Debunking The Japan Connection

[carseller]

I think those who envision a repeat of Japans deflation is wrong. This article mentions some of the reasons:

The other arguments are the shift in the commodity cycle. It was in a deflationary trend then, while the trend is inflationary now.

"But what if Japan provides the template? Many people thought Japanese bonds were overpriced when yields fell to 1-2% in the late 1990s. They have stayed around that level for the past decade, despite a vast amount of issuance (at $8.7 trillion, according to Bloomberg, the Japanese government-bond market is the biggest in the world). Even the expected $2 trillion of American issuance this year will leave its debt well below Japan’s.

The crucial difference, however, is that Japan has been running current-account surpluses, not deficits. The Japanese owe the money to themselves whereas the Americans are in debt to foreigners. Such investors could lose twice over: yields could rise and the dollar could depreciate."

http://www.economist.com/finance/displayst...ory_id=12906397

Edited February 12, 2009 by carseller

[time 2 raise interest rates]

Then what about the USA, or any other country you care to mention as house prices are crashing all

over the world, don't tell me it's different here as our banks are so strong, oh hang on................

Edited February 12, 2009 by time 2 raise interest rates

[thecrashingisles]

I think those who envision a repeat of Japans deflation is wrong. This article mentions some of the reasons:

The other arguments are the shift in the commodity cycle. It was in a deflationary trend then, while the trend is inflationary now.

"But what if Japan provides the template? Many people thought Japanese bonds were overpriced when yields fell to 1-2% in the late 1990s. They have stayed around that level for the past decade, despite a vast amount of issuance (at $8.7 trillion, according to Bloomberg, the Japanese government-bond market is the biggest in the world). Even the expected $2 trillion of American issuance this year will leave its debt well below Japan’s.

The crucial difference, however, is that Japan has been running current-account surpluses, not deficits. The Japanese owe the money to themselves whereas the Americans are in debt to foreigners. Such investors could lose twice over: yields could rise and the dollar could depreciate."

http://www.economist.com/finance/displayst...ory_id=12906397

So why are we seeing capital flight from emerging markets, not the US, EU?

[carseller]

So why are we seeing capital flight from emerging markets, not the US, EU?

I don't understand the argument.

[carseller]

Then what about the USA, or any other country you care to mention as house prices are crashing all

over the world, don't tell me it's different here as our banks are so strong, oh hang on................

Japan did not have the fall in revenue and our deficits as the rest of the world was booming back then. Now it's a global downturn, it's more similar to WW2, in spending, without the war, than japan, the ultimate outcome is rising long term interest rates, I'm pretty sure of that. It's not going to be a 10 year malaise like japan had.

[interestrateripoff]

Your forgetting that Japan managed to trade with the rest of the world.

Now we get to find out what happens when there is no one to trade with, the Japanese never fixed there system. What happens now is anyone's guess.

[Te Mata]

What happens now is anyone's guess.

Indeed.

We are now in a Mandelbrot-ian chaotic universe like never before. Butterflies have been flapping their wings furiously all over the place... we've been hit by some of the typhoons already. How many more, and where and when they'll hit is not predictable.

[Ah-so]

Your forgetting that Japan managed to trade with the rest of the world.

Now we get to find out what happens when there is no one to trade with, the Japanese never fixed there system. What happens now is anyone's guess.

I do not think he is claiming that Japan "fixed" anything, but rather that conditions in Japan following the burst of its property value led to deflation, whereas the conditions in the UK and US after the collapse of our bubble is likely to lead to inflation.

[interestrateripoff]

I do not think he is claiming that Japan "fixed" anything, but rather that conditions in Japan following the burst of its property value led to deflation, whereas the conditions in the UK and US after the collapse of our bubble is likely to lead to inflation.

I know the article didn't claim Japan had fixed the problem, what I was meaning that even after nearly 20 years Japan managed to tread water in a deflationary environment. What I was trying to say was the Japanese experience is irrelevant because this time it's global and there is no one to trade our way out of this mess.

As I said what happens now no one can possible know as there are far too many variables. This is truly guessonomics.

[carseller]

I think this is more or less the model for what is going to happen :

http://www.bloomberg.com/apps/cbuilder?tic...=GGGB10YR%3AIND

This is the government debt of Greece

All government debt, in the UK, Spain, Ireland, Portugal will probably go down the same path, creating inflation similar to the default of a third world nation. Greece have not felt a decline in the exchange rate, that would normally follow such a development as they are going through, as they are fixed to the Euro.

