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Japan Falls into Recession

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Re: Japan Falls into Recession

#181

Post by nhaehnle »

jpatokal wrote: post #90
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.

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).

Japanese government creditors as a whole will never want to get rid of Japanese bonds in the kind of mass-selloff that you're implying unless the Japanese government does tell its bondholders that they're not going to be repaid.

The reason is simple: individual holders of Japanese government bond may want to get out of Japanese government debt. These individuals then hold Yen in a bank account (if they're regular individuals or institution) or in a central bank account (if they're banks). What happens with those Yen?

Maybe they'll buy some other bonds, or sell those Yen for another currency, or something else entirely. But no matter what they do, those Yen will still be around. It is impossible for them to disappear, unless somebody buys Japanese government bonds.

So those Yen might circle around a bit in the financial system, but at some point, they will end up with somebody who sold some asset and does not want to buy anything else. This somebody now has a choice of keeping Yen (which guarantee no loss of principal but have zero nominal return) or of buying government bonds (which also guarantee no loss of principal and which have a - however small - positive nominal return).

At this point, buying the government bonds is clearly the superior option. This hot potato effect of money is why there will never be the need to print gazillions of Yen to get rid of the debt.

I would point out that one might say that your statement is based on a fundamental misunderstanding anyway: Whether you hold Japanese government bonds or Yen, both are forms of government debt! The only difference between them is in maturity and interest rates.

Re: Japan Falls into Recession

#182

Post by nhaehnle »

paganel wrote: post #157
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…

> 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. I grew up in an Eastern-European post-communist country which was very badly affected by inflation in the '90s (it ran in the high double-digits for almost all the…

Your response completely misses quanticle's point. Quanticle was talking about the choice between inflation and default. (So, when it comes to your life-savings, both can be utterly destructive.)

Instead of actually addressing quanticle, you went into an irrelevant inflation/deflation rant. It would be nice if we could actually talk with each other rather than at each other in this kind of discussion.

Edit to point out once again: Default and deflation are not the same thing. By bringing up deflation in this particular sub-thread, you are further reducing the signal-to-noise ratio in a comment thread that is already of low average quality.

Re: Japan Falls into Recession

#183

Post by nhaehnle »

adventured wrote: post #138
MLR wrote: post #126

Earlier quoted context omitted.

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?

Japan's biggest problems are extreme debt, and poor allocation of capital via government spending (Japan's famed public works programs, which have net resulted in zero real GDP growth for 20 years). Japan is the poster-child for what's happening to the US and Europe: Keynesian economics has failed. QE, inflation, central bank stimulus, debt accumulation - none of it actually grows an economy or increases productivity…

> Keynesian economics has failed. QE, inflation, central bank stimulus, debt accumulation

It's kind of funny how much of a content-free buzzword Keynes has become. None of the measures you mentioned are originally tied to the original Keynesian idea of anti-cyclical government behaviour.

Re: Japan Falls into Recession

#184

Post by nhaehnle »

hudibras wrote: post #129
ekianjo wrote: post #51

Earlier quoted context omitted.

> 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.

Yes. This whole "deflation makes customers delay their purchases" thing is annoying precisely because there really are much better reasons for worrying about deflation, and serious economists are warning against deflation all the time. It is just for different reasons, mostly having to do with the fact that the economy runs on debt, and deflation kills debtors.

Re: Japan Falls into Recession

#185

Post by paganel »

nhaehnle wrote: post #182
paganel wrote: post #157

Earlier quoted context omitted.

> 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. I grew up in an Eastern-European post-communist country which was very badly affected by inflation in the '90s (it ran in the high double-digits for almost all the…

Your response completely misses quanticle's point. Quanticle was talking about the choice between inflation and default . (So, when it comes to your life-savings, both can be utterly destructive.) Instead of actually addressing quanticle, you went into an irrelevant inflation/deflation rant. It would be nice if we could actually talk with each other rather than at each other in this kind of discussion. Edit to point…

> (So, when it comes to your life-savings, both can be utterly destructive.)

As I was trying to say, after 20 years of a shitty deflationary economy the Japanese people still pretty much have their pensions more or less intact, while in a highly inflationary economy (like the one I experienced) the pensions become almost null in a matter of maximum 5 years. So your point, "So, when it comes to your life-savings, both can be utterly destructive" is actually demonstrably false, based on recent historic examples. I agree, we can start the discussion from here, i.e. from demonstrable economic facts.

