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Japan Falls into Recession

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Re: Japan Falls into Recession

#121

Post by jernfrost »

ekianjo wrote: post #107
quanticle wrote: post #104

Earlier quoted context omitted.

>inflation is literally destroying your economy for any foreseeable future. Is that actually true? Is inflation really worse than default? I mean, we don't have any samples from "advanced" economies, but from the what I've seen, high inflation, in the long run, doesn't seem to be that much worse for economic health than default. They're both very painful, but it's not clear to me that one is especially worse than the…

Have you heard of Argentina, or Germany in the 30s ? Both of them did not like Inflation too much.

What I've read is that inflation in Germany in the 1930s was actually very usefull. They had an enormous amount of debt they were incapable of servicing. The huge inflation cut the debt to pieces very efficiently. The inflation was not the cause of German problems, it was a symptom of problem of having a too large debt. It is sort of like blaming the flu on the fever. The fever might feel bad but it is actually your body's way of fighting the flu.

Re: Japan Falls into Recession

#122

Post by nandemo »

xorcist wrote: post #108
jpatokal wrote: post #90

Earlier quoted context omitted.

It's "literally impossible" only in a very literal sense of the word. In other words, yes, Japan can indeed get out of a debt of 17 gazillion yen simply by printing 17 gazillion yen, but I'm not sure flooding the money supply like this would cause much less damage than an actual default (=the Japanese government telling its bondholders that it's not going to repay them).

You're not sure financial institutions would prefer being paid something rather than nothing . Could you please elaborate?

At a high enough rate (e.g. war time Germany, 1980s Brazil, Zimbabwe), hyperinflation will turn your nominal returns into next-to-zero real returns. Conversely, default doesn't have to be "we won't pay nothing". A country can partially default.

Re: Japan Falls into Recession

#123

Post by ekianjo »

jernfrost wrote: post #121
ekianjo wrote: post #107

Earlier quoted context omitted.

Have you heard of Argentina, or Germany in the 30s ? Both of them did not like Inflation too much.

What I've read is that inflation in Germany in the 1930s was actually very usefull. They had an enormous amount of debt they were incapable of servicing. The huge inflation cut the debt to pieces very efficiently. The inflation was not the cause of German problems, it was a symptom of problem of having a too large debt. It is sort of like blaming the flu on the fever. The fever might feel bad but it is actually your…

Probably you should read another version of how inflation "helped" Germany. When you have hyper inflation like that it may be good for paying back your debts, but your creditors soon realize that their payments are worth nothing (because you just print paper, you don't create value like that), and you disintegrate all private investment in your country. Why do you think the Third Reich nationalized every industry out there?

Re: Japan Falls into Recession

#124

Post by leot »

Japan is a country with too many people saving too much money.

So, one proposal: institute a small yearly wealth tax.

Avoids a lot of the problems with inflation-based approaches, and doesn't penalize people nearly as much for having liquid assets.

Re: Japan Falls into Recession

#125

Post by Thimothy »

ekianjo wrote: post #53
jusben1369 wrote: post #41

Earlier quoted context omitted.

You only have to look at the US and Euro economies post 2008 to see the real world benefits of QE. Europeans went down the austerity route and are stuck with consistently underperforming economy and the threat of deflation. The US has turned the corner and is a job creating machine again including the first real signs of inflationary pressure through rising wages. The most unusual thing I can see about Japan is it's…

> Yet they go into this with a massive amount of debt already so are raising consumption taxes at the very time they need consumption The Japanese government needs to cut deep in spending, and that's what they have NOT been doing for the past 20 years. As long as they don't try to fix the debt problem, nothing else is going to work in the long term.

Becouse that is working quite nicely for Europe.

Re: Japan Falls into Recession

#126

Post by MLR »

mc32 wrote: post #4

Quantitative easing, Yen depreciation... What they need to do is figure out a way to grow the population locally or through large-scale immigration. I'm afraid this is the fate that awaits the developed world (or countries with low population growth). Japan is like a canary in the mine of post-industrialism. It'll be interesting to see what they figure out for their society and the lessons they might have for us.

They have 5% unemployment, and, after a quick check, it seems like a similar labour force to population ratio to the UK and US.

