It is Japan we should be worrying about, not America

Mr Goldsby - you say you are in favour of a free market - why then do you oppose the notion that if someone lends money to someone else (whether directly or via a bank) they should not charge a fee (interest) for that service. Put aside the Rabbinical teachings (or other religious biases) and let's look at this in a perfectly factual, economic manner.

I earn money - it is a medium of exchange and a store of value (in the short term at least). I have a choice, I can spend my money on essentials and I can save some for lean periods. The saved money I can keep under my bed or put in a safe deposit box (both hoarding, one safer than the other) - or I can use a bank account. The bank makes money on my money by loaning it out - they also provide me with a service (ATMs, cheques, DDMs etc) but they still make money out of my money. In a competitive market those banks should be free to offer me whatever rate of interest they require to attract the deposits they need. Equally they should be free to loan it out at whatever rate of interest is conducive to good business. If you don't like the rate don't take the loan.

If I don't like the low rate on offer I can seek out other deposit schemes, money funds, bond funds, equity funds etc - a range of assets to provide different levels of return (broadly commensurate with their risk). Or if I don't like the low rate and the banking service I can hoard my cash (buying gold for instance and putting it in the ground) a totally unproductive use of money - unlike lending even on low rates.

The problem is not the rate of interest in the market but the fact that banks can borrow using a government guarantee and then lend on highly leveraged terms.

Aside from apparently not liking people who make a little bit of money without much risk (aside from the effects of inflation) I don't get why you object to interest on current accounts or any other account (aside from your admiration for Keynes). It's a free market - or at least it should be - which is why central banks should not set interest rates.

PS: I don't care if you call it usury or refer to rentiers but it sound rather evangelical and that can be off-putting.

AEP "Tokyo has let the yen appreciate violently-90 to the dollar"here what we hear it might go to-50 to the USD.
On his last visit the US Secretary of defense Robert Gates gets grumpy in Tokyo,the problem
the relocation plan moving 9000 US marines from Okinawa to Guam,the bill 10bn USD and two third of which would be paid by Japan,some people are fed up with "generous oncle Sam"

In this article, stated: �It could print money � l'outrance to stave off deflation. Yet it sits frozen, like a rabbit in the headlamps.�

Oy! Victor Hugo was correct: �The one thing we learn from history is ... that we don�t learn!�

States and their governments, et al., and the majority of the masses cannot grasp statements like the opening one above: �It could print money...�� and deserve rebuke of the highest order. This is precisely and ultimately what has caused the greatest problems faced in the financial markets and the world at large! The horrific solution and answer: PRINT MORE MONEY!!

And yet we have illustrious poseurs continuing to provide day-old horse lunch, as noted above, being the salvation and solution to the amassed problems created by those same States and central banks throughout this world. The stench is overwhelming! Wise up people!

Will the masses learn? NOPE! That�s WHY they ARE the masses! People will not get what they think they want but they will surely get exactly what they deserve. Listening to such tripe as above in this article will merely prolong and increase the devastating consequences of the already self-inflicted terminal stupidity exercised by the financial world and governments worldwide. Have at it folks!

C�est la guerre.

Alan on November 02, 2009
at 06:46 PM

QE is of course a desperate attempt to prevent deflationary breakdown after 25 years of usurious real interest rates. Whether the effort is deliberately inadequate, so as to cause Jefferson's bankers ramp to proceed to its fullest extent when the collapse resumes, is a conspiracy theory that one could wrap up nicely with the nature of the New World Order (Gordon Brown) and the Post-Democratic Age (Peter Mandleson). I cling to the perhaps naive belief that it was all caused by a predisposition of the bondholding classes towards economic policies that require high real interest rates, but that they are cautious people and like to proceed slowly, and the last thing they wanted was a world economic crash; they want the masses content. It was in my view a mistake of the nature of the madness of crowds - was there anybody amongst the political elite not chanting the mantra, 'Low inflation targets with independent central banks create sustainable growth and no more boom and bust'. I think they all believed it.

QE rewards the badly behaved? The only badly behaved in all this were the policy makers who foisted that low inflation mantra on the world and blindly implemented it until disaster struck. There is no reason why it should, "all happen again".

The work of risk I refer to is taking your money and putting it to work in the real economy with a chance of losing it, and of course it deserves a return on capital. Putting your money on deposit at the bank doesn't.

The economic policies I support absolutely defend liberty, by the prevention of robbing savers by the debasement of the currency, or the robbing of borrowers and investors by usury.

QE has boosted asset prices, or to be precise, has re-inflated them after their collapse, and that is a prerequisite for escaping the deflationary trap. I see from Edmund Conway that Fathom Consulting has taken up my proposal that the Bank or Government should start buying up houses. But will they have the nerve?

There is no problem with fractional reserve banking and fiat currencies. Nothing Forsaken2 or any of the others who fret about the evils of fiat currency and fractional reserve banking apply as long as real interest rates are held at 0% over the cycle.

I can assure you that I always have been a Thatcherite and that Keynes' economics are entirely consistent with her policies of opportinity for all.

Karl Popper would say Japan has disproven the efficacy of fiscal stimulus.

Alternative explanation for exiting deflation: financial industry transparency and regulation. FDR did this, Japan didn't.

What if the true lever of recovery is not the fiscal policy, but the transparency? It is more consistent with the historical record.

So what happens to the US when Japan goes bankrupt and is forced to liquidate their foreign exchange holdings and treasuries?

If the creditors of the US go bankrupt, the debtor being America itself will not be immune from the consequences. There goes the dollar, who will be able to afford to buy treasuries and hold dollars after that point?

There is still the looming $600 trillion derivatives bubble that will break the camel's back for the US economy after the US creditors go bankrupt.

So what happens to the US when Japan goes bankrupt and is forced to liquidate their foreign exchange holdings and treasuries?

If the creditors of the US go bankrupt, the debtor being America itself will not be immune from the consequences. There goes the dollar, who will be able to afford to buy treasuries and hold dollars after that point?

There is still the looming $600 trillion derivatives bubble that will break the camel's back for the US economy after the US creditors go bankrupt.

The Japanese central bank by not lowering rates and creating inflation is exactly correct. That is the best idea to get out of a hole is to FIRST stop digging, second begin to fill in the hole.

It is possible to create money without also at the same time creating debt.

Alan on November 02, 2009 at 06:45 PM - "Reginald Hightower: Your pedantic rebuttal of 'emotional loading' is doubly disingenuous - usually a clue not to pay attention. In fact, both modern and (especially) antique (see The Merchant of Venice for example) usages {of "usury"] are pejorative - albeit for different reasons."

In fact, the language of Shakespeare is pretty much Modern English. And yes, Shylock does bitch away about what he perceives as the use of the word against him by the Christian protagonists, whereas that usage was, in itself, simply uncompounded, as it also was (in concept if not linguistic root) for biblical Israelis, most of the church at the time it was first taken over into Middle English from medieval Latin, and large swathes of Islam today. People, as Shakespeare observed of Shylock, generally don't like straightforward descriptors of attitudes or actions they feel to be disparaging of them in some way, whether they are intended as such or not. Usurers don't like the word usury? Well I didn't like my father's occasional description of me in full pedantic mode as being a "pompous ass". My discomfort didn't mean his phraseology was technically inaccurate. Similarly, you and Father Ignatius want, in the context of a semi-technical discussion, a technically meaningful term (check out, for instance, Michael Hudson's use of it in his articles on the mathematics of usury, available on the web) to be replaced by some unwieldy phrase of multiple weasel words, simply because of its connotation for you, but by no means everyone, nor numerous professional economists. Not a very good reason. (I daren't instance Marx, although he goes at length into fine semantic gradations of usury and its equivalents under his different historical models.) "Rentiers" ditto (although "suckers" is perhaps a more accurate descriptor of small investors lining up to subscribe to their own long-term, systemic disadvantaging). Rebuttal, pedantic? Probably, it's the habit of a lifetime. So what? Disingenuous? Not at all.

"However, I shall look up CH Douglas - although a quick scan of Wiki is not encouraging!!"

No, I had already checked the Wikipedia article to see if it provided a pointer to his particularly clear explanation of "usury" for newbies before posting the comment, but it didn't. And I still can't remember where I saw it, having not followed him far into the conclusions he went on to draw, so not remaining familiar with his corpus. However, as noted, there are several others nearly as good out there.

Keynesian Economics and its derivatives are little more than the Economics of Illusions, but it appears that those illusions have been so pervasive and obviously persuasive that few in their ranks question its validity.

The concrete proof of the illusionary nature of these economic theories is the economy itself; it is the product of such nostrums. As such, it is impossible to believe that based on the illusionary nature of these theories and the application of such theories that a healthy economy can be produced by the policies that emanate from them. It the assumption is incorrect, the results of those assumptions will also be incorrect. This is true no matter where such policies are implemented, whether Japan or the U.S. or Britain.

Contrary to those who are following closely in the footsteps of Keynes and his theoretical descendants, it is impossible to have underinvestment in free markets, additionally if they seek a remedy for unemployment they need look no further than to a return of free market labor and the removal of trade barriers, which, by the way, includes the so-called free-trade agreements which are nothing more than managed trade by government influenced by corporations and special interests.

There is no alternative, for as we are seeing many governments are following a well-beaten Keynesian path toward even further dislocation. It is absurd to believe that government, by utilizing the same type of policies that created this economic dislocation, can, by simply enlarging those polices, cure the economic ailments that this country now suffers. Governments are once again embarking on yet another easy-money policy to solve the problems that easy-money polices created.

Theses solutions always become problems which require more solutions, otherwise known as government interventions into the markets, which in turn, become more problems requiring more intervention.

Thus it will only perpetuate and in the process only aggravate the very problems it seeks to solve. Eventually, these forces will converge into a situation that is completely beyond the control of any policies, but for some reason those in government are blinded by the idea that although the solution they are seeking to implement has been the source of the problem that maybe it will work this time if we throw much more money at it; the results will be catastrophic.

