Japan 1989-date V The Situation Now For Us

[Killer Bunny]

When they went into depression it coincided with 15 year global deflation

We're going into recession/depression but with 15 years of rising commodity prices. I believe that the recession will temper inflation but I can't get a handle on how commodity inflation will affect us. Will it it make things worse or better? It couldn't get any worse in Japan, YET they had deflation of commodities!

Of course, the 1970s were pretty bad - but for assets such as stocks, bonds and property. It was good for commodities and we did produce Abba! And their classic, awe-inspiring 'Money, Money, Money'. ( )

Seriously, how will commodity inflation affect us if commodity deflation did not help Japan?

I can't believe it'll be as simple as 'inflation: bad' so we're knackered for 20 years. So was Japan - once again with commodity deflation.

[Ash4781]

IMO we'll just see it as a fall in the standard of living.

[Fishfinger]

House and land prices collapse, food, energy and other essentials going through the roof leaving a total demand destruction of non essentials such as holidays, Chinese made tat, feng shui experts etc

Expect a comeback for jumble sales..

[Ah-so]

I would still dare to stick my head above the parapet and suggest that Japan had a more severe housing boom than us. The classic example is of the grounds of the Emperor's Palace being worth more than the entire state of California. This was calculated on the price of land per sq ft in central Tokyo.

Prices today in Japan seem reasonable compared to the UK, but that is because they are half what they were 18 years ago. As bulls love to remind everyone, house prices in the UK today are significantly above where they were in 1990. If prices in the UK were half their 1990 price, they would probably be one eighth of where they are now.

The government did not allow Japan to have a full-on bust. Unemployment was kept near full. Banks did not have to declare their loans and with low commodity prices, the problems did not have to be faced. Japan borrowed more and more. Govt. debt today is something like 180% of GDP, dwarfing our measly 40% odd.

By not facing up to its problems, Japan has spread the pain out over 18 years. The strong manufacturing output and exports has allowed the balance of payments to stay strong, ensuring a revenue of earnings to prop up the system.

[A.steve]

When they went into depression it coincided with 15 year global deflation

We're going into recession/depression but with 15 years of rising commodity prices. I believe that the recession will temper inflation but I can't get a handle on how commodity inflation will affect us. Will it it make things worse or better? It couldn't get any worse in Japan, YET they had deflation of commodities!

Of course, the 1970s were pretty bad - but for assets such as stocks, bonds and property. It was good for commodities and we did produce Abba! And their classic, awe-inspiring 'Money, Money, Money'. ( )

Seriously, how will commodity inflation affect us if commodity deflation did not help Japan?

I can't believe it'll be as simple as 'inflation: bad' so we're knackered for 20 years. So was Japan - once again with commodity deflation.

Darn, I was hoping you were going to post some insight... I've thought for several months that understanding what happened in Japan 1989-1992 would be crucial to understanding what will happen in Britain - since it is the only modern financial crisis that can be used as a guide. I ordered and have recently finished reading this.

Several things struck me about the similarity between 1989 in Japan and 2006-2007 in the West... and while random people have anecdotally suggested that what happened with credit in Japan was far more severe than what happened in the US and USA... I wonder how they measure it... the numbers from 1989 using today's exchange rates seemed eerily similar to today's figures in the USA/UK.

The book makes the point that a major reason the Japanese economy couldn't bounce back was over-investment in "capacity" - where in the late 80s, for example, they'd built all the car-plants they'd ever need. In Britain/the USA I don't see the same over-provision of capacity... but, I suspect that balance sheets of corporations are at-least as loaded with debt. The argument is that Japan suffered deflation simply because there was over-supply of industrial capacity - and, as an argument, it makes sense to me.

With the exception of over-capacity with respect to industrial provision, much else of what was reported for Japan rhymes with what I've seen in an Anglo-American context this past decade... on a larger and more distributed scale. For example, as I read about the on-paper strategies used by Japanese institutional investment houses in 1989... I was reminded of reports about paper-settlement of OTC derivatives today. As the Japanese financial regulators were described - I was immediately lead to think about the FSA... it was as if Britain had been taking lessons on how not to run an economy.