But if this thing goes on, the Euro is going to be history.

[judas]

I think those who envision a repeat of Japans deflation is wrong. This article mentions some of the reasons:

The other arguments are the shift in the commodity cycle. It was in a deflationary trend then, while the trend is inflationary now.

"But what if Japan provides the template? Many people thought Japanese bonds were overpriced when yields fell to 1-2% in the late 1990s. They have stayed around that level for the past decade, despite a vast amount of issuance (at $8.7 trillion, according to Bloomberg, the Japanese government-bond market is the biggest in the world). Even the expected $2 trillion of American issuance this year will leave its debt well below Japan’s.

The crucial difference, however, is that Japan has been running current-account surpluses, not deficits. The Japanese owe the money to themselves whereas the Americans are in debt to foreigners. Such investors could lose twice over: yields could rise and the dollar could depreciate."

http://www.economist.com/finance/displayst...ory_id=12906397

In general economic terms our situation may have parallels with Japan, but from a HPC perspective, the connection loosens.

Japans property bubble was far bigger than ours. In fact it makes our HP bubble look relatively trivial.

[Mikhail Liebenstein]

In general economic terms our situation may have parallels with Japan, but from a HPC perspective, the connection loosens.

Japans property bubble was far bigger than ours. In fact it makes our HP bubble look relatively trivial.

Think again:

These are inflation adjust prices, so very real.

Edited February 15, 2009 by mikelivingstone

[judas]

Think again:

These are inflation adjust prices, so very real.

I can't increase the size of your graph and their does not appear to be enough data on it to lend the credibility I need.

Land and house prices in Japan far exceeded ours. Even now their property prices look ridiculous.

Go on to any Tokyo real estate website and look what you get. Then tell me you disagree.

[Mikhail Liebenstein]

I can't increase the size of your graph and their does not appear to be enough data on it to lend the credibility I need.

Land and house prices in Japan far exceeded ours. Even now their property prices look ridiculous.

Go on to any Tokyo real estate website and look what you get. Then tell me you disagree.

Here is a larger version (try link). The graph from the economist I believe. Its been reproduced a few times on other sites.

Also, these figures are average for the country, Tokyo is hardly average for Japan. It would be like saying London is average for the UK, and indeed Tokyo has some very expensive suburbs Roppongi, Shibuya and Omotesando, but then so does London, Knightsbridge, Chelsea, Hampstead.

http://en.wikipedia.org/wiki/File:Economis...ces20050615.jpg

Edited February 15, 2009 by mikelivingstone

[judas]

Here is a larger version (try link). The graph from the economist I believe. Its been reproduced a few times on other sites.

Also, these figures are average for the country, Tokyo is hardly average for Japan. It would be like saying London is average for the UK, and indeed Tokyo has some very expensive suburbs Roppongi, Shibuya and Omotesando, but then so does London, Knightsbridge, Chelsea, Hampstead.

http://en.wikipedia.org/wiki/File:Economis...ces20050615.jpg

OK. But starting prices in Tokyo now are 34000000 yen. That's for a 40sq m 1 bed flat.

That is 10 times the average starting Tokyo salary and 7 times the average.

And just to put the size of their bubble in perspective, that's after a crash of +60%

[Mikhail Liebenstein]

Here is a good story that we have seen previously on HPC which is about a fairly typical buyer in Japan.

Yes, there bubble was earlier, but the $400,000 paid for the flat does not sound a whole lot worse than we have in the Uk.

The UK and Japan are probably the most similar entities in this whole HPC game, particularly on the island nation land shortage thing.

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

[judas]

Here is a good story that we have seen previously on HPC which is about a fairly typical buyer in Japan.

Yes, there bubble was earlier, but the $400,000 paid for the flat does not sound a whole lot worse than we have in the Uk.

The UK and Japan are probably the most similar entities in this whole HPC game, particularly on the island nation land shortage thing.

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

Sincerely disagree.

Japan bubble massivley bigger than ours.

Remember the prices we are looking at for Tokyo now are post crash.

PS still think that graph is lacking in substance.

