If We Do Have Japanese Entrenched Deflation. What's The End Game?

[Si1]

If KB is proven to be right, IRs stay low due to a poorly structured vested interest biased economy. Then what's the ultimate outcome?

[thombleached]

Excellent thread, as it's something I've wondered myself over the last few years.

Without having any answers, I'll pose an aditional question which I think is pertinent (and someone with some experience of Japan may be able to answer).

What was the sentiment for housing in the run up to 1990 in Japan, and how similar/disimilar is that sentiment to the UK? Did they have a religious grounding in bricks and mortar? It's something I have no idea on but I'd love to hear from people who may have lived there what the attitude to housing is (both philiosophically and economically). Is there 'property porn' over there?

[interestrateripoff]

Interest rates are near zero because of the debt, any higher and we would probably see a repayment crisis across all sectors. We are in a zombie economy and the aim of policymakers is to keep the plates spinning whilst they are in power. As long as they avoid the crisis job done.

[Killer Bunny]

If KB is proven to be right, IRs stay low due to a poorly structured vested interest biased economy. Then what's the ultimate outcome?

If only I could place emphasis on this: if I'm proved right?

Have they not thrown nuclear weapons to create inflation??? Result: 0% inflation.

[Killer Bunny]

Then what's the ultimate outcome?

Who knows? Japan still #turningjapanese... So no endgame even there as yet.

Oh we're toast whether or not rates are raised. See sig below.

Edited August 16, 2015 by Killer Bunny

[200p]

Then look to the people who profit from this scenario.

SURVIVE

THRIVE

DIVIDE AND CONQUER

DEVASTATE

THEN DOMINATE.

[Killer Bunny]

Eventually there will be huge QE and then move to SDRs and it all restarts. Years from now.

[the_duke_of_hazzard]

If only I could place emphasis on this: if I'm proved right?

Have they not thrown nuclear weapons to create inflation??? Result: 0% inflation.

Except in, you know, things like speculative assets...

[stormymonday_2011]

War.

It always ends in war.

Edited August 16, 2015 by stormymonday_2011

[Killer Bunny]

Except in, you know, things like speculative assets...

Like in, you know, things like

Oil

Gold

Cotton

Corn

Uranium

Nat Gas

Copper

Timber

You know, SPECULATIVE ASSETS!

Edited August 16, 2015 by Killer Bunny

[Noginthenog]

If only I could place emphasis on this: if I'm proved right?

Have they not thrown nuclear weapons to create inflation??? Result: 0% inflation.

I'd agree KB that if you look at government stats we now are falling into deflation. The government stats don't include the bubbles of inflation that the "nuclear weapons of monetary stimulus" have created though, like housing in the UK. The stock market, probably. The Bond markets, definately.

I don't believe that Carney or Yellen can up interest rates by more than an inconsequential amount, but as you have said,

"If they raise rates we're toast. If they don't it's BECAUSE we're toast!"

The problem the Japs have been fighting is going global, and currency wars will be the result. The debt can only be repaid with devalued currency, and to keep the bubbles full of air more (lots more!) QE will be needed. It will be the lenders that will end up paying!

[stormymonday_2011]

3. Bringing a more appropriate balance between investment and demand. This is particularly true of China, the deflationary heart of the world where over investment has been baked in. It means diverting from a focus on investment and export to meeting the needs of its consumers but they've got a huge lot of pain coming anyway.

4. In terms of international trade, steps need to be taken to allow deficit nations to devalue their currencies to bring their trade back into balance thru managed exchange rates by formula. Basically, the idea that countries can have a surplus and then recycle that as lending or securing assets in the target nation keeping their exchange rate high has to be curtailed. The banks don't like this as it goes against being able to make loads of money trading currencies. This is a variant of what Keynes suggested to the Yanks but they rejected as they saw it as protectionist and as the only nation standing, they wanted to secure all the markets in the wolrd without restriction - nowadays they might be a bit more keen.

China for better or worse is at the heart of the situation since it simply produces more than it or the rest of the world economy can currently consume

Their attempt to competively devalue their currency versus the Dollar, Euro etc is going to make that matter worse though

I actually don't think the West is in a position to buy a lot more of their stuff so all they might end up with is less Dollars for

the same amount of output. The other risk for China is that any devaluation may not be controlled as the PBOC found out last week and that hot money may simply flee which will cause its own problems and undermine their economy further.

http://www.economist.com/news/finance-and-economics/21661012-china-initiates-market-reforms-its-currency-then-backtracks-battle

I am not sure that BOE or UK government policy really matters that much in the wider scheme of things though you can not underestimate the capacity of the besuited crooks who run the City of London acting as a trigger for some sort of global financial crisis.

Anyway we are long past the point where economic instability started to morph into political instability so my money is on lots of war down the line.

Edited August 16, 2015 by stormymonday_2011

[Killer Bunny]

Fafa - the issue is not what's it like NOW. It's what was it like at the peak in 1990?

[Kinky John]

If KB is proven to be right, IRs stay low due to a poorly structured vested interest biased economy. Then what's the ultimate outcome?

That is a wonderfully succinct summary that I think deserves a succint answer.