AEP you seem very inconsistent in your remedies within the last paragraph. Be more specific.

"...QE was too little, too late, and this is the lesson for the West. We must cut borrowing drastically over the next decade, and offset this with ultra-easy monetary policy."

What the hell are you tossing off here? How can loose fiscal QE policies be implemented with cuts in borrowing? Who do you think you are, Barack Obama?

Messy, fuzzy and bland economics as well disappointing.

Normally your forecasts and assessment are always excellent. I guess you were having a bad day.

Destroying the value of the currency your assets are valued in is the only way to escape the compound debt trap.?

I cant believe what I see.

Some people have no imagination once your currency is not wanted what happens then?

Can anyone help me here, but if the pound goes down does it not mean commitments in other currencies increase.

Print some and buy a lot of gold so we can buy food, oil and gas for a while longer until everybody has an allotment. Put the country into a state of emergency or soon a bag of rice will cost a bag of money.

How are the people not so alarmed at the wholesale destruction of their means of exchange

Here in the far east we are not worry about Japan,but worry how the west is going to pay their debt.Specialy the US how do you do live in lie,where is John Lennon?

Moraymint

I agree, kicking that can up the street. I will make a note of it and use it more in conversation.

I have left the UK but I am not sure where is safe. The panic that comes to the markets, much greater unemployment, gilt auction failures, currency crisis, supply chain failures and etc, will change the world.

I Sojourn in Bulgaria where a house with a well, barn and land can be bought for 5K sterling. My village is a sustainable community the people skilled in self sufficiency.Most have little money.

No need for a rotivator even, so many have a horse with plow and a cart.

Fascinating article! Why such extreme pessimism on the Japanese socio-political front?

Is economic leadership and coordination in Japan totally absent? The absolute economic fundamentals of Japan look superb: they have the products, the management, the technology and the R&D capacity. The underpinning of these attributes is the ability to manage and facilitate change. These attributes are transferable to the political process to move the post WW2 Japanese economy from its mercantilist roots to a balanced socio-economic model, by expanding the domestic market. The demographics mean the needs must exist.

In the short term, surely the Japanese will buy US treasuries by the billion of dollars to force the yen down but helping to finance the US deficit and economic transition?

Monetary easing on a massive scale, with an objective of achieving 1% inflation, should recapitalise the Japanese Banks How? As well as the purchase of monetary assets, purchases should be made of real assets (property etc) as long as the rental income is higher (possibly much higher) than the bank rate. This should stop the collapsing asset prices and boost the value of bank security. A combination of massive cash reserves and liquid markets for bank assets should stop the banks collapsing/ rapidly recapitalise them.

Likewise, the dollar purchases should be partially into real US assets as long as these assets are income yielding. This should underpin these US markets. The Japanese, by riding the yield curve, helps fund the US balances of payment (and Government) deficits and assists in funding the twin deficits in an adequate manner.

Good Lord, Ambrose. This is one of your best, worthy of Stephen King and Joseph Sheridan LeFanu together. Bone-chilling and terrifying.
Will be interesting to see what comes of it.

To simplify this complicated article, it is suggesting that Japan can no longer afford to support America's central bank which is involved in financing the military adventures in the Middle East to protect Israel.

Don't we see enough of the economical robberies, such as the taxes and bailout bills to support the Federal Reserve and its associates, banks? Perhaps the Western banking network (Bank of England, Bank of International Settlements in Basel, etc.)?

Somehow, somewhere, hunan beings went utterly mad.

M. Kampermann writes: "Money should be expanded or contracted to maintain price stability. Nobody in the financial markets would object to the central banks tightening money if inflation became a problem. Then why do they object to the central banks easing monetary policy when we are experiencing deflation?"

Absolutely agree. Credit and money supply should expand and contract with the economy. That would be sound monetary policy and that should be the overarching rationale of adopting fiat money. Fiat money is flexible and adaptable. Thus it would facilitate sound monetary policy if used properly.

The truth is that in a democratic context, credit and money supply is constantly expanded. It is expanded when the economy expands and it is expanded when the economy contracts ostensibly to counter the effects of economic contraction.

Worldwide, the US$ is the reserve currency. Thus, all countries in the world must contend with the fact that credit and money supply have been aggressively expanded since 1913. Do you remember the USA where at exactly the same juncture in the late 60s? Do you remember how the USA came out of that jam at that time?

Since 1980 household and government debt combined in the USA have expanded by 1200% but GDP has only expanded by 100%

http://guidoromero.wordpress.com/2009/10/08/im-not-an-economist-but/

http://guidoromero.wordpress.com/2009/09/26/where-we-are-today-a-follow-up-to-background-of-my-contention/

The trouble with inflation is that it is limited mathematically. The point at which the entire issue of government debt goes to service interest, you have reached the limit of the inflationary trajectory.

And, by the way. In a fiat monetary system, money is most definitely debt.

If today someone were to rustle up all the bills and coins in circulation and returned the lot to the central bank, he/she would still be out of pocket on the interest due. Likewise with debt. If you were to repay the entirety of nominal debt, you would still be out of pocket on the interest due.

In a fiat monetary system, money is most emphatically debt.

That is the advantage of gold at a time that the credit markets are unstable.

Whatever troubles are coming Japan's way the country will pull through because they are one people and one race who have a common culture and purpose. Unfortunately the same cannot be said of Britain, a country no longer a nation, open to every alien criminal and hanger-on to plunder and abuse as they see fit. Japan will survive; Britain will not.

I'ts good that you're reaching the Pacific area at last. Perhaps there's hope you may eventually reach Australia.

Evans-Pritchard, Reece, Randall, Conway, Fletcher, Warner, Bootle et al. They all criticised Germany in the the world before Lehman Bros, you know the basket case economy. Remember? And now it's Japan? Take a close look at your local street. Is it nice? Is it clean? Do you feel threatened at night in your street? You're all kidding yourselves, Germany and Japan were richer, are richer and will always be richer than the UK because their education systems still function, somehow

NorrieC,

First and foremost quantitative easing is the process of eliminating debt by printing money. Money is not debt.

By idolatry of gold I mean an aversion to monetizing the debt. This aversion has its roots in the ancient belief money should be finite. Money should be expanded or contracted to maintain price stability. Nobody in the financial markets would object to the central banks tightening money if inflation became a problem. Then why do they object to the central banks easing monetary policy when we are experiencing deflation?

Charles Lee, your comment on November 2 @ 6:46 is something that I hear. You have about 15 years on me, for I am one of the tweeners who was born before Generation X, and I don't see things the way the baby boomers tend to see things. One bit of news that delays what you say is needed. People are spending as much, if not more on Christmas presents. They will be spending less on others. So, it will take longer, and more, for people to rein themselves in. But, the goal you describe is a worthy destination to aim for.

Printing money is the answer whatever the question, isn't it? Mugabe really knows how to run a country.

"Why aren't organisations like the BBC picking up on this?"
Haha!
Because they are merely a propaganda
arm of the government.

Moraymint
on November 02, 2009
at 06:44 PM
I am not sure what our GDP is now.
I know it went down to �1.26T

The next bubble is here - have just seen a house for sale at �189,000 - checked the details - last sold in Feb 2009 (6 months ago) for �143,000 - all that has happened since then is that they have converted part of the garage (est. cost �10-15K). Think they may need Mervyn to pick up the tab on that one.

Meanwhile it has become clear that the central banks and governments of the world want us to load on on highly leveraged debt and spend like crazy. They don't want us to save they want us to gamble.

The message is clear: you must get the biggest mortgage you can - remortgage if necessary and plough your all the money you can into shares, bonds, currencies, commodities - buy a couple of cars (again on credit) get out there and spend spend spend it is your duty as a good citizen - don't worry the central banks will come along and buy your over-inflated assets to prevent the bubble popping - you can then reinvest your profits in more assets - the central bank can print money indefinitely - the government can borrow what it wants because the central banks will buy their debt second hand from anyone wanting to make a fast buck trading in the stuff - fill your boots and on November the 5th don't forget to burn you effigy of Dear Prudence - we will never see her like again.

Father Ignatius Brown on November 02, 2009 at 11:52 AM

Thank you for your blessing for my political views Father.

I am in fact always careful to say,'effective' full employment. That is, the level of employment at which long term real interest rates can be maintained at 0%.

Your point about the words rentier and usury being pejorative has some merit, but if they are good enough for Keynes they are good enough for me. On the other hand, I appreciate that most small savers, indeed most savers, are good people with no conception of the economic principles, and that is what allows the elites to get away with being big rentiers practicing usury. In my opinion, the standard view of savings as an unalloyed good is so ingrained that some forceful words that might shake the view up are called for.

I can't agree with your point about deposit guarantees, unfortunately. People need to be able to save free from risk.

Thank you for you comments.

Guido Romero "If QE worked, it would show up in the graph below"

Guido's graph is a trace of monetary velocity, which is what proves the point I made.

The movement of money through an economy is characterised by two things, quantity and velocity.

Think of water going through a pipe. A small amount of water at high velocity delivers as much water as a large amount moving more slowly. The key value is the product of amount times velocity.

Today, Bank lending is still very low and the credit markets have still not recovered, so the velocity of money is low. That's why we need QE, which increases the amount of money. This is also why the Euro-area is in trouble; their volume of lending is contracting again.

Of course, there are catches here. One is that if the velocity of money remains very low, we'll need more QE just to keep things moving. The second is that when money velocity recovers, we'll have to withdraw the extra money volume fairly smartly, otherwise inflation will set in.

And then there is the zinger. Is it possible that by increasing the amount of money, QE could actually be keeping the velocity low? Most people don't think so, but it's a ;possibility.