I'm not an economist, but in their position, what would mass immigration solve?

Re: Japan Falls into Recession

#127

Post by hudibras »

dimitar wrote: post #111
hudibras wrote: post #83

Earlier quoted context omitted.

There's so much about your post which is incorrect that I don't have time to debunk it all. So let me just hit the biggest error, so that others don't have to waste their time: It's literally impossible for Japan to default on their debts, which are almost completely in Japanese currency.

This a really strong statement and is either a misunderstanding or exaggeration. The received wisdom is either that a country issuing debt in its own currency cannot be forced to default or that it is not as vulnerable to sudden stops of confidence in its debt. There are various levels of conviction in these statements. This definitely doesn't mean that it is impossible; at a minimum, a country might choose to do it.…

A country defaults when it can no longer service the interest on its debt.

Japan's interest on the public debt is around $250B/year, or around 5% of GDP.

5% is a higher percentage than most countries (U.S. is around 2.5%) but less than, say, Greece at the height of their crisis. And Greece ended up not defaulting and not devaluing their currency (obviously, being in the Eurozone).

$250B is around 25% of the annual government budget for Japan. Again, this is higher than most countries but manageable.

Additionally, 92% of Japan's sovereign debt is held domestically. This means that the interest paid on those bonds don't go to Wall Street or Beijing but rather to Japan's own banks and pensioners. As a comparison, 47% of the U.S. debt is held by foreigners.

In summary, Japan is in absolutely no danger of defaulting under current conditions, without even taking the additional step of "printing more money" to pay its future debts.

Re: Japan Falls into Recession

#128

Post by arandomafrican »

econew99 wrote: post #87

I don't understand following - Japan had QE measure in place thus increasing money supply. But then they also increased sales tax from 5% to 8%. Why take conflicting measures ? How increasing sales tax is going to make consumers and middle class spend more ? Have Japan's economists not considered it ?

It's the Politicians who have not considered it.

Re: Japan Falls into Recession

#129

Post by hudibras »

ekianjo wrote: post #51
jusben1369 wrote: post #41

Earlier quoted context omitted.

You only have to look at the US and Euro economies post 2008 to see the real world benefits of QE. Europeans went down the austerity route and are stuck with consistently underperforming economy and the threat of deflation. The US has turned the corner and is a job creating machine again including the first real signs of inflationary pressure through rising wages. The most unusual thing I can see about Japan is it's…

> Deflation tells consumers not to buy as you wait 6 months and it'll be cheaper. I live in Japan for many years and I have never seen such thing as deflation here. Prices have remained stable for most items or have increased a little bit. The idea that stuff becomes cheaper as you wait is ludicrous in Japan.

No serious economist believes the old wives tale about deflation keeping consumers on the sidelines while they wait to save 1 cent (or yen) on a can of soda next year. But it's got "truthiness" so it keeps getting brought up in these HN discussions.

Re: Japan Falls into Recession

#130

Post by adventured »

hudibras wrote: post #127
dimitar wrote: post #111

Earlier quoted context omitted.

This a really strong statement and is either a misunderstanding or exaggeration. The received wisdom is either that a country issuing debt in its own currency cannot be forced to default or that it is not as vulnerable to sudden stops of confidence in its debt. There are various levels of conviction in these statements. This definitely doesn't mean that it is impossible; at a minimum, a country might choose to do it.…

A country defaults when it can no longer service the interest on its debt. Japan's interest on the public debt is around $250B/year, or around 5% of GDP. 5% is a higher percentage than most countries (U.S. is around 2.5%) but less than, say, Greece at the height of their crisis. And Greece ended up not defaulting and not devaluing their currency (obviously, being in the Eurozone). $250B is around 25% of the annual go…

A country defaults when it either can no longer make the payments, or when it can't pay back the real value rather than just the nominal value.

eg If I devalue my currency by 99%, and then attempt to pay off debts in that currency, that is a default, regardless of if a country were to try to pretend otherwise. The alternative to that context, would be that any nation can just freely debase their currency, pay back debts in worthless paper, and nobody cares because it's not a default - that's false.

Japan has to debase the Yen to pay its bills. Their government is insolvent due to the extreme debt. They have already defaulted.

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