The inflation/deflation debate is one that I've taken to heart... practically, I'm positioning myself to benefit from an inflationary outcome - while anticipating asset prices plummeting in the short-to-medium term. Having taken practical moves to insulate myself from potential inflation of a 70s variety, while also positioning myself to take advantage of a collapse in asset prices, my over-active analytical inquisitive nature is left to ponder the outcome that I think the facts indicate most strongly. I see deflation as far more likely than inflation... though I don't envisage any VI taking any outcome lying down - making me expect a significant metaphorical battle to play out in the real world.

Japanese deflation arose through an unbalance between production and demand - leading to over-supply - on an industrial basis... coupled with a sharp contraction in asset values and available credit.

Anglo-American deflation (I think) will arise through demand destruction - as both the availability of credit dries up and the cost of existing credit seriously hampers domestic economic activity. I don't see spiralling wages (as happened in the 1970s) being credible today... in short owning to global wage arbitrage... which already makes it uneconomic to undertake any kind of relocatable business in the UK as compared with India/China/Indonesia/Vietnam etc. etc. The only weak point I see in this argument is that we might see massive shifts in exchange rates. If, for example, Sterling devalued by a factor of four, say, against the Euro - and by a factor of 8 or 16 against emerging market currencies... then, maybe, wages in the UK could rise in nominal terms - though the British wage earner would be worse off in an international context... so, while entry level jobs might rise to £30/hour from £6 - a pair of supermarket trousers might well go from £6 today to £60+... I think that the treasury would do almost anything to avoid wage inflation... the demographic that votes is nearing retirement - the last thing they need is to see a collapse in value of the equities/bonds behind their pensions - followed by their cost of living increasing by an order of magnitude.

The other idea I had from the book was that when the "tide went out" a massive number of fraudulent transactions were uncovered... so far we've seen SocGen's Jérôme Kerviel incident... I'm aware that at least one other investment bank is very worried about "Enron-like" things coming to light... and I wonder if the West really is more honest today than Japan was in 1990... my intuition tells me that I should not assume so. If this hunch is right, I'd expect eye-popping frauds to come to light over the coming months.

Edited July 13, 2008 by A.steve

[Converted Lurker]

whilst on subject of 'stuff that we don't get' I don't get the deflationist argument. Being the simple northern monkey I am my understanding is that inflation, massive inflation (maybe not by strict defintion 'hyper inflation') is already guaranteed by the past performance/creation of units of currency over recent years on an truly fantastic scale which due to where it was created and what it was primarily used for has now begun to bleed profusely into normal day to day activity. They may turn off the tap of credit and money supply, but it's just way too late to prevent massive inflation and currency destruction, that huge influx of credit creation is only just at its genesis of effects. Unless the govts/central banks allow massive bank failures and as a consequence write offs that will leave most individual debtors 'free', which is unthinkable surely, there's no way out, is there?

[VedantaTrader]

When they went into depression it coincided with 15 year global deflation

We're going into recession/depression but with 15 years of rising commodity prices. I believe that the recession will temper inflation but I can't get a handle on how commodity inflation will affect us. Will it it make things worse or better? It couldn't get any worse in Japan, YET they had deflation of commodities!

Of course, the 1970s were pretty bad - but for assets such as stocks, bonds and property. It was good for commodities and we did produce Abba! And their classic, awe-inspiring 'Money, Money, Money'. ( )

Seriously, how will commodity inflation affect us if commodity deflation did not help Japan?

I can't believe it'll be as simple as 'inflation: bad' so we're knackered for 20 years. So was Japan - once again with commodity deflation.

Yes, there was a fall in commodity prices inflation adjusted between 1982-1999. However, there have been huge asset inflation. First we had the stock market bubble of 2000-2002, then interest rates were cut to 1% and kept at 1% a year into the recovery. This in short led to the real estate bubble and now it has burst. Now we are finding that inflation is finding its way into consumer prices.

