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Japan Never Is And Never Was A Reference Scenario

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Please bear with me a moment, this post is a bit simplistic but the points are fairly obvious I think, once you look at them with a certain perspective ...

Japan since 1990 is often mentionned as a scary scenario that we might end up following. I believe it can't happen in the UK and it won't. Therefore, to guess what will happen here we must put Japan aside (the situation is complicated enough as it is) and see what else could happen.

Here are my assertions

1 - Japan was/is a nation of savers.

2 - Savers are hurt by inflation but they'll be very happy with deflation thank you

3 - The majority on this site (hpc.co.uk) are savers

4 - When inflationary government measures are discussed the majority on hpc are _infuriated_ (this is important, just imagine what the Japanese were telling their politicians in the 90s)

5 - A serious inflationary policy in Japan that would have destroyed savings to save debtors was politically unacceptable. So the Japanese authorities fiddled a bit but never really looked for dramatic inflationary solutions. Hence the unending deflation, they just never really tried.

Now for the interesting assumptions:

6 - The UK is nation of debtors

7 - A majority in the UK would dream to have some inflation erode their debts

8 - The authorities in the UK will do everything to generate inflation at the expense of savers

Add to that that inflation is the _only_ solution for the UK to handle its debt problem, but that is for another post.

So the conlusion of this post? : Forget Japan, it really never is going to happen here.

I'd welcome your comments.

Edited by williamdb

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Japan's experience was different mainly for 2 reasons.

1. They have an economy based mainly on exports.

2. They went through their period of deflation when the rest of the world was coming out of a downturn and then into an upturn that lasted over 15 years. Therefore could continue to export.

There was also the continuing demand for their currency , with the carry trade. Allowing foreign investors to borrow cheaply from Japan's low interest rates and lend out in their own countries for profit.

Edited by Ted

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To say that Japan is a nation of savers and that we aren't is a misnomer... Their debt bubble was every bit as extreme as ours, perhaps more so.

If we aren't savers where is the money? When you take out a mortgage the person who sold the house puts the cash in the bank on deposit and is a saver. Aside from interest payments there must be at least as many savers as there are debtors by definition.

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Japan's experience was different mainly for 2 reasons.

1. They have an economy based mainly on exports.

2. They went through their period of deflation when the rest of the world was coming out of a downturn and then into an upturn that lasted over 15 years. Therefore could continue to export.

There was also the continuing demand for their currency , with the carry trade. Allowing foreign investors to borrow cheaply from Japan's low interest rates and lend out in their own countries for profit.

Indeed, and the current crisis should hurt much more than what happened to them.

But what strikes me as amazing is that their lost decade that we all think of as a nightmare scenario is something they (the majority) actually wanted. And enjoyed.

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Indeed, and the current crisis should hurt much more than what happened to them.

But what strikes me as amazing is that their lost decade that we all think of as a nightmare scenario is something they (the majority) actually wanted. And enjoyed.

This is something I don't understand. Perhaps this is through economic ignorance. But that 'nightmare' felt just fine.

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To say that Japan is a nation of savers and that we aren't is a misnomer... Their debt bubble was every bit as extreme as ours, perhaps more so.

If we aren't savers where is the money? When you take out a mortgage the person who sold the house puts the cash in the bank on deposit and is a saver. Aside from interest payments there must be at least as many savers as there are debtors by definition.

In a closed system you are right but not if it goes abroad.

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Intergenerational mortgages, collapsing birth rates, a massive erosion of workers' rights (and extension of temporary contracts to 30% of the workforce) isn't my idea of fun. The Japanese elites did well though.

I think you're right that Japan isn't a reference scenario. It was the one and only time we had a monoZIRP World. Their loans to hedge funds fuelled the global bubble that's collapsing now.

We're entering a multiZIRP World now, with all the major economies severely imbalanced (either consumers or producers), and a derivatives Godzilla eating all the capital away. God knows what the reference scenario is!

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8 - The authorities in the UK will do everything to generate inflation at the expense of savers

The collapse will continue as long as unemployment is rising and people feel insecure about the jobs (as most now do).

The government can't generate inflation without reversing this trend.

I'm not going to worry about inflation until I see this trend reversed.

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Cant we just let banks go to the wall and default on debts?

There seems to be a lot who believe inflating our way out is the only option, however, the associated weak currency means

1. any debts denominated in other currencies (of which there are lots) dont get inflated away, they grow.

2. basic medical, food, energy neccessities become unaffordable, this is not an option for a western democracy.