Questions like these are why I say I only have "guesses". I leave certainty to the folks who express definite - dare I say "shrill"? - opinions here every day of the week.

the bbc doesn't report it because the cretin who is head of economics doesn't understand it!!

Japanese women went on strike, because they were too involved in shopping. This is not merely a Japanese problem. It started in affluent Western urban belts like New York/NJ/PHIL/W-DC, and California, about the same time. And these locations were the source of the Feminist Revolution. (and now I don't agree with the standard viewpoint that giving women spending power equated to happiness - because the spending appears to often be on a crash course to nowhere).

The problem was the behaviour of the central bank. If the central bank did nothing Japan would have survived. In fact Japan is a text book example of how not to do central banking.

However, I would add a word of caution.

Never underestimate Japan and the Japanese. They were written off in the 1850s, in the 1900s, and in 1946. And in each case Japan responded to the crisis.

Expect Japan, outside of the central bank to respond better.

And bear in mind that Japan has been carrying the US since 1988. Something that everybody seems to forget !!!

Mansfield Moron said: ' Why aren't organisations like the BBC picking up on this?'

I'll tell you why Mansfield -: because Ambrose knows sweet FA about economics - his brother on the other hand...

Yee har, Cheap Lexus. There is a God.

People these days do not have the smallest clue what real deprivation, real poverty is all about.
I grew up in a working class area in the North in the late 1940s and early 1950s.
We had no central heating - the main source of heat was a coal fire, and I can remember as a child watching the steam rising from my handknitted sweaters as I shuddered in front of it.
We had no car, and no television until 1956. Our main entertainment was the local cinema and reading - we had a great library. I looked forward to the Dandy and the Beano each week.
We had great family gatherings and played lots and lots of card games.
We were never short of food.
We survived and grew up perfectly happily and healthily.
I received an excellent education (and no fees payable at university).
It would take a massive, cataclysmic disaster for British standards of living to fall to the level of the immediate post-war years.
We have nothing really to fear.
Much of today's consumption is on things we don't need. We fritter money away on trivia without a moment's thought.
We could draw in our belts massively without even noticing it.
We are bloated and spoilt and self-indulgent now.
We need a period of austerity to bring us to our senses.

@David Goldsby: First, apologies for the strident tone of what follows - I don't seem to be able to find any other way. However, for what it's worth, I appreciate the civilised way you (and Ambrose) conduct yourselves and the insights you give.

However, a Thatcherite? Are you sure?

Sorry, I didn't recognise you as such. Maybe it's because I was blinded by two competing dystopic visions: one a world where QE fails and we are left in the servitude predicted by Jefferson; or the other where QE works (the badly behaved are rewarded) and moral hazard is writ HUGE. I doubt Lady T would approve of either outcome - especially as "success" just means it will all happen again and then we end up debt slaves anyway.

Maybe it's because I also doubt she would approve of you defining [taking] risk as work. As I said before, ordinary people call this gambling and think this is done in a casino, not a work place or market.

Maybe it's because the consequences of the policies you have supported in your previous writings are so at odds with the ideas of liberty you say you support. To my eyes it is clear that QE has boosted asset prices (requiring ordinary people to borrow more). At the same time the collapse of the currency has squeezed the margins of their employers (and hence their wages).

I find your assertion about the effects of long term interest rates unsubstantiated and unconvincing. Indeed the logic appears to suggest there should be no long term real return on capital for any reason - not much incentive to investment/development. Perhaps the Government could step in to plan/provide the "incentives"? I'll get Keynes out of the library and see if I can convince myself.

In the meantime, however, it seems that fractional reserve banking is a more likely candidate as the root of our current problems. As Forsaken2 writes elsewhere, the licence it gives banks to literally print money also gives them both the means and the incentive to inflate asset prices so as to enslave the young in debt, whilst tricking them into thinking they are rich so they'll take lower pay rises. Much easier to understand the logic behind that proposition.

For a moment, I almost had a flicker of hope. If somebody intelligent (you clearly are) can make sense of today's madness in Thatcherite terms and can see how we can proceed through QE to all the good things you say you believe in then maybe all is not lost? However, it seems Thatcherism doesn't mean what one of us thinks it means.

Reginald Hightower: Your pedantic rebuttal of 'emotional loading' is doubly disingenuous - usually a clue not to pay attention. In fact, both modern and (especially) antique (see The Merchant of Venice for example) usages are pejorative - albeit for different reasons.

However, I shall look up CH Douglas - although a quick scan of Wiki is not encouraging!!

Oh, and the comic? It was a BBC documentary "rubbing my nose" in something or other - to quote Mr Neather. So, fair cop I suppose - although their explanation was rather similar to David Goldsby's - which is rather good.

Bertie Poole
on November 02, 2009
at 05:36 PM

Yep. I think if you add up all the UK's debt and contingent liabilities you get the answer: �2,354 billion - that's a cool 161% of GDP.

I doubt whether Alastair Darling will mention that kind of number anytime soon.

Aren't these Marxists just brilliant?

In the new World Communist Government there will be one currency and no debt. Everything will belong to the world state and they will decide who has what.
Believe me, it is coming. This climate change scam is just the beginning.

I agree with the other commentors. It's time for another economic system and get rid of capitalism once and for all! The evidence against capitalism is staggering. I mean after 60+ years of practically uninterupted growth let's get rid of it because today 1 out of ten people are currently temporarily unemployed. Over the last 30 years the Chinese have embraced capitalism and each year since more and more people have been driven to poverty. The Soviet Union never once had a recession. After WWII countries like Germany, South Korea and Japan all floundered because of their silly adherance to the evil capitalism. Yes it is clearly time to put this evil economic system to death. It's done nobody any good at all!

What about our massive pension deficit and our PFI debt which is not on the books?

Japan who cares, they have dumped product here in the U.S. for years, will I feel sorry for all the Toyota owners who can't get parts for there rice burners, no way, It is about time we worried about getting our own house in order. Let the rising sun sink!!

Has no-one got any work to do?

Ambrose, Japan's predicament is where the UK is headed, the only difference is that it will take the UK a lot less than a 'lost decade or two' to get there, at the current rate we should be at the debt compound trap stage within 5 years, once again Gordon leads the world...

Idol worship of gold?

Rev 3. 17:18 is worth a look. Some believe gold and silver to be Gods money. Sound weights and measures being vital.

Not enough gold?

The metal strip contained in banknotes could be gold, coins could have gold and silver content.

I think it very probable savers shall continue to loose faith in paper. Eventually gold might be demanded by the productive as payment whether we like it or not.

The "little" people have a role here in not standing idly by. They don't have a broker nor access to forex markets. Indeed knowledge of alternative investments is limited but you dont need a PHD to understand that gold is better than a currency your government seeks to debase. I regard myself as one of these I have fear holding paper and do not understand markets too irrational.

If currency debasement continues to accelerate and a tsunami of paper goes for gold I do wonder what the authorities will do in response, embrace it or declare war?

For D.Rumsfeld:

"obviously think that it is time to invest in property in the USA!"

For those who do that sort of thing, probably yes.
My wife and I decided some time ago that one house is enough for us. We'd rather rent other people's villas when we holiday in the USA (which we've been doing since 1987 - we love America).

Steve
on November 02, 2009
at 10:08 AM

Yes, one does get the sense that all we're continuing to do here is pile card upon card upon card, creating mankind's, er, tallest house of cards in history.

I remain to be convinced that our political elite "solved" the banking crisis last year. I'm more of the opinion that the politicos and the banking mafia connived to punt the TNT-packed, credit crunch can further up the street ... only to make matters worse in the end.

Is there anyone else out there who shares my view that the day of reckoning lies ahead of us?

That full scale de-leveraging must happen and has yet to happen; that toxic debts are still embedded in the system and must be expunged at some stage; that relentless economic growth cannot be "a given" as mankind enters the end of its era of "infinite" cheap energy?

All of this uncertainty will hinge on one critical factor going forward: the oil price. As countries start to pull of out of this mess and gain even a little momentum, just watch that barrel of oil shoot up in price. Here we are in the depths of recession and the oil price sticks fast above $70 per barrel. What's that all about?

Just imagine how the price will look when oil demand really kicks back in. My guess? At least $100 per barrel at some time during 2010.

Then all hell will break loose ... again ... just like the last time it shot through $100. And all that de-leveraging and toxic debt will out once and for all because the politicos and the bankers won't be able to punt that can down the street for a second time.

And all bets are off as to how life will be in the UK in the coming years; not like anything we've seen before, that's for sure.

Excellent reading. And yet gold does not disappear into the clouds. It's had a 10% increase more recently but that's it - not unusual for a commodity? Especially when the chinese are said to be buying so much.

There are a some very good reasons why the US and the UK are unlikely to experience a "lost generation". Japan is a closed society which experiences virtually no immigration. The culture is very different and the language difficult to learn. This is in stark contrast to the US, which is the destination of choice for immigrants; where most people arrive with a huge desire and capacity for hard work and invention. As a result, it is able to reinvent itself and regenerate. And as a result, there is no talk of a looming pensions crisis! This is not a call for fiscal complacency but to point out that the US and UK by virtue of language and culture are likely to emerge sooner than most people predict. These factors are hard to quantify and don't themselves easily to economics but will be critical.

Here's the deal: you predict the End of the World more or less every week. Every week you are wrong. The world does not end. Sooner or later no one will listen to you. Does that mean that 1) the world is wrong and you should keep trying, or 2) you are wrong?

You, mr. AEP, have said nothing about Japanese imports. Yet when you say savings are down, I wonder if Japanese do not spend their money more on consumption.
A government default isn't necessarily bad. Argentina, when it defaulted, certainly did the right thing.
Let us assume that exports are the costs and imports the benefits. More saving and more unemployment obviously lowers imports. I wonder what the taxation level in Japan is. I know that Japan has two economies: a domestic 'mom&pop' so to speak and huge concerns exporting to foreign countries. Say that exports are deflationary (makes sense if wages are the largest cost), I wonder if the Hatoyama victory isn't due to stagnating income and the breakdown of the export model.