I wrote a piece last night in response to apost stating how Japans deflation was our inflation...We happen to be at this time in a commodity bull market starting in the year 2000 that will last 15-20 years. Japans currency more than doubled in the first 5 years after the bust between 1990-1995. And as Steve said over capacity within Japan was major component of the deflation...

How is today different...

1) The USA has a huge trade deficit, Japan did not.

2) Japan had and has a high savings rate, and we do not

3)Incremental increase in demand for commodities from China and India and other Bric nations which has accelerated since 2000 has pushed up commodity prices.

4) Due to falling commodity prices between 1982-2000, margins were squeezed leading to decreasing investment, and a decline in acreage for food commodities. Points 3 and 4 have led to higher commodity prices, coupled with high levels of money being created by the FED.

5) The USD is losing value, and it is the reserve currency of the world. The Yen was not the reservce currency. The USD dollar pegs are fueling global inflation, as other countries have to print money to stop their currencies rise too much against the USD.

6) Labour and production was moved to India and CHina which has provided us with cheap goods, and fueled the current account deficit.

Below is what I wrote last night. I argue that Japanese monetary policy combined with US monetary policy led to huge liquidity and asset bubbles in the west. So Japansd deflation was our inflation...

QUOTE (InternationalRockSuperstar @ Jul 12 2008, 06:09 PM)

Think Japan had a deflationary recession in the 90s?

You've been conned.

Japanese M1 more than doubled during that decade.

I think you have been conned! A thousand dollars is worth more today in Tokyo than 10 years ago. The middle man on the street has done very well out of this deflation in Japan. Deflation is bad for the rich, as the rich hold more assets. So deflation causes the value of their assets to go down. Deflation is portrayed as being bad from a corporate and banking perspective. It is good for the middle and lower income families. On the other hand inflation is good for the rich, as they come into contact with the money first and can invest it in other assets outside that country/currency before it loses value. Inflation is then not good for the middle class and lower income families.

So,it is now cheaper to rent in Tokyo, and eat than 10 years ago. Tokyo is a boom town these days. Things are cheaper for them today. The middle man on the street in Japan is more happy today than 10 years ago, because he is better off.

Money supply may have increased in Japan, however,that doesn't mean Japan experience inflation for a number of reasons...

The Japanese have not been investing in the Nikkei, they have been a big contributer in selling the yen in exchange for other assets overseas. The Japanese are themselves big players in the Yen carry trade. You should look into the fundamentals of the carry trade. Over the last three years when the stock markets sold off in the western economies there were very violent corrections in the yen currency pairs,especially the £/yen and Euro/yen, AUD/JPY, NZD/JPY. The pound on one day dropped a thouand points against the yen as the stockmarket tumbled in March 2007. This was the the money being sold off in the assets and flowing back into yen, to cover their positions.

The yen carry trade has been a major factor in the credit bubbles. We had since 2000 the number 1 and 2 economies in the world, USA, and Japan respectively with 0% and 1% interest rates...

The reason the yen has been leaving Japan has been in search of higher yields, as with interest rates at zero in Japan there is no incentive to keep your money in yen.

Yes the BOJ did print lots of money and tried the keynesian type stimulus the US are trying now, however, its all very well printing money, but if the private banks in Japan dont lend the money, then deflation will set in.

The other reason Japan had a great deflation is that with stockmarkets falling and real estate prices falling the Japanese didn t want to put any money into these assets,and see their value continue to fall,and the banks didnt want to lend money for assets that were falling in price. So this fed the deflationary effect. The yen that is being created has been sold through the carry trade causing inflation of assets and liquidity in overseas markets, but not in Japan itself. This in short is why Japan are still in a deflation.

So if you actually studied the Japan bubble and what happened I think it is without doubt clearly obvious Japan had asset deflation...for the reasons I have given above. When the Japanese bubble burst between 1990-1995 the yen more than doubled in value.

When interest rates were cut to zero in Japan in 2000 this gave birth to the carry trade. The yen has been articificially low for years now. Very under valued currecny. The yen carry trade is beween 750-1.2 trillion dollars in size. There are two sure things...Japanese IR will rise, and the this money will be repatriated back into Japanese banks which will cause the yen to rise dramatically....then just maybe, if the banks write down the rest of the bad loans they have been holding on their balance sheet since the bubble burst and restructure, we could see the end of the Japanese deflation.