Allowing banks to default seems greatly preferential. There should be enough debts/assets that arent bad to compensate depositors, which leaves some of the debts held by other banks as bad. I would imagine two main groups suffer from this.

1. Shareholders

2. Holders of securitized debts.

Assuming the holders of securitized debts have CDS arrangements in place, i assume some issuer has to pay out, in which case the government puts a 95-100% tax on the payouts, to go back to the CDS issuers to cover payouts. The investors in CDO lose out, but then they never were paying a realistic rate for insurance anyway, so its as fair arrangement as its possible to get in the grand scheme of things, not perfect i realise.

That would be my suggestion. I dont know about the feasibility of this, but then neither do the politicians or bankers or anyone else for that case seem to know the end result of their actions.

Course with all the banks gone the government or building societies (who i presume depend a lot less on interbank lending) would have to be the providers of liquidity.

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It's a total fallacy to speak in terms of politically acceptable outcomes without looking at the economic reality.

Yes and no. Politics determines what governments will try to do, and economics determines whether they'll succeed.

Gordon Brown is going to do whatever he can to prevent ten million people going hugely into negative equity, because that would completely destroy the Labour party; they'd have no chance of re-election for a generation, and they'd tear themselves apart by then. The question is not whether he'll try, but whether he'll succeed.

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Japan's experience was different mainly for 2 reasons.

1. They have an economy based mainly on exports.

Do you have the numbers on that? Their economy is based on domestic consumption, Germany, with a much smaller population, exports more. Many of the Japanese branded goods are not made in Japan of course. Much of their economy is service, their high profile exporters pay for their raw materials, dirt cheap Chinese clothes etc. A lot of their economic is 'backward' compared to the west.

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In a closed system you are right but not if it goes abroad.

To my mind, this is the key point. Japan borrows the money that they need from themdelves.

We need to borrow the money that we need externally. I can see real interest rates here skyrocketing if we struggle to fund our debt and the rest of the world loses confidence in our ability to repay our debts.

Predicting that the UK goes the way of Zimbabwe is perhaps extreme but Argentina is not out of the question ......

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Do you have the numbers on that? Their economy is based on domestic consumption, Germany, with a much smaller population, exports more. Many of the Japanese branded goods are not made in Japan of course. Much of their economy is service, their high profile exporters pay for their raw materials, dirt cheap Chinese clothes etc. A lot of their economic is 'backward' compared to the west.

As of 2008

https://www.cia.gov/library/publications/th...ok/geos/ja.html

Exports:

$776.8 billion f.o.b. (2008 est.)

Imports:

$696.2 billion f.o.b. (2008 est.)

Hell, at least they had a surplus in 2008, compared to us? Meh.

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To say that Japan is a nation of savers and that we aren't is a misnomer... Their debt bubble was every bit as extreme as ours, perhaps more so.

Sorry, I thought this was common knowledge so did not include any supporting data. :) .

I've got Japan Household Savings and Deposits at $ 4 trillion in 1990 (http://www.economagic.com/em-cgi/data.exe/bjap/hpers02) and a postwar net (net of borrowings) household savings rate ranging at between 10% and 25% postwar until 1990 (http://www.econ.tohoku.ac.jp/~watanabe/toh...hort_120806.pdf, the graphs reflect official data).

I'll go out on a limb and assert without supporting data that UK savings aren't even close to that?

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Well, it is not about what they are doing, it is about risk management and Japan is simply something that happened before this crisis. Look at what Schiller and others are proposing; economists are concerned wit the scale of the problem and shift in securitisation, it is dead for many reasons and that is why the banks would need to be nationalised and lending would have to be restarted again. People are actually pointing to better management and not expensive properties, more real structural shifts and changes. UK had real problem with urbanisation and building permit restrains, this was the major driver apart from the opening of the credit market. The banks simply exploited the tight market, they knew that there was a golden opportunity to secure an ever growing demand and the labour government with its own immigration policy added extra strains. The system would have to change, the market is dead, no more leveraging to the eyeballs, it would not be possible from now on. Japan is simply one example of how risk should be approached. What we are witnessing is major shift, is not just a blip. For sure Labours would try to do whatever possible to keep the lending but it would simply be impossible without proper risk management. What are you trying to say is that we would actually go back to normal from here...well that is just impossible.

http://www.nytimes.com/2005/12/25/business...?pagewanted=all

JAPAN suffered one of the biggest property market collapses in modern history. At the market's peak in 1991, all the land in Japan, a country the size of California, was worth about $18 trillion, or almost four times the value of all property in the United States at the time.