Last but not least, mr. AEP, may I suggest you catch up your economics by reading mssrs. Mosler, Mitchell and Keen? Most other economists are irrelevant.

Japan has had massive public debt for donkey's years, and it only owes itself the money. Meanwhile, it has a very broadbased and powerful manufacturing and service economy. Yes, it has lost the overwhelming lead it had in dozens of industries, but it is still, just about, No.1 in cars, consumer electronics and other very important sectors. As to the innovation 'problem', whoever you were, please go home and read up a bit. (Hints: Walkman, lithium-ion batteries, fibreoptics, flatscreen tellies, industrial ceramics, most of the guts of your car.)
As regards boondoggle public spending, try touring Korea and Japan after a really bad typhoon. There is a reason for concreting over riverbanks and steep slopes, and the reason is that many more people die in landslips if you don't. Koreans don't bother, and their typhoon tolls are usually at least twice Japan's.
As somebody else has pointed out, there is no sense of crisis in Japan, nor has there ever been over the last 15 years since the bubble collapsed. Growth slowed, but the fundamentals remained and remain solid. I am not worried. A single quote from a Japanese person would have helped this article.

Thank you Mr David Goldsby for the clarification of your political position - one I wholeheartedly support, along with most of your economic suggestions (though I am not quite sure about this Utopian phrase "full employment").

May I suggest though that, to make your argument more appealing, you avoid pejorative terms such as usury and rentier - as Alan said, most people would not recognise themselves in those words simply for asking for a little bit of interest on money tied up for any length of time (and so made available for loans).

It seems the biggest problem is the government insurance of deposit accounts - not only because it distorts lending practises (and allows deposit taking institutions to leverage the govt guarantee) but also because it distorts savings and people's perceptions of risk.

This should be ended - people should only be able to hold up to say �30,000 in one government secured account (maybe run by NS&I) this would pay no interest and would offer only a basic banking facility (no overdraft). Every other account should carry a HUGE disclaimer saying A) your money is at risk in this account B) the level of interest your get may reflect this increased risk C) you should not put all your money with one institution D) Any sums over �50,000 should be put in a money market account or a bond fund E) if it all goes wrong don't squeal that you weren't warned.

Charles Lee on November 02, 2009 at 08:18 AM - "The problem with a gold-backed currency is that it is inherently a road to economic stagnation. The supply of gold is limited and very unlikely to be expanded at a rate that will accommodate the sort of growth we have enjoyed in the postwar period."

Yes. And in a world of finite resources that is precisely what is needed to prevent the flights of our fantasy bulldozing the world of the Colorado dung beetle (or whatever) into oblivion, an oblivion propogated thence, on a hurricane of butterfly wings, into our own world. "The problem with a gold-backed currency" is solved by the corollary that the more constraint it places on economic development, the more sought after (read "valuable") it becomes and the more rewarding and rewarded is the effort put into expanding its supply. Sort of. "The problem with a gold-backed currency" is that, as a commodity, it is pretty much unrelated to any active part of the real economy (except desire, although that is not an insignificant point in its utility for the economy of a species of fantasists) save for a few specialist applications with a relatively small impact on the total stock, however that limited that is. It can indeed store what Marx (whom J.M. Keynes thought was an insufferable bore) would call the "excess value" of its production, but only in an extraordinarily inefficient - maybe "mindless" is a better word - way. In other words, it's dumb. And it's also dead, deader than - to express an equivalence, not only in hue - a van Gogh sunflower. But then, for most of our history, so has been the economy. However, an unbacked ("fiat") currency, is positively dangerous, fool's gold, unrelated to any measure of production it can thus sustain a fantasy of "growth" without reference to the actuality of any finite resource. In other words, it's far too clever by far, far more than half. Especially as we're still probably too primitive to be able to think our way beyond a false "fiat or gold-backed" dichotomy. Which is not exactly a helpful intellectual condition to be in at this point in time.

--

NorrieC on November 02, 2009 at 07:13 AM - "The people running the financial system certainly do not idolise gold. They do anything but. They are intensely anti-gold."

Assuming that you mean the people actually running the economy, and not their high courtiers such as Gordon and Merv, perhaps you intended to say that they are intensely anti a gold-based currency? That would seem to be so: the more rapacious amongst them appear to be intensely againt any single or basket commodity-based, indeed any sort of externally referenced, currency. But I also think you would find that most of them, nature's true primitives and uber-atavistic to a (cave) man, are extremely pro-gold in the rather less manipulable arena of personal possession. I'm not entirely certain, as I've only personally observed them accumulating bars of the stuff (and there does seem to be a considerable degree of idoltary involved in just that) but I suspect they particularly idolise it when it is moulded into the form of calves.

--

Alan on November 02, 2009 at 06:25 AM - "Also, you use emotionally loaded words like 'usuary'. Most ordinary people would never associate that word with a real return of ~2% pa - even assuming this is truly on offer..."

'Usuary' has come to mean above a socially or legally (especially legally) sanctioned level of interest, from an original meaning of the charging of any level interest. In neither of those senses is emotion loading a factor: interest is charged or not and, if it is charged, it is above a legally or socially sanctioned rate or not. The usurious component comes from any deviation above what David Goldsby (after others) has described as a "long term real interest rate" of 0%, by way of what NorrieC refers to as exponential and Ambrose's (albeit rather oblique and only partially applicable) use of the word "compound". A flat interest rate of 2% is indeed trivial but a compound interest rate of even "just" 2%, when factored into all the ongoing debt of an economy, is a terminally crushing load on everyone's future welfare. And that's usurious in an "emotionally loaded" as well as its factual sense, if anything is. One very clear introductory description of how the numbers involved work was put forward by C.H. Douglas as part of an analysis of the matter underlying his promotion of the Canadian "Social Credit" movement. Unfortunately, I cannot at this moment remember exactly where, but there are many others of greater precision, if less immediate comprehensibility. So the emotional loading you attribute to the word "usury" is either not there or it arises from somewhere other than the word itself. Wherever that might be,

"For example, I recall that Keynes (whom you cite so often) was in essence persuaded that Socialism was inevitable and even desirable."

Did you ask Keynes about that, or did you just read the Classic Comic?

Charles Lee wrote:-

�(2 bought only this last month by my wife and my son), Hollywood films and flights on excellent Boeing aircraft.�

Ahh, now we can see why you refuse to accept the USA�s debt problems and simply ignore them. You have an invested interest in simply avoiding the crises and perhaps indulge in misinformation. You obviously think that it is time to invest in property in the USA! I suggest looking at the Shiller index.

Charles Lee wrote:-

�The supply of gold is limited and very unlikely to be expanded at a rate that will accommodate the sort of growth we have enjoyed in the postwar period.�

The whole point of the gold standard is to impose fiscal prudence and growth restraint! The current expanding crises is directly responsible to the USA for being given the sole responsibility to act with fiscal prudence as the owner of the world�s reserve currency. The USA has shown by its financial actions such as recinding the Glass Seagal act that it cannot be trusted with having sole responsibity for the world�s reserve currency. Also the �growth� we have had is based on debt and consumption, not production. This is not real growth. You do not appear to understand what is going on or economics.

When you see articles like this you know Japan is very close to recovery. It's us who have the problems now. Don't forget how much foreign debt the Japanese own. As American dollar rises and yields and markets collapse once more the Japanese have merely to sell the bonds high.

So Evan, easy credit caused the credit boom and bust and your solution too much easy credit is ultra easy credit? Something doesn�t add up!

Bankrupting the enemy.

The judgement of history is that Japan attacked Pearl Harbour and launched the Pacific War to thwart American resistance to its designs of imperial conquests in East Asia.

US opposition included diplomatic pressure, military preparations, and, above all, economic sanctions. Historians have emphasised the de facto embargo of oil as the most deadly sanction because Japan's navy and army depended on US exports of fuel.

The US action of 26 July 1941 was not just a trade embargo. It was an emasculation of Japan's accumulated international money reserves, imposed by President Franklin Delano Roosevelt by invoking an obscure 1917 Law: The Trading with the Enemy Act.

The most devastating American action against Japan was the financial freeze. Money mattered. In 1941, war had congealed the financial systems of other great powers, rendering their currencies inconvertible. Abroad, the yen itself was illiquid, that is, not acceptable for payments outside the Japanese Empire. The United States stood in the extraordinary position of controlling nearly all the world's negotiable money resources. It applied its extraordinary power to "bankrupt Japan".

Bankruptcy is a condition imposed by a court of law to compel settlement of debts. A sovereign nation, however, is not subject to a court's jurisdiction, and, in any case, on 25 July 1941 Japan held ample liquid assets-dollars in US banks and gold bars in Tokyo vaults-to purchase vital imports and service its relatively small international debts. Japan was not insolvent, then or later.

On 26 July, however, a stroke of the pen rendered it illiquid. The freeze isolated Japan economically from the outside world, voiding its monetary assets, both sums on hand or obtainable in the future.

Consent to buy strategic goods in the US, or in any other country that exported for dollars, was withheld by the United States in conjunction with parallel freezes by the British and Dutch empires. Japan's commercial sphere shrivelled to the "Yen Bloc" of its colonies and conquered regions in East Asia.

Japan's international illiquidity would, beyond doubt have impoverished the nation within a couple of years. The US freeze presented Japan with three choices:

!. suffer economic impoverishment

2. accede to American demands to yield its territorial conquests e.g. Manchuria, or,

3. Go to war against the United States and its allies. Unfortunately for Japan, it chose the latter.

Rarely before had illiquidity-equivalent to bankrupting in foreign affairs-presented such a Hobson's choice to a powerful nation.

Is this happening again but in the most labyrinthine of disguises?