[council dweller]

When they went into depression it coincided with 15 year global deflation

We're going into recession/depression but with 15 years of rising commodity prices. I believe that the recession will temper inflation but I can't get a handle on how commodity inflation will affect us. Will it it make things worse or better? It couldn't get any worse in Japan, YET they had deflation of commodities!

Of course, the 1970s were pretty bad - but for assets such as stocks, bonds and property. It was good for commodities and we did produce Abba! And their classic, awe-inspiring 'Money, Money, Money'. ( )

Seriously, how will commodity inflation affect us if commodity deflation did not help Japan?

I can't believe it'll be as simple as 'inflation: bad' so we're knackered for 20 years. So was Japan - once again with commodity deflation.

As one American baseball player said on returning to the US after a less than successful season in a Japanese league..." yeah Japan...it's this whole other country." Indeed things are very different there. When their real estate bubble burst they still had massive savings, a fairly well known manufactoring industry and were out of step with most of the world's economy. Japan is only useful as an example of a country that has had multi-year house price falls, something in-credible for most of us two years ago....the good old days when prices always went up.

Japans recession was tedious not disasterous largely because ordinary people had the benefits of deflation, it wasn't all bad, there was no reason to panic. We have nothing going for us on the other hand.....not even sexy school girls....but we'll always have those Abba cassettes I guess.

Infation or deflation here? What does it matter...we're potless.

Edited July 13, 2008 by council dweller

[A.steve]

whilst on subject of 'stuff that we don't get' I don't get the deflationist argument. Being the simple northern monkey I am my understanding is that inflation, massive inflation (maybe not by strict defintion 'hyper inflation') is already guaranteed by the past performance/creation of units of currency over recent years on an truly fantastic scale which due to where it was created and what it was primarily used for has now begun to bleed profusely into normal day to day activity. They may turn off the tap of credit and money supply, but it's just way too late to prevent massive inflation and currency destruction, that huge influx of credit creation is only just at its genesis of effects. Unless the govts/central banks allow massive bank failures and as a consequence write offs that will leave most individual debtors 'free', which is unthinkable surely, there's no way out, is there?

We have two reasonably good examples of situations where there was deflation - i.e. a reduction in the money supply leading to a contraction in economic activity: 1929 USA and 1989 Japan.

In the context of how this might happen, you need to ask what is most likely to happen to people's debts. Those who I know who've been pandering with the idea of taking on a mortgage are now adamant that the mortgage they will take on in future would be smaller than, say, last year. Those with mortgages are talking about paying down the debt - to avoid the steeper interest charges - this year... when, last year, they were talking about buying a large luxury car with their savings. These anecdotals from the UK coincide with reports of what happened in Japan starting in the early 1990s. I think that this will happen to a far greater extent in the UK as the public fear steeply rising fuel and food bills - while their incomes remain static and there is fear of redundancy (even if no redundancies transpire).

Commodity prices increasing is not, in itself, inconsistent with deflation.

[uncle_monty]

I would still dare to stick my head above the parapet and suggest that Japan had a more severe housing boom than us. The classic example is of the grounds of the Emperor's Palace being worth more than the entire state of California. This was calculated on the price of land per sq ft in central Tokyo.

Prices today in Japan seem reasonable compared to the UK, but that is because they are half what they were 18 years ago. As bulls love to remind everyone, house prices in the UK today are significantly above where they were in 1990. If prices in the UK were half their 1990 price, they would probably be one eighth of where they are now.

The government did not allow Japan to have a full-on bust. Unemployment was kept near full. Banks did not have to declare their loans and with low commodity prices, the problems did not have to be faced. Japan borrowed more and more. Govt. debt today is something like 180% of GDP, dwarfing our measly 40% odd.

By not facing up to its problems, Japan has spread the pain out over 18 years. The strong manufacturing output and exports has allowed the balance of payments to stay strong, ensuring a revenue of earnings to prop up the system.

How is that different to now?

