'government' is probably intra-governmental (not really debt).
It is my view that the Fed and Treasury are no longer independent entities. I call the current entity the "Fedury" and it's a mere paper formality that the Fed be nationalized (at least partially). In effect, the nation has already been "bankalized" to borrow an expression from the Automatic Earth, so the union is complete.
I agree with Richard Koo, that the BoJ is actually more independent than the Fed right now.
"earnings" and "taxes" represent the only form of new money that matters. "money printing" as "new money" simply put "is fuel for the dragon." Japan hasn't fought a war since, obviously, they started a war with US. This to me "is an important distinction" since "we've been at war going on year 10 now." In short "how does bailing out Wall Street help pay for the war?" From the language and actions I see on the financial news "not one friggin' bit!" seems to be the answer. As much as Wall Street can consider itself all powerful "you can't touch the government." So again, "why park all those savings outside the US"? I say "because they're more than happy to stand idly by while a massive inflation is unleashed." We may have had a mild deflation after 9/11. We've never had one we can ever remotely "call one" since the depression nor are we now. "inflations" and "ongoing wars" are a dangerous mixture...as they should be. we barely survived as a nation the "Vietnam" variant. Needless to say "we have two wars going on simultaneously" right now.
http://www.unnecessaryquotes.com/
an interesting perspective on Deflation
The deflation myth
Financial Post Staff, National Post
Thursday, Nov. 11, 2010
Falling prices aren’t necessarily bearish for jobs, profits or growth
http://www.financialpost.com/m/blogs/blog.html?b=opinion.financialpost.c...
And Japan had a strong yen policy? If I recall correctly, they intervened several times to weaken the yen, yet it sits near all-time highs versus the U.S. dollar.
If deflation continues, the Federal Reserve's inflation policy will fail. They will also fail to weaken the U.S. dollar. U.S. Treasuries, a safe and highly liquid asset, will be very popular in a world of economic contraction and a rising U.S. dollar, just as they were in 2008.
Bond yields are going up...Printing more and more money until house prices are going up again, is going to make sure of this.
Good luck with your USA Bonds, I would prefer buying Brazils.
Listen, I've been to Japan and have seen all of her major cities. Keep in mind, this was several times during the late nineties. Post boom, but not very recently. If what I saw is the result of chronic deflation, let me have it. I think your average dork thinks Japan is like the US during the 1930's when they hear about the deflation over there. Believe me, it isn't.
Bingo. Japan isn't all that bad. As one of the posters said above, if we can end up like Japan, that would be the *best* scenario, and I believe that this is the scenario that the Fed is trying for. The differences between Japan and America complicate the journey, but the goal seems clear enough.
US is going Argentina, not Japan.
No. Argentinians and Americans are not even close culturally. People call the USA arrogant? I wonder if the people who say that ever left the confines of university plastic towers.
We'll see civil war before we see Congress confiscate private pensions.
While it is always so tempting (and no one does not succumb to this temptation that I have seen) financial pundits and advisors would do well to resist and overcome it.
That temptress: the ridiculous, idiotic, wholly intellectually pathetic one of comparing the disUnited States, monstrously large, beyond diverse in nearly every criteria you can name--comparing it-- to any other country on earth.
It's like saying" since bonobo monkeys possess 99% of human DNA, we humans should live in trees.
...if we are to follow the path of the rising sun, it is clear that commodities priced in yen from 1980 to present, puts the u.s. on a path of "inflation" in real goods and "deflation" in paper playing cards for the ego sharks spinning the wheels of propaganda and greed...i expect this deflation/inflation debate to numb an entire generation into realizing each side is blowing hot air and coming to neither a conclusion nor an admission of "spinning" the facts...ten to twenty years of debate is to be expected...and the dollar will remain comatose along with its population that lives in fear and denial...see me in ten years.
Most of the debt on U.S. books is toxic. In a free market economy that debt would be written down and deflation would ensue until equilibrium was reestablished, but Bernanke has made it clear that he will not allow the markets to clear and will buy up every asset class as necessary to defeat deflation. The result will be the ultimate destruction of the dollar.
So, essentially the US is similar to Japan in that it has/had out of control debt, asset price bubbles, zombie banks, poor demographics, and nagging deflation. It is different from Japan in that the US has consistent current account deficits, and no nationalistic tendency in its citizens to buy govt bonds. I'm not sure a (fragile) reserve currency status is enough to make up for these challenges.