[Mikhail Liebenstein]

OK. But starting prices in Tokyo now are 34000000 yen. That's for a 40sq m 1 bed flat.

That is 10 times the average starting Tokyo salary and 7 times the average.

And just to put the size of their bubble in perspective, that's after a crash of +60%

Remember not to confuse this with the exchange rate issues - Japan is suddenly almost twice as rich when compared with the UK, the Yen was typically around 190/200 to GBP, though weakened as far a 240. Now it is very strong 130ish.

So that 34000000, was only £170k not that long ago. Now there is a myth that all Japanese properties fell by 80%, when in fact many were down just 40-50% from peak. So say that £170k flat peaked at £300k, that does not sound like the Japanese bubble was somehow any bigger than ours.

I can still find plenty of 2 bed flats on like this: Link

In the UK, I'd say our bubble is probably bigger and certainly more all encompassing.

Edited February 15, 2009 by mikelivingstone

[Haventaclue]

You cant take a graph seriously when its "I plotted this from data in the economist 2005......." "Oh by the way they did later admit is was 5 years askew........" "Ive chosen 2 different starting points and 2 different timescales" (But hey you wouldnt want me to comapare apples with apples would you"

Bag of crock and completely pointless..............

So back to the long term 'deflation' argument. Never going to happen........... Next stop, inflation.

[Mikhail Liebenstein]

You cant take a graph seriously when its "I plotted this from data in the economist 2005......." "Oh by the way they did later admit is was 5 years askew........" "Ive chosen 2 different starting points and 2 different timescales" (But hey you wouldnt want me to comapare apples with apples would you"

Bag of crock and completely pointless..............

So back to the long term 'deflation' argument. Never going to happen........... Next stop, inflation.

There is nothing wrong with overlaying graphs for comparison. And it is reasonable to take the starting point of a boom, when prices were typical as the base and then show the proportionate change, particularly when using inflation adjusted numbers - how else would you compare?

I am getting worried that some people think a 130 Yen is worth more than £1 because the number is bigger.

[Injin]

No idea why anyone would confuse a one party state with a fatalistic (but prodiucive) population and lots of savings and the ability to export their hyperinflation with the UK.

When you see anyone who has lost their job in the UK still pretending to go out to work without telling anyone in their family for 6 months because they are afraid of "losing face" let me know.

Edited February 15, 2009 by Injin

[Mikhail Liebenstein]

No idea why anyone would confuse a one party state with a fatalistic (but prodiucive) population and lots of savings and the ability to export their hyperinflation with the UK.

When you see anyone who has lost their job in the UK still pretending to go out to work without telling anyone in their family for 6 months because they are afraid of "losing face" let me know.

Injin, there are definitely differences, but many similarities also.

Right now the pace of credit destruction is exceeding the pace of money creation and the velocity of circulation is falling.

I'll worry about hyper inflation once the credit destruction stops and the credit creation through the ability and willingness of people to borrow rears it ugly head.

[Mikhail Liebenstein]

No idea why anyone would confuse a one party state with a fatalistic (but prodiucive) population and lots of savings and the ability to export their hyperinflation with the UK.

When you see anyone who has lost their job in the UK still pretending to go out to work without telling anyone in their family for 6 months because they are afraid of "losing face" let me know.

Injin, there are definitely differences, but many similarities also.

Right now the pace of credit destruction is exceeding the pace of money creation and the velocity of circulation is falling.

I'll worry about hyper inflation once the credit destruction stops and the credit creation through the ability and willingness of people to borrow rears it ugly head.

[Injin]

Injin, there are definitely differences, but many similarities also.

Right now the pace of credit destruction is exceeding the pace of money creation and the velocity of circulation is falling.

I'll worry about hyper inflation once the credit destruction stops and the credit creation through the ability and willingness of people to borrow rears it ugly head.

Credit isn't money.

I keep saying it but people keep confusing the two.

Anyhoo - the key difference is that the japanese didn't burn down all the city centres, attack the bankers in public places etc as our lot are about to, forcing political change. they just blamed themselves for not being able to make the impossible work and then self harmed by trying to work 150 hours a day.

For 15 years.

[Mikhail Liebenstein]

Credit isn't money.

I keep saying it but people keep confusing the two.

<SNIP>

But they do drink at the same wine bars, share the same hookers and dress up together for a day at the races.