[Sinking Feeling]

I think we need to first define what we mean by deflation as here are two quite different types:

i) A time where industrial growth is greater than the growth in money supply causing the value of money to rise and the price of goods to fall (e.g. 1820s and latter part of the Victorian period).

ii) A contraction of the money supply leading to money becoming tight and causing no end of problems (1930s US).

The Austrian economists point to period of rising commodity prices at the end of a credit boom; these rise at a much faster pace than retail prices and wages and for a time manufacturers and employees see their margins/incomes being squeezed. Eventually these are forced to rise.

The question would be why we might suppose there might be deflation. There was an article in the Telegraph that claimed that money supply is falling, but on closer inspection the article was referring to narrower forms of money in the US and M4 figure excluding financial institutions. What seems to be happening as far as I can tell is that the general public and companies are finding it increasingly difficult to get credit, but the financial sector have no such problems - recent broad money figures show that this is racing away.

So I would expect that inflation will continue to rise for the next two years.

[OnlyMe]

When they went into depression it coincided with 15 year global deflation

Moreover after a few years they still had operating car/electronics businesses that were earning income helped massively by the worldwide demand spurt after a few years of serious recession, they had a very easy run really as all and sundry opened the money spigots, bought their goods and allowed them to get away with zero percent interest rates to boot.

Now when all and sundry play with negative real interest rates frist we got HPI, now we have a commodity blow-up - one which I doubt will go away until the central banks take money printing and inflation seriously.

[domo]

whilst on subject of 'stuff that we don't get' I don't get the deflationist argument. Being the simple northern monkey I am my understanding is that inflation, massive inflation (maybe not by strict defintion 'hyper inflation') is already guaranteed by the past performance/creation of units of currency over recent years on an truly fantastic scale which due to where it was created and what it was primarily used for has now begun to bleed profusely into normal day to day activity. They may turn off the tap of credit and money supply, but it's just way too late to prevent massive inflation and currency destruction, that huge influx of credit creation is only just at its genesis of effects. Unless the govts/central banks allow massive bank failures and as a consequence write offs that will leave most individual debtors 'free', which is unthinkable surely, there's no way out, is there?

Deflation will occur as debt is defaulted on, bonds of those defaulting borrowers become worthless and banks and investors reel from losses. The resulting tightening of credit conditions causes the cycle to perpetuate and feed on it self. Money isn't being destroyed, its credit thats being destroyed, and as if money isn't psychological enough in a Fiat money system, when 99%+ of it is IOUs its even worse, because only optimistic psychology keeps it afloat.

As for commodity price in/deflation, I would expect moderate to severe falls over the next few years simply because they've had a strong run for 8 years, and deflation and economic contraction. Having said that they will fall a fraction of what house prices and stocks will.

[Killer Bunny]

Some truly excellent posts here. Unfortunately, mainly because I can't think straight at 10.40 on a Sunday night after a few glasses of plonk, I'm none the wiser.

Are you saying bigger bust than Japan because of no savings and no industry? Or not so bad 'cos we have 40 (ish)% GDP govt borrowings and our currency will fall so jobs will come back?

Would you kindly repost with bullet points.

Many thanks. Many of these posts were amazing.

[kiwi]

bernake knows his stuff he is quite literally trying to inflate the us out of a deflation by avoiding forced asset sales as much as possible.....

if banks cant lend houses can only be sold for cash!

he could care less about individual house holders but has to try and hold together the intermidiatary banking system or its game over.....

its actually quite frightening...

search bis pdf called

debt deflation bis working paper 176.....

scary reading

[Guest Steve Cook]

When they went into depression it coincided with 15 year global deflation

We're going into recession/depression but with 15 years of rising commodity prices. I believe that the recession will temper inflation but I can't get a handle on how commodity inflation will affect us. Will it it make things worse or better? It couldn't get any worse in Japan, YET they had deflation of commodities!

Of course, the 1970s were pretty bad - but for assets such as stocks, bonds and property. It was good for commodities and we did produce Abba! And their classic, awe-inspiring 'Money, Money, Money'. ( )

Seriously, how will commodity inflation affect us if commodity deflation did not help Japan?