At least the Japanese had a 15% savings rate when they entered their slump. The Americans and British started with negative savings rates. I therefore worry more about Britain and the USA.

We are facing a massive balance sheet recession where QE will be impotent until debt balances have been paid off. If and when that happens, the value of paper money will then be destroyed and with it the credit based capitalism as we know it.

It seems that the debt fuelled deflation and inflation will both destroy the real wealth of millions of people. I fear that this could lead to civil unrest and possibly war between countries.

Food, water and shelter may be more useful than gold. So maybe we will see a shift in relative wealth to resource rich countries. Canada, Russia, Australia and Brazil spring to mind. These countries have real assets that should allow some preservation of wealth. China does not have enough real assets whereas the UK. USA and other developed economies will be swamped by debt and welfare liabilities.

I wish I could be more optimistic. Hopefully, I am wrong but I fear that we are facing an ill wind that blows no good.

@Charles Lee on November 02, 2009 at 08:18 AM

Ah, the gold old reliable 'growth' defence of fractional reserve banking. I don't have sufficient historical knowledge or economics knowledge to be able to mount a robust defence, it is not my field of expertise. But as an engineer I understand maths. A system based on perpetual, incessant, exponential growth on a finite planet is doomed to fail. As the gradient of the exponential expansion becomes too great, traction is lost and the cards start to tumble. The demise is necessarily chaotic. As the plates begin to fall off the sticks the first few will be caught but there becomes too many to catch at the same time. Another tactic is required. Let the plates fall and make some preparation to pick up the pieces. You need to admit that it will not be possible to catch all the falling plates.

Berating a gold based system whilst the fiat world is collapsing is akin to Nero fidlding whilst Rome burned.

Alan at 6.25 am

Keynes had been misrepresented as socialist because, in my view, it suits those who wish to follow orthodox usurious economic policies.

In a letter to Hayek, Keynes said that he had no quarrel with The Road To Serfdom, except that he did not consider it true that the market would naturally bring savings and investment into balance at effective full employment.

He said in the General Theory that he saw no reason why usury could not be ended gradually without any revolutionary disadvantage to vested interests. Essentially he said better to accept the march of reason gracefully than court socialist revolution due to mass unemployment.

I intersperse my economic comments with enough politics for anybody who has read enough of them to know where I stand. Broadly, I am Thatcherite - small state with a minimal social safety net, entrepreneurial free market capitalism rather than corporatism. Meritocracy and effective full employment. The protection of the absolute purchasing power of the means of exchange by keeping real interest rates on the means of exchange at zero over the cycle. Let the market dictate the commercial interest rate that brings savings and investment into balance. Use the central interest rate on the means of exchange as a way to moderate the animal spirits. Ban trade unions which are corporatist and monopolistic and only arose due to usurious monetary policies, and equally fierce policing of monopolistic practices in industry and commerce. Free floating currencies. Free trade. Low taxation. No tax on interest. No tax on dividends. In fact, laisser faire, except, as Keynes said, with regards to interest rates it doesn't work.

In fact, nothing anybody could object to unless they want a free ride. The problem is that savers have been conditioned to think they deserve a real return without the work of risk.

The great lie of eternal growth is finally being revealed for what it is - a massive con trick performed through the magic mirrors of fiat money creation. The system which allows our savings to be devalued (or revalued) to suit the political or economic fashion-followers of Keynes, Marx, Friedman or any other economist du jour is coming to its well-deserved conclusion and with it the ambitions and conceits of big government. Let deflation commence.

yet again proving your ignorance with QE
t
it is not hey dod too little but they did it at all
instead of legtting their bust take its natural course they tried to interfere and the stimulus like in the great depression caused the 20 years stagnation/depression
this is the lesson the west needs to learn ie do not interfere
the cure is the depression
no amount of stimulus will work

your analysis is, as usual, penetrating, Ambrose.
But your conclusions are bound by your analysis - so, what then becomes important are those factors which have been left out of your considerations.
And in this instance, you entirely overlook TO WHOM Japan owes its debt.
If, in essence, Japan owes Japan (as I suspect to be the case but do not KNOW - please enlighten us) then where is the problem ?
comparing this to the 1930�s - when gold immediately left any given country steeped in problems, thereby exacerbating the problem causing the gold to leave in the first place, is an invidious comparison.
Japan has to find a way out of its methods in building an economy - and then continuing the related mercantilist policies when these were no longer necessary - this is the central problem. (Germany is in a similar situation but has skillfully engendered a new currency to mask this.)
Try reporting on the problems from this angle.
for the rest, as I often say, it�s only money

kind regards

back in the 80's a man called michael milken , a true salesman, sold junk bonds 2 raise cash 2 buy numerous large companies such as nabisco.
today we have high yielding bonds , exactly the same scenario with a different name.
it all came to a sticky end because it was based on risky debt.
i cant see any difference with countries doing the same thing .
selling junk bonds to fund your own debt can only end in tears.
its just a matter of when.
interestingly my colleague has been told to get out of equities by his bankers no less due to an expected collapse in markets by jan 2010. u heard it hear first.

All this indicates that Japan will soon assume it's natural position economically and Politically and align completely with Asia. That will mean a complete restructuring not only of Japans debt but the World stage and all Strategic Alliances. It is the biggest economic and Political transformation imaginable and none of us are prepared for it.Certainly not the USA.

For Bill L:

"The USD is Dog Food..."

But that dog food can be bartered for lovely villas that overlook the Gulf of Mexico, and useful stuff like IPods (2 bought only this last month by my wife and my son), Hollywood films and flights on excellent Boeing aircraft.

Good on yer Alan !

Stick it to Goldsby - the man`s a Socialist dope . But even he will run out of other`s "money".

Yours

Whiplash

For Jon Livesey:

"Well, I don't think you can say that QE is a "waste of money" because by definition, it is new money."

QE is an oddity.
The Bank of England creates new debt (fiat money) but uses it to buy old debt, government securities held by the banks.
The nett effect is to improve liquidity, in the expectation that this will increase their propensity to make loans to businesses and individuals.
The evidence is that this isn't happening.
The problem is that the all-important split between retail banking and investment banking hasn't been forced on the sector, so it may be that all this juicy extra liquidity is simply finding its way into the hands of the banks' spivs to fund speculation.

I really wonder why Japan is not solving its problem the Weimar way. Simply print money to stoke inflation and thereby reduce the overall debt leve. An inflation rate of -2.4% is just a desaster and the main reason why debt levels have risen so much (nominal GDP falling while nominal debt is rising since 20 years). Why not issue an inflation target of 3% and print money to buy government debt that the Bank of Japan would then delete. In the end one government agency (BoJ) would buy the debt from another (Ministry of Finance).

Combined with printing money the BoJ could also slowly increase interest rates to give its citizens, who are good savers, higher incomes from the trillions of euros stashed away in the postal banking system. That would help Japan to increase consumption too, plus it would help to stabilise the yen.

D. Rumsfeld... You are Right On , all the way... Obama is Spending Fiat Money like a crazy... The USD is Dog Food...

"Nothing comes as remotely close to wed-wetting apocalypsiness as AEP in full flower of rhetoric. Doomed, doomed, we're all doomed!"

What you have to know, Lord Snooty, is that AEP spent a night at Apollo's temple, at which time the temple snakes licked his ears clean so that he was able to hear the future.

For NorrieC:

The problem with a gold-backed currency is that it is inherently a road to economic stagnation.
The supply of gold is limited and very unlikely to be expanded at a rate that will accommodate the sort of growth we have enjoyed in the postwar period.

"I'm taking to the hills."

Your posts are too good to hurry, Moraymint.
Sorry.
I think I cracked that joke once before.

Ambrose may be you can find some interest In Mish Shedlock's blog :

http://globaleconomicanalysis.blogspot.com/2009/11/is-debt-deflation-just-beginning.html

His views are so different than yours I quote your article :

"QE was too little, too late, and this is the lesson for the West. We must cut borrowing drastically over the next decade, and offset this with ultra-easy monetary policy."

I quote his blog

Real Lesson of Japan's Lost Decades

The real lesson is no matter how much money you throw around, economies cannot recover until uncollectible debts and malinvestments are written off. That is why you have �zero interest rates and still nothing�s happening.�

The moment fiscal stimulus stops economies are virtually guaranteed to relapse until asset bubbles deflate, and malinvestments and bad debts are written off."

----------------

I think as Mish than throwing money at the problem is a waste, Throwing more money (QE) as you suggered would just be more waste... It will fail and you will still argue that it was still too little and too late.

It is false, these policies of QE will always fail, who will invest and develop business in such an environment ?

Arni Highfeld at 06:12

I recognise much of what you say about Japan but the Korea you paint is not the one I know.

Korea is a remarkable development success, as was Japan, and as China is now. It does have a vibrancy and a desire to beat Japan. Given its demographics it may well. But Japan is surely the more fascinating culture and the food is far better!

�Mr Bernake,the brand new John Law of 2009, is doing all his best,following Irving Fisher�s advice,to reflate asset, prices and whatever but the sensation is that it won�t be ever enough (deflation) or will be too much (hyperinflation).�

You may well be right, Club Med, but it is still very hurtful to indict me (my relation wrecked the French economy and got rich, so not that bad), when I am suffering from the depredations of another Scotsman, not very far from here.
I am afraid that Brown�s recipe will be, as it has been in the past, to steal from the future. With an aging population that will be a good short term fix, but will lead to purgatory for people on fixed income (lots of those now) and our future productivity (for who will invest).
The only real way out of our problems (not without pain), is to set out a credible plan to reduce, over time, government to it�s essentials, (we all in our hearts know what they are) and encourage private investment in rebuilding our productive economy and infrastructure.
Unfortunately, large sections of the UK population will have to get used to having proper jobs again. Our young people will probably appreciate that after the initial shock.

And what sort of impact will Japan in crisis have on China? There is an Asian bubble of that we can be sure. Time to short emerging markets?