Just to point out the obvious: do you realize that the whole point of near zero percent interest rates (and QE2, which in essence introduces negative interest rates) was and is to stop its citizens (or rather, groups of its citizens, also called 'corporations' and 'banks') from buying government bonds and instead actually inducing them to buy something else ... like a new line of machines for production or pursue any other productive economic activity other than putting the money into bonds?
If there was no nationalistic tendency to buy bonds then US corporations would not be sitting on a war chest of a trillion dollars in bonds. (which they are unable to invest, due to lack of demand and due to excess capacity)
The only big corporation left to kick the economy out of its stupid 'lets all punish each other in concert' cycle, the US Government, is paralyzed by a political stalemate from taking decisive enough action. (not so in China, Germany or South Korea so those places are thriving)
Yep. If only guys like Krugman could figure out a way to force people to go out and spend their paychecks on iPads and other toys, why everything would be right as rain. Damn weak demand!!
Ok, so ZH is finally waking up to the deflation risk. Another, easier to compare graph can be found in Paul Krugman's blog:
http://krugman.blogs.nytimes.com/2010/11/08/barbarous-relic-watch/
The US is matching Japan's run-up to deflation very accurately so far ...
So no, it's definitely not hyperinflation we should be worried about.
There you go again, confusing political events with monetary ones... And assuming everyone will play by the rules. Your screen name is apt, however.
Looks like you got it all figured out. So you all in on Treasuries? Surely the Helicopter bit was just a joke right, Ben will totally let deflation take hold...
Exactly.
So long as Bernanke is Chairman and has enough votes on the FOMC (which he still will even with the regional hawks joining in 2011), deflation is not going to happen. Anyone who thinks otherwise hasn't studied Bernanke's body of work and psychological disposition very closely.
The U.S. can run inflation in the 20-30% range, just like the Brits did post WWII after accumulating a massive debt overhang, and contrary to 'Palin Economics' the world won't go completely pear shaped. Last time I checked pound sterling, rather than having been "destroyed", can still be used to purchase stuff.
Sure with that level of inflation U.S. creditors (aka 'the mercantilists) will howl, and China may press their advantage and force a couple geopolitical concessions (i.e., Taiwan, fewer weapons shipments to India, etc.). But so long as the middle east remains unstable and Japan stays shit scared of a reverse Rape of Nanking, inflated U.S. paper can be force-fed down the mouths of the Saudis, Japanese, etc. for years to come.
Anyone who thinks Japan is in a better medium or long-term position than the U.S. suffers from the classic inability to see the forest through the trees. Or, as the I don't care whether you think my insulting rhetoric is counter-productive towards my winning over the crowd Paul Krugman would put it, "you're an idiot".
No it can't--Asians work hard, but they don't work for nothing. And Obama doesn't scare them one little bit.
The funny thing is, Paul Krugman (so often demonized here on ZH), has arrived to the 'The US is facing deflation and the japanese lost decade' realization about two years ago:
http://krugman.blogs.nytimes.com/2008/12/16/zirp/
You may choose to hate Krugman for his political views, but his analytical and predictive skills as an economist are undeniable.
There is no way that the US congress will allow us to follow Japan in concreting over the country in the name of stimulus, nor that US investors will follow the Japanese home investors in slavishly buying bonds yielding less than 2%, taxable, in a currency that is far from stable. We may have a little deflation, though consumer prices now are increasing, but low rates will just lead to more bubbles, and therefore higher rates.
My point here was to (again) try to suggest that Krugman etal are wrong.
We are going down a road that sure looks like Japan 20 years ago. However, the idea that we are going to end up the same way as Japan is just wrong. Too many powerful forces say no.
Correct me if I am wrong but personal savings rate in Japan has now dropped to nearly 2 % but corporate savings rate has gone upto 15-20 % area ?
For the US both are either negative or nearly zero.
so "business keeps their savings abroad" because....
I think Japan is the *best* possible outcome for us. During the first of its lost decades, it had the following advantages, none of which hold true for the US today:
- Cheap oil, down to $13/b in 1999
- They were primarily an export nation with a strong manufacturing base and the ability to devalue their currency at will, with the express collusion of the United States.
- A high personal savings rate (at the start, at any rate)
- A tailwind of strong world growth.