"It was déjà vu," Professor Noguchi said. "People were in a rush to buy, and at extraordinary prices. I saw this same haste psychology in Japan" in the 1980's. "The classic definition of a bubble," he added, "is people buying on false expectations about future prices, and buying with the hope of selling in the future."

For years after the real estate bubble burst, the Japanese government tried to resuscitate the market and other parts of the economy with expensive public works projects, but they were so poorly planned that they succeeded only in inflating the national debt.

http://www.bis.org/publ/bppdf/bispap06.pdf?noframes=1

With regard to the removal of bad loans from banks’ balance sheets, an important element was to

provide the market with an adequate infrastructure. Measures were taken in this area, too. They

included the creation of the RCC - the Resolution and Collection Corporation - as a result of a merger

between the Resolution and Collection Bank (RCB) and the Housing Loan Administration Corporation

(HLAC). A feature of the new legal framework was that the RCC was given the capacity to purchase

bad loans not only from failed banks, but also from solvent operating banks, helping them remove their

bad loans from their balance sheets. In addition, a legal framework for the securitisation of bad loans

using special purpose companies (SPCs) was made available. An important prerequisite in this regard

is that transactions are executed at market price or fair value; ie, a price that can be obtained by an

objective method that effectively reflects the true value of real estate and related loans. This was

considered to be a key feature for restoring business confidence in the real estate market.

The possibility of a sustained economic recovery

had become remote and land prices kept sliding. An argument may well be made that the Bank of

Japan should have warned about the risks building up in the financial system and called for an

improvement in the safety net. While acknowledging the truth in such an argument, it was difficult in

practice for the Bank (or other authorities) to take further actions at that time. At a micro level, even if a

bank examiner of the Bank suspected an over-concentration of credit risk of a bank in the real estate

sector, it could have been practically difficult for the central bank to intervene as long as the loans

were performing and the bank did not suffer losses. On a macro level, the Bank faced a dilemma of

actually triggering a financial crisis by openly calling for an improved safety net. A fundamental

prerequisite for introducing a comprehensive safety net framework including more flexible ways of

handling failed banks and the possible use of public funds was to obtain the consent of the general

public. However, to do so required a full explanation of the danger embedded in the financial system

and risked inducing financial instability by unduly frightening market participants and individuals

5.1 Changes in bank behaviour

Japan’s experience in the 1990s shows that a build-up of risks in the financial system is reflected, not

only in risk-related indices, but also in changes in bank behaviour; in particular their lending behaviour.

As demonstrated in Figure 12, Japanese banks were engaged in fierce competition in the bubble

economy to gain increased shares in the lending market. The profitability and riskiness of each loan

were often neglected and loans were extended at negative lending spreads. This aggressive lending

attitude was reversed dramatically after the bubble burst. After early 1990, as stock prices started to

fall, banks changed their lending strategies to ensure positive margins consistent with more

conservative views on risk assessment. However, this rapid shift in lending behaviour then resulted in

a sharp deceleration in the amount of new loans.

Stage 1 Risk-sensitive market participants and large depositors became more selective and reluctant

to do business with the troubled banks. As a result, higher risk premiums were charged to

these banks. This is shown in Figure 13, where the funding costs for these banks are

expressed in terms of the spread over those of a sound bank. The symptoms seem to

appear well in advance (approximately two to three years) of the failure. The funding costs

became progressively larger as they approached the fateful days on which the failures were

finally announced.

Stage 2 As information about the troubled banks spread to the market, providers of funds in the

market also started to avoid placing long-term deposits with these banks. Thus, the average

maturities of deposits with the troubled banks grew shorter over time. This seems to have

taken place almost simultaneously with the rise in funding costs. Figure 14 shows how the

average maturities of deposits with these banks grew shorter relative to that of a sound

bank, as their fateful days approached.

Stage 3 As their problems became more widely known, even retail depositors began losing

confidence in the banks and started withdrawing their deposits. This is reflected in the

decline of the “deposit surplus ratio” which represents increased reliance on (particularly

overnight) borrowing from the interbank money market. Unstable funding seems to have

intensified one to one and a half years prior to the failures (Figure 15). At this stage, the

banks started recalling loans or selling liquid assets in a desperate attempt to ease the

funding pressures.

Stage 4 When the liquid assets for sale were exhausted and funding in the interbank market became

unsustainable, the banks gave up their attempt to continue business on their own.