@Michael A. Kamperman on November 02, 2009 at 06:18 AM

Printing money is the only way out of the world's debt trap.

An oxymoron if there ever was one ! Ahem.... The phrase "Printing Money" refers to the creation of new money based on new government debt. So how does more debt get you out of the debt trap?

"idolatry of worshipping gold"
I'm not sure what you mean here. The odd poster here and on other blogs do indeed believe that once the fiat money has finally crashed then another medium of exchange will have to step into the breach. Gold, historically, is that other medium whether you personally like it or not. However, those people are not the ones running the financial system. The people running the financial system certainly do not idolise gold. They do anything but. They are intensely anti-gold. So when you say...
"What's sad is so many are suffering so needlessly in this New Great Depression"
You mean the current woes are down to an adherence to a gold based policy? You must be living in some parallel universe.

I'm taking to the hills.

So, reading the article, what is going to happen is that

1. The government will, in the end, be forced to reduce spending.

2. The less-than-break-even widget makers will export their jobs and build widgets wherever it is cheap to do so.

3. The appreciating Yen will make goods and services ultra cheap to import for Japan's army of OAPs and part-time workers.

Isn't this deflation actually precisely what is required?

To Jon Livesey:
If QE worked, it would show up in the graph below

To A Monk of great renown:
The graph below tells me that despite the several Trillion Dollars in cash and guarantees and despite all the QE, inflation has not picked up... where do you see inflation?

To InEgoVeritas:
You say deflation is a hoax because it is the banks that don't want to lend but you end your comment saying borrowers don't want to borrow... that's exactly what deflation is about... ironic is it not?

To Nick:
The historical record shows that when the governments of the developed world are no longer able to meet their internal obligations (mail delivery, fire fighting, policing, road maintenance... pensions...) nor their external obligations (interest on debt), war is pretty much guaranteed. We are not talking here about wars conducted in backwaters and that engage only the military. Here, we are talking about wars that fully engage the human and material resources of a country.

http://research.stlouisfed.org/fred2/series/MULT

Guido
http://guidoromero.wordpress.com/2009/10/19/the-next-world-war/

@ David Goldsby

You seem to know your economics - definitely better than me. However, in your persistent campaign regarding the deflationary effect of 'usuary' and 'inflation targeting', I sense you are making a political economy argument rather than a simple economic one.

I say this because you (and Keynes for that matter) seem way too smart to separate Politics and Economics in the childish way that these are presented in the media.

Also, you use emotionally loaded words like 'usuary'. Most ordinary people would never associate that word with a real return of ~2% pa - even assuming this is truly on offer (which I seriously doubt as I don't recall ever being offered anything like that as a real risk free return - not to mention the effect of taxation on the GROSS interest on the true real rate of return).

Also 'rentier'. Most ordinary people would never associate that term with putting their savings in a building society.

Also, your assertion that 'risk' is only justification for 'real return'. What about service, ie enjoying the economic utility of my savings to invest in your money making scheme? Your argument smacks of the Casino - not a Market.

So that your readers can truly understand the point you are making, would you be so kind as to share your political argument with us too?

For example, I recall that Keynes (whom you cite so often) was in essence persuaded that Socialism was inevitable and even desirable. Is this your opinion too - given your apparent desire to devalue the savings of the ordinary person to nothing?

You both seem smart guys to me - I'm even willing to consider you might be right and that this is the only answer!

If, as I suspect, that is case please let us know. Also, could you let us know why Socialism is going to work this time?

For myself, I cannot believe that an ever expanding money supply and ever rising prices are ever going to end anywhere other than in tears.

Regards

The REAL problem exacerbating the International financial/monetary collapse is the debt ridden Fiat System, drowning in Derivatives.

Its time to let the collapse move forward, stop propping up a dead horse and return to metals-based Monetary Systems, with zero interest money spent into circulation, not borrowed.

DOH

Fascinating article!

Is economic leadership and coordination in Japan totally absent? The absolute economic fundamentals of Japan look superb: they have the products, the management, the technology and the R&D capacity. The underpinning of these attributes is the ability to manage and facilitate change. These attributes are transferable to the political process to move the post WW2 Japanese economy from its mercantilist roots to a balanced socio-economic model, by expanding the domestic market. The demographics mean the needs must exist.

In the short term, surely the Japanese will buy US treasuries by the billion of dollars to force the yen down but helping to finance the US deficit and economic transition?

Monetary easing on a massive scale, with an objective of achieving 1% inflation, should recapitalise the Japanese Banks How? As well as the purchase of monetary assets, purchases should be made of real assets (property etc) as long as the rental income is higher (possibly much higher) than the bank rate. This should stop the collapsing asset prices and boost the value of bank security. A combination of massive cash reserves and liquid markets for bank assets should stop the banks collapsing/ rapidly recapitalise them.

Likewise the dollar purchases should be partially into real US assets as long as these assets are income yielding. This should underpin these US markets. The Japanese, by riding the yield curve, helps fund the US balances of payment (and Government) deficits and assists in funding these twin deficits in an adequate manner.

David Goldsby on November 01, 2009 at 10:43 PM - "... the world has suffered economic crisis after economic crisis, and it continues in place because it feeds the established social order with a financial tythe, and they can foist it on the masses because the truth is counter-intuitive to the little rentier mindset which they have foisted on the bourgoiesie with centuries of propaganda [...] Any scapegoat, any action, anything, except admit and change the racket of usury."

Precisely. Time for a Babylonian/Judaic style Jubilee (financial-only, puhlease: enough of the dark ages of the soul already) which may well need to last well beyond a traditional year, given the complexity of unravelling the exponential (pace NorrieC) tithing mess without causing far more misery and destruction than that itself engenders, and with a concomitant reconsideration of who owns what and who owes what, to whom, when, how, on what terms and for how long, followed by a resultant major reconstruction of an integrated international financial system on sustainable, non-usurious, and - especially - determinate lines (good for the populace and essential for "the environment"). Probably with a commodities standard at its base, but a new, dynamic one, engineered for a modern world, not an old, static one stuck in some remote, Alaskan riverbed. Cui bono? Absolutely not the long-established and nouveau riche profiteers from the exponential tithing mess of industrial and post-industrial capitalism, who are, even now (especially now), sinking billions of OPM into keeping that disgusting hulk afloat for further deliveries of their ongoing overdose (or fix) of privilege. But until they - and, to the extent that we're all in this together, we - get socially responsible, or are gotten socially responsible, like it or not weaned from the overweening greed of centuries, we are stuck with the mess forever we are stuck with the mess forever we are stuck with the mess forever. Nothing wrong with a right to private property, provided it's accompanied by a greater than infantile understanding of the words "right", "private" and "property". So, is any improvement likely? Is the Archbishop of Canterbury a Roman Catholic? Apparently, almost. Hope springs.

Get out of the big cities in Japan and everybody (read EVERYBODY) appears to be 70 years old. Nowhere on the planet is it more scary than in this country when staring at an agiong population.

My own view is that this is a red-herring and that any government can change the demographic question literally overnight. The human fascination with sex and money is the key, pay people to have sex (through child allowances of various descriptions) and the problem is solved.

If someone gave me a financial incentive to have a couple more kids, I would certainly think about it.

Here's what I wrote to all my friends a week or so ago towards the end of an extended stay in Japan...

If you have investments in Japan, sell them!
Why do I say this?
The Japanese havn't created anything new for hundreds of years. All they have done is copied others, and made good products by slavish obedience to the creed of 'Kaizen' or continuous improvement. This is a way of making progress without any initiatives. You can't suggest anything to a Japanese, and you certainly can't criticise their country. This provokes stony silence from all but the very best of friends. Their slavish obedience to authority has led them into trouble in the past, and it is doing it again, as they ignore the utter failings of their government.
But lets move on to something more substantial. They have a rapidly aging, and falling population. Did you guess that they are very unwilling to admit immigrants? This is the only way out of this downward spiral, but it must be almost the hardest country on earth for a foreigner to become a citizen of. They won't adopt a solution like that, and indeed, you don't even hear any discussion of the problem. Another thing, despite the amazing recovery from the war, and the hard work of the people, productivity has been falling for years. It is not helped by 'pork barrel' politics ruling the day. You have never seen so many bridges to nowhere, huge harbours for 10 fishing boats, and many more pointless projects... pointless unless you are the politician getting the kickbacks, that is.
The police are institutionally corrupt and in the pockets of organised crime, the Yakuza. Policemen don't patrol, they sit in their police stations waiting for somebody to ask them to do something, which luckily for them is pretty rare. Most Japanese are too obedient and disciplined to dare to commit a crime. Yes, I know, its hardly fair to list low crime as a fault, but I am convinced the reason for it is not anything but obedience.
Now what about the national debt. Here they are world leaders. The national debt is around 200% of GDP and growing faster than anybody else's. Remember we are talking about the world's second largest economy here, so the figures are truly mind boggling. Are they doing anything about it? No, thanks to the universal need for fiscal stimulus, they are increasing their debt with gay abandon.
So what, as a policeman and sailor with no background in economics, do I think is going to happen? Well, the Yen will collapse, the economy will collapse, unemployment will be worse than any other country, and the shockwaves will be felt around the world. Then an authoritarian government will come to power, riding on a wave of nationalism blaming all their troubles on foreigners, and the nation's fragile modern culture built on the ashes of militarism will collapse at the same rate as its economy. No dear friends, don't bank on Japan.
Meanwhile, across a narrow stretch of sea sits the nation of South Korea. It has a longer and often richer history than Japan, although with far more than its share of sad episodes. However, its people don't simply revere the past, they invent new and exciting modern culture. Modern art, drama and dance co-exists with ancient temples. People of all backgrounds join an active discussion in the press, on TV and in universities, schools and coffee shops about what is wrong and right with Korea, and where it should be going. They don't put up with crap and protest readily. They can be voluble, excitable and rough around the edges, but they are moving forward at a staggering pace, and correcting as they go, unlike Japan where almost nobody questions the status quo. As an aside, it is a much prettier country than Japan, less overcrowded, and surprisingly, cleaner. The Koreans not only have many English speakers, they are striving to make their nation bi-lingual, and most kids we met could communicate quite well in English. Not so Japan, where even university graduates rarely comprehend a word of any foreign language.
The Japanese are obsessed with sex and Pachinko machines, and beautiful girls wear such bizarre outfits as to render themselves unrecognisable as humans. Eye make-up has reached such excesses that you often see two large black spots coming towards you, and only when they are closer does the outline of a face and hair appear to frame them.
Sell your Toyota and buy a Hyundai, get rid of your Sony shares and buy Samsung, and whatever you do, don't touch Japanese Yen.