I can't believe it'll be as simple as 'inflation: bad' so we're knackered for 20 years. So was Japan - once again with commodity deflation.

We are going to get inflation of the the money supply in order to nominally bail out the financial system alongside deflation of the commodity supply due to the increased costs of production, all of which are dependant of a dimninsihing supply of light sweet crude.

It doesn't really matter what inflationary shennanigans are played with the money supply. Our economies are going to contract in real terms.

In real terms, we are all going to get a lot poorer

This is going to be true irrespective of whether you have to pay £1 for a loaf of bread or £100

Monetary inflation/deflation are nominal outcomes

Poverty is real

Edited July 14, 2008 by Steve Cook

[gravity always wins]

Price inflation driven by commodities will drive down discretionary spending power and suck real demand out of the economy.

Company earnings will suffer.

The Dow will not hit 15,000.

I had it on good authority from an "investment expert "that the Dow would hit 15,000.

As they got that one so badly wrong I wouldn't be surprised to see them using this forum to get some free information as they clearly haven't got a clue what is going on.

[Killer Bunny]

I had it on good authority from an "investment expert "that the Dow would hit 15,000.

Actually, when I made that 'forecast' the Dow was below 12,000. It went swiftly to 13,000.

I said it would happen within 12-18 months. I'll alter that to 18-36 months.

Let's now see what happens to October.

BTW, it will get there but it won't be worth as much as today.

In any case, we're not much in US stocks, or any stocks to a great extent.

[Guest Mr Parry]

When they went into depression it coincided with 15 year global deflation

We're going into recession/depression but with 15 years of rising commodity prices. I believe that the recession will temper inflation but I can't get a handle on how commodity inflation will affect us. Will it it make things worse or better? It couldn't get any worse in Japan, YET they had deflation of commodities!

Of course, the 1970s were pretty bad - but for assets such as stocks, bonds and property. It was good for commodities and we did produce Abba! And their classic, awe-inspiring 'Money, Money, Money'. ( )

Seriously, how will commodity inflation affect us if commodity deflation did not help Japan?

I can't believe it'll be as simple as 'inflation: bad' so we're knackered for 20 years. So was Japan - once again with commodity deflation.

Ah, they're still the 2nd richest country in the World.

It's hardly like Somalia, is it?

[gravity always wins]

Actually, when I made that 'forecast' the Dow was below 12,000. It went swiftly to 13,000.

I said it would happen within 12-18 months. I'll alter that to 18-36 months.

Let's now see what happens to October.

BTW, it will get there but it won't be worth as much as today.

In any case, we're not much in US stocks, or any stocks to a great extent.

You are Gordon Brown and I claim my five pounds always moving the goal posts and changing the rules when you get it horribly wrong.

Actually you said within the next couple of months which has come and gone.

Why don't you resurrect the post and show everyone as it seems to have dissapeared.

Edited July 14, 2008 by gravity always wins

[A.steve]

Are you saying bigger bust than Japan because of no savings and no industry? Or not so bad 'cos we have 40 (ish)% GDP govt borrowings and our currency will fall so jobs will come back?

Would you kindly repost with bullet points.

I'm not at all sure that the points I tried to make can be easily bullet-pointed without introducing unintended bias.

I'm inclined to expect a different bust, but of a comparable scale.

* Japanese credit expanded in the late 80s faster than US/UK credit expanded 2001->2007... and (in currency of the time) by a greater absolute amount.

* The Japanese credit expansion was founded on a sound industrial base, a savings culture and fraud (widespread forged certificates of deposit, for example). In the West, I think the latter is extremely plausible.

* The Japanese regulators bear an uncanny resemblance to the FSA - and this might well explain why London has become a centre for OTC derivative trading - just as Tokyo became a centre for Nikkei shares in the late 80s.

* I think a central lesson from the bust in Japan is that credit expansion had affected every asset class. It should be inconceivable to assume that the problems blighting mortgage lending will not also affect corporate finance and consumer credit - with the ensuing economic slowdown having a dramatic effect on the "real" economy.