Granted, English is my second to third language, so I try my best at holding a conversation.

Re: Japan Falls into Recession

#186

Post by dagw »

nhaehnle wrote: post #183
adventured wrote: post #138

Earlier quoted context omitted.

Japan's biggest problems are extreme debt, and poor allocation of capital via government spending (Japan's famed public works programs, which have net resulted in zero real GDP growth for 20 years). Japan is the poster-child for what's happening to the US and Europe: Keynesian economics has failed. QE, inflation, central bank stimulus, debt accumulation - none of it actually grows an economy or increases productivity…

> Keynesian economics has failed. QE, inflation, central bank stimulus, debt accumulation It's kind of funny how much of a content-free buzzword Keynes has become. None of the measures you mentioned are originally tied to the original Keynesian idea of anti-cyclical government behaviour.

"Keynesian" as used by the mainstream today is only very weakly related the writing and thinking of John Maynard Keynes. I've seen it suggested in more than one place that if Keynes was alive today he wouldn't be a Keynesian.

Re: Japan Falls into Recession

#187

Post by nhaehnle »

leot wrote: post #124

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.

While I appreciate your comment, why don't we think outside the box a bit? Isn't it good when people save a lot of money? As long as the savings are fairly well distributed, this means people become more economically independent. In other words, they have more freedom.

I believe this is something that governments should support[0] rather than just taxing the savings away. Granted, however, that an unequal distribution of those savings can become problematic. Perhaps a compromise can be reached with a wealth tax that is indexed to median wealth?

[0] Which does mean that demand gap needs to be plugged somehow; the most straightforward way to do so is via a government deficit.

Re: Japan Falls into Recession

#188

Post by Tyr42 »

hnnewguy wrote: post #175
nandemo wrote: post #116

Earlier quoted context omitted.

> It's literally impossible for Japan to default on their debts, which are almost completely in Japanese currency. False. Many countries have defaulted on debt denominated in local currency. E.g. Brazil in 1990 and Russia in '98. In Brazil's case, part of the debt was indexed to inflation, so inflating away the debt wasn't easy. AFAIK most of Japan's debt isn't inflation-linked. Still, a high enough rate of inflation…

>False. I think you're both right. When you can print your own currency it is literally impossible to default on your debts, unless you choose to. Often times defaulting has benefits to the debtor, like the Russians escaping from ridiculous fixed exchange rates in 1998.

I'd take another look, didn't he say that there exists inflation adjusted debt, which I don't think you can print money to get out of debt.

Re: Japan Falls into Recession

#189

Post by nhaehnle »

adventured wrote: post #141
leot wrote: post #124

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.

That's incorrect. Japan's savings rate has collapsed, and is in dire condition. Via the WSJ: http://i.imgur.com/vYsbHWg.jpg That formerly high savings rate was the only thing that enabled the Japanese government to borrow as much debt as they did. Now that the Japanese are no longer able to save enough money, the government can't continue to borrow from that source, and accordingly the govt. has been forced to turn t…

Interesting, thanks for sharing that graph.

The thing is, though: the Japanese government isn't trying to debase the Yen because of their high debt. The reason they're trying to debase the Yen is to encourage growth via exports. Somebody has still been buying plenty of Japanese government debt all those last years. It would be interesting to know who.

Re: Japan Falls into Recession

#190

Post by cylinder »

techdragon wrote: post #21
tormeh wrote: post #15

Earlier quoted context omitted.

I agree, but QE is not a dumb idea per se, it's just the way that it's done is severely lacking. What you want is inflation, which means you want to increase the amount of money in circulation. A simple way to do that is for the central bank to make money up and give, say, 20000 yen to each citizen every year until deflation went away. This is called a helicopter drop in finance-speak, and seen as very radical. Defla…

Australia did one and it worked wonderfully. We rode out most of the brunt of the impact of the 2008 'GFC' with little disaster. The worst of it for most of us was that getting a home loan got a bit tougher, but really this was more a case of returning to earlier norms than really getting "harder"

Australia did it by increasing immigration which is only a temporary solution. GDP per capita fell in the GFC.
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