Consequently, they were placed under the arrangements of the safety net and their failures

were formally announced by the authorities.

The above description indicates that the funding capability

Third, banks must establish sound and robust risk management systems. A lack of adequate risk

management resulted in overconcentration and mispricing of credit risks in the bubble economy.

Excessive reliance on stock holdings as a source for Tier 2 capital caused rapid erosion of banks’

capital as equity prices plunged after the bubble burst. Banks’ current efforts to introduce internal risk

assessment systems with a view to the New Basel Capital Accord, and to reduce cross-shareholdings

in the light of ongoing financial consolidation, may contribute to better risk management by banks.

Fourth and foremost, as a basic prerequisite for meeting the challenges stated above, banks need to

enhance corporate governance. Penetration of market discipline in the way banks are run will

contribute not only to better performance over the longer run but also to preventing them from

becoming entangled in problems similar to those that beset them and undermined Japan’s financial

system through the 1990s.

These measures, however, would almost inevitably be accompanied by pains. For example, the

adoption of a new business strategy could mean for some banks organisational restructuring, with

redundancy and relocation of management and staff. The disposal of NPLs would continue to exert

downward pressure on land prices. Corporate restructuring may well result in job losses. Liquidation of

cross-shareholdings would have negative impacts on equity prices. Though discouraging, these are

the short-term costs of structural reforms to remove inefficiency embedded in the economy. The

experience in Japan thus far shows that it would only result in larger costs if such efforts were

neglected. It must be recognised that this process is vital, however painful it might be, if Japan’s

banking sector is to reform itself into an efficient and competitive financial industry, and thus support

Japan’s economy more broadly. Policies should be guided to promote, and not to hinder, such efforts.

Macroeconomic policies could offset, to some extent, such pains and costs of structural reforms.

7.6 Minimising moral hazard

Needless to say, moral hazard must be contained. The argument may be relatively straightforward if

trouble with a financial institution is a fairly isolated event. But Japan’s experience in the 1990s

demonstrated an inherent and unwelcome trade-off. Crisis management through government

intervention always carries with it the risk of moral hazard. In effect, the Japanese authorities artificially

created moral hazard for the sake of maintaining financial stability.

The banking sector is the dominant supplier of credit to the corporate sector in Japan. Banks in Japan

were almost unanimously exposed to the common risk arising from falling land prices, because a large

part of their loans were secured with real estate collateral. Therefore, unless NPLs on banks’ balance

sheets are thoroughly cleaned up, their negative impact on the economy will not be fully alleviated.

There may be several reasons for the slow process of cleaning up banks’ balance sheets. First and

foremost, a violent swing in land prices was the fundamental background that left banks with huge

amounts of NPLs. Urban real estate prices quadrupled between September 1985 and September

1990. Subsequently they plunged by 80% to pre-bubble levels by 1999, creating new waves of NPLs

year after year. The disposal of these huge amounts of NPLs naturally turned out to be painful and

time-consuming for banks. Second, financial techniques like securitisation of real estate-related NPLs

only became fully available in the late stages of the crisis. For example, the infrastructure including the

legal framework for Special Purpose Companies (SPCs) was installed in 1998. In contrast, in the

United States, full utilisation of securitisation and other financial techniques to liquidate NPLs in the

early 1990s contributed to a relatively quick recovery of real estate prices as well as to cleaning up

banks’ balance sheets, and thus an early restoration of banks’ soundness. Third, Japanese banks had

limited incentives to remove their NPLs from their balance sheets because the carrying cost, or the

opportunity cost, of holding NPLs was marginal as the Bank of Japan maintained a loose monetary

policy and interest rates remained at extremely low levels. In addition, liquidation of NPLs was almost

certain to magnify losses, because sales of bad loans were only possible at deeply discounted prices.

Such a prospect of further losses must have discouraged Japanese banks from disposing of bad loans

on a large scale.

Willem Buiter

http://blogs.ft.com/maverecon/2009/01/time...blic-ownership/

There is a better alternative. The alternative is to inject additional capital into the banks by taking all the banks into full public ownership. With the state as sole owner, the existing top executives and the existing board members can be fired without any golden handshakes. That takes care of one important form of moral hazard. Although publicly owned, the banks would be mandated to operate on ordinary commercial principles. Managers could be incentivised by linking remuneration to multi-year profitability. The incentives for excessive liquidity accumulation and for excessively cautious lending policies that exist for partially nationalised banks and for banks fearing nationalisation would, however, be eliminated.