The current interest rates must only go lower environment is most alike in my mind to the slow collapse of the comunist state where price fixing resulted in ever decreasing functionality of the markets. Lots of predictions I made about the past from that - liquidity crises, price imbalances, civil unrest (I'm thinking arab spring from mis-pricing of the forward curve in commodities) ... they're all checked off. The end game will take as long as the fundamental resources of the economy can be pitted against reality - unpredictable, but slow, grinding and very unpleasant. Read about the Russian markets if you want more.

[canbuywontbuy]

There appears to be no real property porn. Japanese TV is mainly cheesy drama, 70s style variety shows and travel programs focused on food. The Japanese are obsessed with food, and it is brought into almost every programme.

Good post fafa (nice to have a contributor living there now, interesting views!).

On your point above, isn't it also because there's really no point in having a "property porn" fetish in Japan - because let's face it - most of the property in Japan - certainly in the cities - are templated apartments - practical and utilitarian, but definitely not property porn.

I spent some years there (late 90s / early 2000s) - the only "property fetish" I noticed was that the higher up (physically) your apartment was in a building, the more expensive it was - so there was a kudos in owning an apartment higher up. Can't speak of the rural areas - perhaps my view of property back then is too anecdotal.

Also to add - foreigners can't rent property in their name (has this changed fafa?) - they have to rent through a Japanese friend/associate/spouse. To add to that, Japan has a very homogenous society - the UK.....well, we know how fast the UK demographic is changing. It surely has an impact on housing.

[SillyBilly]

So, if war is the conclusion to allow a re-set then who will it be between? China, Russia vs. E.U, U.S.A? What would be the prize for the victors?

[Si1]

My view is that the way to avoid it, if it is as hard set in as it seems in some respects, is tough restructuring the economy much to the detriment of VI's. We've seen some of this but it stops short of baby boomers b the whole.

[Ah-so]

My understanding is that the bubble was primarily an investment one driven by big business. Naturally it bled into the stock market and residential housing, but my understanding is there was no housing/BTL is a road to riches culture.

I am also writing from Japan. No property porn, but there is some dull singing programme on. I never did get enka.

I do not know how it all works in Japan, but apartments are usually rented, so I suspect they are BTR.Nearly all houses are OO. The bulk of the value lies in the land itself because the houses are built rather cheaply and often with short life expectancy.

[WideAsleep]

Taking current global debt levels, any slip into deflation will likely spark the end for the current economic system. History is full of examples where economic systems have been changed over night to a new way of working. I imagine that is the ultimate outcome this time too. No idea what the new system would look like, who would lose or who would win though.

As it stands for the West in general, we have an ageing population, falling demand for new credit and the next generation is leaving college/university already up to eye balls in debt, and thus will be unable to provide demand for new credit that would force interest rates to rise. Because of this, the system will likely remain stable in its current form for some time and the powers that be have a proven track record for ingenuity with regards to keeping the current system going. My guess is that the whole world will be #turningjapanese over the next couple of decades or so.

War is also unlikely on a conventional scale due to nuclear weapons. What you see in Ukraine will likely become more common, but full scale war the likes of world war II will not happen. If it does then the price of houses is not going to matter.

[stormymonday_2011]

War is also unlikely on a conventional scale due to nuclear weapons. What you see in Ukraine will likely become more common, but full scale war the likes of world war II will not happen. If it does then the price of houses is not going to matter.

Plenty of conventional war going on now.

I am sure the world has room for a lot more.

Your dead right about the last point.

I dont think people are going to be worrying about interest rates and house prices in the not too distant future.

[doomed]

The end game for deflation is helicopter money. It might come sooner than many think.

[debtlessmanc]

Plenty of conventional war going on now.

I am sure the world has room for a lot more.

Your dead right about the last point.

I dont think people are going to be worrying about interest rates and house prices in the not too distant future.

If the war is to about resources, most issues are slowly being resolved with respect to energy and scarce materials alternatives by new technology. therefore the only resources that are really going to matter are food and water. Europe, North America and austrlia/Nz have plenty of these, ever all else is getting very short- With the world population exploding in these places (eg Africa heading for Pop 4-6Bn). the only wars I can see are civil wars and mass migration. Suggests what we are seeing at the moment is just a taste of what is to come. Edited August 16, 2015 by debtlessmanc

[dances with sheeple]

The end game for deflation is helicopter money. It might come sooner than many think.

So, if war is the conclusion to allow a re-set then who will it be between? China, Russia vs. E.U, U.S.A? What would be the prize for the victors?

HPI was helicopter money to the masses, so is PPI to an extent? If they have to do "free" money overtly people will already be panicking and will just hoard it?

[200p]

Like in, you know, things like

Oil

Gold

Cotton

Corn

Uranium

Nat Gas

Copper

Timber

You know, SPECULATIVE ASSETS!

McDonalds, Pepsi, Coca Cola, Google, Amazon (we'll be all living in bedsits on the internet), and I'll no add weapon manufacturers.

[doomed]

HPI was helicopter money to the masses, so is PPI to an extent? If they have to do "free" money overtly people will already be panicking and will just hoard it.

I would spend mine instantly for maximum value.

You already hear 'people's QE' etc. being thrown about and they are still yet to try and unwind the original . We are approaching peak debt which means a dead end for our monetary system.