- Large trade surpluses and a government surplus (which they pissed away of 6 years of QE and 10 stimulus packages)
- Crash was mainly in CRE, which had minimal impact on household balance sheets
- Plus the intangible advanatage of cultural homogeneity.
Concur. Japan could *afford* all their QE mistakes. We cant. The currency can not support this, the bond market is bigger than any government or central bank, even the US's third central bank...the FED. We will eventually end this one, we've done it twice before already in this country....
Correct the US will fall flat on its face trying to mimic Japan
Providing proof that their predictions were right in the last two years is a strange way of making that point though :-)
Firstly, if you are suggesting that Krugman was right for "only" 2 years and might be wrong in the future is giving him a heck of a praise. Give me a 1 month crystall ball and I'll be happy forever ...
Secondly, here's the comparison with Japan so far:
And I agree with your point so far that the US might not end up like Japan: it might indeed end up worse, because being a reserve currency of the world is deflationary. (amongst other forces, like China constantly exporting US jobs to China via a yuan kept weak via capital controls, etc.)
What the US probably wont get anywhere near in the near or mid term future is hyperinflation (it would have to stop deflating for that) or default (the US is still printing its own money, defaulting would be like Microsoft being unable to print new Windows licenses).
Except we are getting massive inflation. And everything else you list is part of a dysfunctional hyper inflationary economy. And the amount of money we will have to print to make our banks solvent dwarfs what Japan printed like the sun dwarfs a peanut. And since we are a reserve currency circulating everywhere, we run the risk of getting all that money jammed back into our commodity markets as the dollar falls.
It is pretty obvious what the printing has accomplished so far. INFLATION. It is pretty obvious we can't stop or the banking system will die. So the risk of hyperinflation is huge, despite your trolling.
Have you been to a store lately?.. A gas station? Do you read your utility bills?.. Ohhh.. Those things only effect poor people.. It's the "asset" prices that concern you...
We are NOT like Japan.. I will not even waste the time to list at least 10 profound differences between our situation with Japan of 1990. Absurd.. Everyone on here knows what those differences are and why they will dictate a different outcome..
US= reserve currency, japan not. I wager it makes a difference
Who own the debt? Yeah, i think that makes a difference
Japan maintained its industry and savers
we outsourced and spent.
I agree with Bruce, we are a much different story. Add to that how distasteful it is to trade this unethical market and the contraction in jobs. W e got a hell of a combo. Oh, lest i forget, we may have insulted China along the way of currency devaluation. Saving face used to be a big deal, moreso to a rising giant. I am just a little worried about the results this evil stew will bring.
You forgot to add the increasing effects of free trade which business tries to sell (along with the supposed boost in exports) as the panacea for economics worldwide, but which is only really beneficial to cheap-labor countries (and the global corporations who move to those countries. Of course, this, in turn leads to your higher unemployment). Japanese corporations still make plenty of money...just not in Japan.
One might also point out that Japan adopted the Nordic "welfare state" in 1993 and decided that the foreign (to Japan) notion of loose money and high debt would be beneficial to them. Both of these events run counter to their customs and beliefs. It was also around this time that the big pharmas invaded Japan and taught them all about depression and, of course, the wonderful medicines that would help them to fight their "new" affliction.
Japan has a love-hate relationship with the West and its ways. Most of the problems that the Japanese people face come from the conflicts between their traditions and westernization. Unfortunatley, westernization has been winning.
This is where guys like Krugman are wrong. Economic theories, particularly those advocated by the Krugmans of the world, can not capture the micro-economics of a society; the beliefs, culture, and emotions that drive the individual. There is no one-size-fits-all. People save rather than spend. They hate their governments (look at the number of PMs Japan has had since the 90s) for forcing them to change these beliefs and customs.
This is also why we will not end up like Japan. We don't think like them nor do we react the same way to identical stimuli.
One other note about Japanese suicides and Krugman. Suicides spiked in Japan in 1998 and I believe that was the same year Krugman began giving Japan his advice. Just saying...
deflation is a bitch. chairman will fight deflation tooth and nail...wealth effect...gubermint charts are like Greek deficit charts and unreliable. The best laid plans of mice and men.....so you gonna jump into treasuries?
Why would I jump into US treasuries now? There's just so much space left to a zero interest rate - they have stopped being a useful instrument after QE2.