In addition, full public ownership of the banks would greatly facilitate the creation of a ‘bad bank’ that would hold on its balance sheet all the toxic assets (illiquid assets of highly uncertain value) currently held by the high street banks. The key problem with any bad bank proposal is the price it pays for the toxic assets it acquires from the banks. If all the banks, and the bad bank, are publicly owned, this problem goes away. The toxic assets are simply moved to the balance sheet of the bad bank. They could be valued at anything from zero to their notional value or historic cost (or even higher). It would be a redistribution of wealth from one state-owned entity to another state-owned entity.

Robert J. Shiller

http://www.moneyweb.co.za/mw/view/mw/en/pa...8&sn=Detail

What Is the Next Step?

The subprime crisis may be the worst financial dislocation since the Great Depression, but that means it provides a comparable opportunity for reform. The U.S. didn't have long-term mortgages before the Depression. Homeowners took out short-term financing and rolled it over, but the credit climate of the Great Depression made that impossible.

With banks failing, a 30% drop in the price of homes and an unemployment rate as high as 25%, many borrowers could not extend their mortgages any longer. Confronted with this crisis, government and business worked together to develop innovative solutions to minimize evictions and help the recovery effort. These innovations included:

A Federal Home Loan Bank System modeled on the Federal Reserve System.

An association of real-estate appraisers to make that occupation more professional.

Bankruptcy reforms that allowed ordinary citizens to seek protection from creditors.

The advent of various helpful institutions, including: the Home Owners' Loan Corporation, the Federal Housing Administration, the Federal Deposit Insurance Corporation, the Securities and Exchange Commission and the Federal National Mortgage Association.

The present subprime crisis calls for change on a similar scale, including these steps:

Bailouts - Bailouts will be necessary, even though they are disagreeable. Yes, bailouts will compel taxpayers to pick up the tab for other people's bad financial decisions. But, in many cases, the people whom the bailouts will help made those bad decisions because they were uninformed and aggressive lenders exploited their ignorance. Leaving the victims to fend for themselves now that the loans have gone bad would be merciless and would further erode trust in society. Moreover, it would mean accepting potentially very dire systemic consequences.

"Financial information infrastructure" - The U.S. needs a new financial information infrastructure to prevent or mitigate future bubbles. This should include new risk management markets, such as a market in real-estate derivatives. At present, investors can buy contracts in real-estate futures, but they are not very liquid. The system should include markets in other risks, such as livelihood risk, GDP risk and so forth. People should be able to buy home equity insurance. The financial system should offer "continuous-workout mortgages" with payment schedules that would adjust to reflect market and personal income shifts. The government should subsidize financial advice much as it now subsidizes (through Medicare) medical advice. At present, higher income people receive a tax reduction for the financial advice they purchase, but lower income people, who may need such advice most, do not receive any subsidy. If lower income people had been given access to sound financial advice before they signed subprime loans, the entire subprime crisis might well have been averted.

New institutions are necessary - The Home Owners' Loan Corporation (HOLC), established during the Great Depression, made loans to mortgage lenders and took their existing mortgages as security. However, the HOLC required that these mortgages meet certain criteria for sound, reasonable lending. The U.S. also needs a watchdog agency, similar to the Consumer Product Safety Commission, to ensure that careless or exploitative financial institutions do not offer dangerous financial products to unsuspecting consumers. New retail institutions for risk management could do for ordinary borrowers what grain elevators do for farmers: serve as intermediaries between the individual and the risk management market.

http://press.princeton.edu/chapters/s8714.pdf

Th e HOLC insisted that the new mortgages it sponsored be fifteenyear loans that were both fixed-rate and self-amortizing, that is, that were paid off by steady monthly payments with no large payments due at maturity.

In 1934 Congress created the Federal Housing Administration

(FHA), which was intended to promote home-ownership among those who could not then afford homes. The FHA went even further than the HOLC in improving the institution of mortgages, raising maturities to twenty years and also requiring, as did the HOLC, that mortgages be fixed-rate and self-amortizing. This began a trend to the familiar fixed-rate mortgage of today; starting in the 1950s, mortgages began to be thirty-year instruments, again with FHA encouragement.

Th ird, creating retail fi nancial instruments—including continuous-workout mortgages, and home equity insurance—

to provide greater security to consumers. Today the typical household has as its principal investment its home. A home represents a highly leveraged exposure to a single, stationary plot of real estate—about the riskiest asset one can imagine. The standard mortgage provides no protection against difficulties in repaying the lender due to changes in the marketplace. But mortgages can and should be designed to compensate for these changes by including provisions to ensure homeowners against their major risks. Other retail institutions can protect those who have paid off their mortgages, and they can protect non-homeowners from economic contractions as well.