* The government debt at 40% of GDP is misleading... the main cause for which is Maastricht... which has encouraged our government to re-structure its funding with PFI and the like. In 1992 we were set limits of 60% gross and 3% net government debt as a proportion of GDP. The upshot of this is to encourage government behaviour that leads to larger GDP figures and lower gross debt... but this is as misleading as it ignores national assets... it is analogous to comparing someone with £30K of credit card debt who rents with someone with £100K of mortgage who owns. The latter has triple the gross debt, but the cost of borrowing can be offset against the utility of owning a residence. Net debt is relevant - and we've recently broken our 3% limit agreed in 1992.

* I think it extremely likely that our currency will fall - against a specific basket of currencies - though, maybe, not the US$ and Euro... I think the upshot of this will be to drive import prices higher. I do not expect it to re-ignite domestic economic activity - since, even if the value of the Yuan or Rupee, for example, triple relative to Sterling, operations denominated overseas will remain competitive with a much lower tax/bureaucracy burden. I expect a substantial net out-flow of economic migrants.

An Anglo-American bust will definitely directly affect far more people (say ~360m as opposed to ~120m in Japan) and it seems that this will inevitably have a dramatic impact on business worldwide... probably a bigger (though not identical) impact than the Japanese bust. The main lesson I learned from reading about the Japanese experiences was that we should not focus exclusively on MBS when thinking about the mechanisms of credit expansion - we will also be affected by the availability of credit for capital investments by business... when (I don't think we're talking "if") such credit declines there will necessarily be a sharp slowdown in economic activity and employment. I think that assuming that busts affect asset-classes in the same order every time is the mistake made by those who argue that any bust this time will be mild because we have "high employment".

[Injin]

I think it's important to look at culture in this area.

In Japan, sacked salarymen would still put the suit on and wander around the city rather than admit to the family they have been laid off. When wages fell and they had a crushing depression due to the average man or woman being cut off from funds, the average man or woman just blamed themselves and they tended to put more and more hours in "for the company."

Karma, neh?

The chances of the western populations passively accepting a reduced standard of living is nil.

The 0.5% interest rate for big business and 20% interest for the consumer scheme they had (and still have) in Japan has no chance of working over here. None.

[A.steve]

Actually, when I made that 'forecast' the Dow was below 12,000. It went swiftly to 13,000.

I said it would happen within 12-18 months. I'll alter that to 18-36 months.

I think we won't see 15,000 within the next 2 years... and I'm so sure, I'll bet a total of a bag of cheese-and-onion crisps on that prediction... since it would be completely undermined if shares became suitable collateral for loans....

While stocks do not seem to have been the most inflated market in the West (compared to Japan) it is worth noting that the Nikkei crashed from ~45,000 to ~20,000 18 years ago - and, now, has "recovered" to ~13,000.

[council dweller]

Are you saying bigger bust than Japan because of no savings and no industry? Or not so bad 'cos we have 40 (ish)% GDP govt borrowings and our currency will fall so jobs will come back?

....yeah bigger bust because we have no savings and no industry plus several other factors.

The Japanese may have a debt that's 160% of GDP but how much interest are they paying on it? Something like 0.25% to 0.50% I guess.

And it's all local funds.They also have something to show for it as a lot has been on infrastructure.

The government here will have to increase borrowing,increase taxes , and borrow more (overseas of course) but the Pound will weaken whatever they do.

Jobs will not 'come back' once lost, however weak the Pound is, the best of our industries should have been preserved in the same way that a good gardener collects his best seeds.

Btw, in the late 80's the Japanese had several large car manufactures (Toyota , Nissan, Honda, suzuki, MMC ,Daihatsu, Subaru) Sadly none have survived.

[beefheart]

FWIW..

AJ did a "special" on this last night... was only half listening as i was otherwise preocupied.

It seems that the economics guy that turned up (might have been bob chapman???)

concluded that global deflationary depression was to occur that makes the 1930s look

desirable.

Gold and Food stocks mentioned.

LISTEN AGAIN...

http://www.prisonplanet.com/alex-jones-spe...armageddon.html