Okay that is Japan dealt with.

I would like AEP to explain how the USA will avoid a Government debt default. I do not believe that Obamie will cut spending. Clearly the forecast GDP growth of over 4% yearly given by Obamie for his administration will not be achieved. By 2019 the Obamie administration have said that debt will reach over $21rtl and GDP $23trl. Sprott Asset Management have said that the true Govt debt will be over $118trl. Interest rates are almost at zero. True unemployment at over 17%.Tax receipts falling. Banks basically insolvent if the true debt was reported and not manipulated or incorrectly priced ie mark to market.

I look forward to reading AEPs analysis.

Ambrose,

Once again you have hit the nail on the head. Printing money is the only way out of the world's debt trap. It is up to the U.S. Federal Reserve to get much more aggressive with its quantitative easing program to ease the way for other nations, including Britain and Japan.

What's sad is so many are suffering so needlessly in this New Great Depression because of the idolatry of worshipping gold.

http://www.escapethenewgreatdepression.com

"Japan is drifting helplessly towards a dramatic fiscal crisis. For 20 years the world's second-largest economy has been able to borrow cheaply from a captive bond market, feeding its addiction to Keynesian deficit spending � and allowing it to push public debt beyond the point of no return."

Substitute "UK" for "Japan" - fixed for you :)

The "baby strike" observation was one of the best little bits of AEP's column, in fact. Mixing a Confucian culture with women's choice to marry or not leads to extinction-level birth rates, just look at Korea or Hong Kong, with much lower rates of births per woman than such rich countries as France or America.

Madness, Ambrose. Almost everyone agrees that too much easy money for too long was at the root of the current problems. And now you want to discourage prudent savers and blow ever-larger asset bubbles for the next decade? Sure it will be good for big corporations, the savvy rich who can afford specialist advice, and speculators, but it would be a disaster for most ordinary people. Madness.

�The rocketing cost of insuring against the bankruptcy of the Japanese state is telling us that the model has smashed into the buffers. Credit default swaps (CDS) on five-year Japanese debt have risen from 35 to 63 basis points since early September. Japan has suddenly decoupled from Germany (21), France (22), the US (22), and even Britain (47).� (AEP)


Seems like Britain �decoupled� from Germany, France and the US some time ago!

Japan is now simply 16 �basis points� ahead of Britain, whereas Britain is 25 �basis points� ahead of the US and France and 26 ahead of Germany!

I�m sure when the new Government open and inspect the Treasury books next May and see the true extent of the public debt, Britain will soon catch up with Japan.

Meanwhile, Britain is still going down the pan � rapidly - together with the accumulation of fictious capital (QE)

What is happening to the capitalist banking and economic system is that the objective Law of Value (identified by Marx � Capital Vol 1) is re-asserting itself again with devastating consequences and eventual total breakdown and world crises and slumps / Great Depressions.

Once the capitalist financial money chain and credit �mechanism is disturbed� or breaks down (Marx) and lack of confidence sets in and promises to pay �credit� breaks down, collapse follows very rapidly.

QE and interest rate meddling won�t help the death agony of capitalism!

This is the biggest global breakdown of the capitalist system ever; it�s a economic system problem not simply a National �fiscal crisis� or �credit crunch� or a debt crunch; things can only get worse under this economic system!

Tinkering with the economic levers this time won�t help!

Japan today � Britain tomorrow!

Hyperinflation is the danger ahead!

Paper money will become worthless!

Buy gold!

To APJ and Richard. You don't get it do you? Japan has been able to draw a blanket around itself by using savings that are RUNNING out. It cannot support its HUGE welfare state. All looks fine on the surface of course!
To put it simply they are still hiding from their structural problems. It might not happen this year or next but believe me the Tsunami IS coming, and everyones' living standards in Japan will be destroyed forever. They are ignorant of their fate.
It's like earthquakes here. You're happy to have a few tremors now and again because that is releasing some pressure from the earth's crust. When you don't get one for ages it is more worrying because the pressure below the surface has built further - getting ready for the "big one". Believe me when it comes you do not want to be here - they will have to monetize all govt debt - the Yen will get destroyed to >200. And unthinkable as it maybe now the natural racism that comes with being Japanese will be washed away as the Filipinos come in to support what is left of their crumbled state. In 50 yrs historians will look at Japan as a footnote in human evolution: a healthy diet, a brief economic flowering from 1965-1989 before destroying itself with collective suicide around 2040. Make sure you own no Japanese assets and get your Yen overseas as soon as it hits your bank account while the Yoyos doing the dollar carry still allow you too.

Most Japanese government debt is held by institutions such as the post office savings bank, hence the reluctance of many politicians to privatise that bank: a privatised bank may not be very keen on buying government bonds.

We are already close to the point where tax revenues equal debt interest payments and yet the Japanese government continues to increase spending. There seems to be no sense of urgency at all regarding the huge budget deficits. Moreover, an ageing population and a transition to poorly paid, temporary jobs mean that tax revenues are unlikely to increase.

Personally, I think the next big natural disaster will be used as a convenient excuse for a debt default. Japanese savers will lose out, but since they are the ones who elected the money-wasting politicians in the first place they won't have any grounds for complaint.

We need more focus on this issue. I have been in Japan a long time and I tell you when the Japan public finance bubble bursts you will ALL be paying for their insouciance.
Ambrose I wish you had made some comment on the new Financials Services Minister Kamei because he is in the embodiment of everything that has gone wrong. Failed policies from the 90s are being reignited again. The government here believes that private sector savings are their own to spend as they wish. That is why Kamei has stopped postal privatization - that would clearly reduce a huge amount of personal savings from going into the JGB mkt. Best to keep that one in the state pocket.
Almost 20 yrs and they still haven't reliquified many assets classes. No real corporate bond mkt, property transactions still infrequent, concentrated land ownership - under some studies Japan has the biggest gap between rich and poor and yet it's people particulary the middle class baby boomers still love to maintain a superiority complex over the West. Maybe the playing field for Western companies is levelled now the cost of capital is the same?
America and the rest of the West no matter how large the deficits will NEVER go down like Japan. Comparisons are irrelevant. The investable universe in Japan shrinks every cycle. They are lost in an economic biosphere that bears no fundamental resemblence to anything in the real world, and the air in that biosphere is savings. Once that gets choked by the debt servicing from the public sector, they will die like fish out of water.
America still has better demographics, but more importantly, a WILL to confront their problems head on even if sometime the conclusion may be off the mark. The level of entrepreneuralism is light yrs beyond Japan. They lock up entrepreneurs here for disturbing the economic peace. That is where the true wealth of a nation comes from.
America may be in trouble with its deficits near term - they said that at the time about the Reagan yrs too btw - but there is no doubt America will escape the fate about to befall Japan. I will be laughing my head off when the dollar carry trades are destroyed sometime over the coming year!

Japan needs to import more workers, preferably from Asia.
I know just the place, the Philippines!

Women in Japan started having fewer babies for several reasons, and I doubt a "strike" was a major one. The cost of raising a child is the main one.

The economic crisis has forced the famous decoupling from the USA, as the balance of trade shifts what is to stop Japan and China from calling in their debt from the USA, since it is no longer the market it was ?

How can any institution insure against default. If Japan defaults who has enough to pay bond holders what an absurd world economy.

Keep printing yes lots more of it until nobody wants your paper, brilliant. Economics is redundant all we need do is create vast sums for the free lunch.

The world is run by banks who issue money as debt. Asset price deflation is the enemy of banks because they want to make the young borrow vast sums. The banks assets also deflate leaving them insolvent requiring the creation of more and more money.

The real joker in the pack is if mother nature decides it is time to move.... a major earthquake in Japan will result in a massive reconstuction programme, that will require massive funding. It is when, not if, as any geologist will tell you....
I'll leave it to others to decide the impact on the world economy.

Jo

QE done without regard to maintaining the purchasing power of money...ALLWAYS works.
No exceptions.

You can always prevent deflation by issuing new currency in exchange for questionable non productive debt (ie government). The word helicopter money comes to mind in this case. At some point savers and consumers expectations begin to change and the dye is cast.

"The real question is whether QE actually works. I'm guessing that the answer is that it works for an economy whose demographics are in good shape, and it only delays the inevitable for an aging economy. "

LOL, QE only works when you have creditors to steal from. We've long passed the tipping point where most people are debtors and when QE has nobody left to steal from.

You can only fool all of the people some of the time. That time is over.

I am sure there are great and good uses for Quantitative Easing, but not when the powers that be are Labour, Liberal or Conservative. Their trains are all fuelled by gravy.

The so-called feminist baby strike is nonsense. It is very clear that production of children declines as people get wealthier.

I don't pretend to understand the economic arguments offered here, but I've been hearing these doom and gloom predictions for some time now. Yet here in Tokyo at least, I've failed to see any evidence of this predicted economic collapse. Sure, a few shops have closed and everyone knows someone who has lost their job due to the recession. But the shops and restaurants are still packed, people are still earning (and spending) good money on luxury items, most families still have sizable cash savings and very low personal debt. An endebted economy it may be, but its all relative; for us normal people it's quality of life that counts more than economic data. And in that regard, Japan still wins hands down against the US and the UK.