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This is something I don't understand. Perhaps this is through economic ignorance. But that 'nightmare' felt just fine.

You've lost me???

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Good insight. I think if we want a parralel, we need to find an economy that tried (but failed) to inflate their way out of trouble.

The US in the 70s, the UK in the 90s, France since the second world war have inflated and devalued successfully, they're still inflating but haven't yet caught on the fact that they can't devalue anymore...

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Intergenerational mortgages, collapsing birth rates, a massive erosion of workers' rights (and extension of temporary contracts to 30% of the workforce) isn't my idea of fun.

But that is something you know with hindsight. I think it is fair to say that between a deflation that could lead to a depression and inflation that would hurt savers and save the air-heads that greedily jumped into

the debt bubble, most on hpc would choose deflation.

Now what if the majority in Japan had the same view of things as we have on hpc?

I think this is what happened in Japan. They _wanted_ deflation.

Anecdotically, just like some very influencial people wanted it in 1929's America ("Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.", Hoover 1929). If the web had existed back then, he would have created hpc.com in 1920.

Edited by williamdb

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I think this is what happened in Japan. They _wanted_ deflation.

.

yeah they (the people) wanted it the politicians moaned but got on with it the carry trade was born and the rest is history.

simply cannot happen for us the same way and if the chinese depeg from the dollar and revalue upwards to stimulate internal consumption (peter schiffs scenario) the dollar bond bubble pops and its game over.

we will know soon enough.

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But that is something you know with hindsight. I think it is fair to say that between a deflation that could lead to a depression and inflation that would hurt savers and save the air-heads that greedily jumped into

the debt bubble, most on hpc would choose deflation.

Now what if the majority in Japan had the same view of things as we have on hpc?

I think this is what happened in Japan. They _wanted_ deflation.

Anecdotically, just like some very influencial people wanted it in 1929's America ("Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.", Hoover 1929). If the web had existed back then, he would have created hpc.com in 1920.

Japan is a nation of savers, but by 1990 they had by far the biggest mortgages of anyone in the world. There is nothing they would have liked more than for some of that mortgage debt to be magicked away be inflation. Considering that property values have halved since 1990 and that the life expectancy of a house is 30 years over there, on a 30 year repayment mortgage, someone who bought at the peak is still in negative equity.

Deflation occurred because people started to save out of fear. The government has been pumping money into the economy for decades so that govt. debt is now at about 170% of GDP, but as fast as they pump it in, the more the Japanese save. The money is pumped in at one end and sucked out at the other.

Our economic situation today is far worse than Japan's was in 1990. Inflation or deflation, we are up sh1t creek. Recession is here and that is the main thing.

One way are definitely different from Japan is that it never had an almighty, dramatic crash, but a long, slow one. For a long time I thought that our boom would end in a similar way, but clearly is going to be an ugly, dramatic crash.

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Well, it is not about what they are doing, it is about risk management and Japan is simply something that happened before this crisis. Look at what Schiller and others are proposing; economists are concerned wit the scale of the problem and shift in securitisation, it is dead for many reasons and that is why the banks would need to be nationalised and lending would have to be restarted again. People are actually pointing to better management and not expensive properties, more real structural shifts and changes. UK had real problem with urbanisation and building permit restrains, this was the major driver apart from the opening of the credit market. The banks simply exploited the tight market, they knew that there was a golden opportunity to secure an ever growing demand and the labour government with its own immigration policy added extra strains. The system would have to change, the market is dead, no more leveraging to the eyeballs, it would not be possible from now on. Japan is simply one example of how risk should be approached. What we are witnessing is major shift, is not just a blip. For sure Labours would try to do whatever possible to keep the lending but it would simply be impossible without proper risk management. What are you trying to say is that we would actually go back to normal from here...well that is just impossible.

Interesting stuff but how does this support or refute the idea that maybe the Japanese wanted or didn't mind about deflation?

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It's a total fallacy to speak in terms of politically acceptable outcomes without looking at the economic reality.

Yeah, I think this is the point.

Is there really a choice to inflate away the debt? I don't think so. Default is necessary, on a personal level and probably at state level as well. Debt destruction is unavoidable, but the £ will still collapse, leading to higher prices for imports.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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