Great article but I thought your comment "It resisted the feminist revolution, leading to a baby strike by young women." was odd.

I thought the point about feminism was that it necessarily led to a lower birth rate?

"We must cut borrowing drastically over the next decade, and offset this with ultra-easy monetary policy."

Printing money to pay (1) child benefit to non-UK families irrespective of where their children live, so long as it is Europe & (2) developing nations to curb their emissions,
is not "ultra-easy" enough for you AEP ?

So what follows on from this Ambrose? Civil unrest? War? The rise of extreamist political groups? I certainly hope not.Nice to live in interesting times.

Our rulers are so steeped in financial orthoxy that they endlessly have a predisposition to over tighten or under loosen policy.

At the heart of classical economic othodoxy is a lie emobodied in Paul Volcker, the prime architect of the tight monetary policy of the last thirty years. He said only a few months back, as soon as the deflationary crisis looked as if it might be abating and the coast was clear for the ultra-hawks to get back to business, that he could see no reason why the inflation target should not be 0%.

There exists at the heart of economics a lie, a conspiracy, that would suggest that the natural fulcrum of economics is that inflation should be 0% and that the natural real interest rate is about the same rate as the growth in productivity, 2.5%, so as to maintain the relative purchasing power of accumulated cash, rather than its absolute purchasing power.

In fact, there is no theoretical basis to support this contention, and never has been. As Keynes suggests, the natural fulcrum of economics is that long term real interest rates should average 0%, and anything else is usury. Chapters 23 and 24, General Theory.

Because of this lie at the heart of economics, the world has suffered economic crisis after economic crisis, and it continues in place because it feeds the established social order with a financial tythe, and they can foist it on the masses because the truth is counter-intuitive to the little rentier mindset which they have foisted on the bourgoiesie with centuries of propaganda that makes them value their pittance of real interest on savings without any realisation that it destroys growth, jobs and wealth.

This weekend we read about the destruction of great British banks who happened to be caught over exposed at the time the usurious 2% inflation target caused the world to crash.

Any scapegoat, any action, anything, except admit and change the racket of usury.

michael said:

'"It resisted the feminist revolution, leading to a baby strike by young women?"
Hmm, countries like Germany gave way to the feminist revolution... with the result being a baby strike as well!'

good point!

Those who willfully close their eyes to what Japan is going through, and what awaits Japan, have their paws on the levers of power in the US, the EU, and anywhere else where they follow the lead of the US & the EU. Therefore, the greater condemnation is assigned to the Johnny come lately's because they knew better. They do not have a leg to stand on when they say,
"But this time, it won't fail". For a bad plan is a bad plan, regardless of the conclusions of the willfully blind.

1.4 Quadrillion is a big number - that is the estimated size of the unregulated derivatives market as I understand it. Yet it seems to be where our illustrious journalists fear to tread........... I wonder why?

Surely the answer is to print more money.

What is different about today, is that the Japanese economy stagnated while the rest of the world moved on. That represents a series of choices they made that failed to return Japan to the competitive scene, in spite of much change elsewhere. This time however, the bubble collapse is not national or regional, but worldwide. Every economy is affected simultaneously. Those economies that make the right decisions will grow their way out of difficulty - though not without loss - quite soon. Those economies where political considerations outweigh sound financial choices will doom themselves to very hard times that may outlast decades. I foresee that this may lead to mass migration of talent and entrepreneurial energy on a scale never seen before. Which nations will be the beneficiaries, and which the losers, will depend on decisions being made today.

No no no.

The dynamics are different. Japan owns the money to itself.

The US and UK owe money to Japan and China.

Japan is pretending to die to debase itself.

Mr Bernake,the brand new John Law of 2009, is doing all his best,following Irving Fisher�s advice,to reflate asset,prices and whatever but the sensation is that it won�t be ever enough (deflation) or will be too much (hyperinflation).
As Fisher said �it is always economically possible to stop or prevent such a depression simply by reflating the price level up to the average at which outstanding debts were contracted by existing debtors and assumed by existing creditors and then maintaining that level unchanged�.
He (Fisher) reported that Sweden (first country to get out from the great depression) had for nearly two years maintained a stable price level.
But recent studies,
unfortunately for Mr Bernanke, about Sweden didn�t confirm at all Fisher's conclusions.

In the fiat currency system of ours (and japan's) there is nothing easier than to prevent deflation. Ya just print truck loads of money and give it away to citizens. The reason they haven't really done it in Japan is because someone must be against this. The old "Cui Bono" playing out here again.
I say Japanese Banks hence the BoJ is against it because they have nothing to profit from this policy. Better make money by creating debt than to give it away is what they must thinking. Yes I think the deflation fear is a hoax. It is only coming from the banks because they don't want to let go of debt creation. It's their bread and butter. They want the money to be printed only by them in return for debt. The problem is that no one wants to borrow hence the deflationary spiral...

Japan defaults-I think not,
their investment banks have been pouring monay into failed assets in the UK, Europe and the states for the last ten years as certain people's business models are built on cheap borrowing from the Japanese pile.
Now that debt as the Yen appreciates will expand exponentially in sterling and USDollar -surely its the western economies that borrowed off them that are going to squeal -the Japanese can simply call in that debt.

I've been Japan watching for quite a while now.

Their high tech industries have stopped making money. Computer games industry has edged close to collapse. There is no money.

Toyota has made a huge loss this year for the first time and had to ask the Japanese government to help its' financial arm stay aloat.
Toyota is in tense negotiations with the Bolivian government right now to quickly strike a deal over Lithium and Vanadium mineral rights for their last throw of the dice with the hybrid battery powered vehicles they are preparing to unveil over the next few months,
Nissan and Peugeot are doing the same. Reason? Oil is running out faster than the statistical models forecast.Oh dear.
Together with all this printing money malarky I am starting to get really really nervous.

When we had high inflation, deflation was the holy grail. Now, the economists don't want it!

Inflation is picking up again. This means QE is now obsolete.

Too bad they don't understand what to do in the U.S.: ban housing evictions. But no one--more to the point, the American middle class--wants to increase individually enforceable rights at the cost of policy discretion in the political system.

That's the problem with Japan (since we imposed our regime--the West Coast Hotel v. Parrish "scrutiny" regime) and it's our problem too.

We are on the cusp of a rights revolution, the end of which will be to greatly increase individually enforceable rights and greatly reduce the control of the political system over spending.

But there will be many dead bodies between now and then. I can tell you that, apart from more or less surreptitious, clandestine, disguised moves to increase individually enforceable rights in the U.S., power in this country remains unalterably opposed to a de jure recognition of new rights, no matter what the de facto situation may be or suggest.

It is this gap in which we are now living, and accounts for the confusion in accounts of what is going on.

American suburbia insists on destroying itself: that's the message.

And it will certainly do so, making the Japan problem look trivial and ridiculous by comparison.

Stay tuned for our statistics this week, and then you will know what I mean. There is nothing in America but corruption, the country runs entirely on corruption (I'm sitting in center of it, the San Francisco Bay Area, origin of phony wealth).

The stats will soon raise the lid on this and then your horrified eyes can take a look at it.

What? you mean the debt-based, fiat, Fractional Reserve Banking system doesn't work?

Mmmm....I love the smell of maths in the morning.

So, what part of "mathematically bankrupt banking model" is the part that economists can't get their heads around? Which part of 'exponential' was it that required further explanation?

In 1989 Japan�s public debt to GDP was only 50% while private debt ( consumers and businesses) was 210%.
After the real estate bubble (and two lost decades) public debt is going to be 230-250% and private,despite a massive and long deleveraging, is still around 110%.
So private debt has been simply exchanged for public debt.
In my opinion we should instead be worrying about what it�s happening in the US.
The japanese story should be an useful benchmark in the aftermath of whatever bubble and a deleveraging of an unsustainable private debt.

Well, I don't think you can say that QE is a "waste of money" because by definition, it is new money.

The real question is whether QE actually works. I'm guessing that the answer is that it works for an economy whose demographics are in good shape, and it only delays the inevitable for an aging economy.

We forget that money is not wealth, but merely a claim on wealth. As a population ages, fewer workers are available to create the extra wealth to be consumed by those who are no longer working.

How you arrange that on money terms is largely irrelevant, because money simply moves the misery around. The misery or happiness is created by the ration between workers and non-workers.

Oh, and incidentally, what is coming for Japan fairly soon, is also coming for the EU not so longer after.

Then the question is whether societies like Japan tamely accept their demographic fate, or whether they use the last of their economic and military strength to do something about it.

Why not remove the name Japan and put in USA or UK the outcome will be the same but much sooner

Ambrose, your article is prescient. You have just described in fine detail what is going to happen to the US and UK in the next few years as they follow the Japanese along the same path to financial ignominy. The Bank of England Quantitative Easing (QE) policy has now become a pathetic exercise in Quantitative Wishing(QW) but so called 'experts' are still egging them on, with cries of "come on, print more billions." If John Dunne were alive today, I bet his comment on the current situation would have been: "ask not whether the bell tolls for Japan, it tolls for the Anglo-Saxons."

Nothing comes as remotely close to wed-wetting apocalypsiness as AEP in full flower of rhetoric. Doomed, doomed, we're all doomed!

Why aren't organisations like the BBC picking up on this? Keep up the good work Ambrose.

Or they could nationalize the bank of Japan and write off the debt. It's only paper money after all. It's not like they owe that much in gold.

Pretty soon we're going to have to admit that QE is a gigantic waste of money. Japan just got religion early.
You can't prevent deflation!
Ya can't
Ya can't
Ta can't

"It resisted the feminist revolution, leading to a baby strike by young women?"
Hmm, countries like Germany gave way to the feminist revolution... with the result being a baby strike as well!