Monday, Sep 28, 2009

Noboby built more bridges

Ritholtz: Andy Xie What we can learn as japans economy sinks

Another worthwhile read. Don't be caught fixated on the monthly minutiae of house price fluctations and miss the issues that will determine what will happen to house prices and our economy longer term. Japan did a lot of the things that we are trying now to offset deflation but to little avail - although who knows perhaps the policies prevented an outright collapse.
Notice the government are continuing the UK version of Cash for Clunkers. This worries me not because it is bad in itself/will really make a differnce either way but because it is kind of pathetic attempt to maskproblems, that the government feel they cannot solve. It is in perfect minature labours single, and now bankrupt idea, of borrowing from future demand.

Posted by bellwether @ 02:34 PM (1837 views)
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1. mountain goat said...

Bellwether I am not a fan of the cash for clunkers scheme because it is motor industry bailout financed with my tax money. However, I don't understand why it is singled out as "borrowing from future demand". The whole consumerism economic model involving growth of debt is about getting people to buy goods (and houses) they can't afford today. So that was borrowing from future demand too. However, the consensus at the moment is that despite this going on for years and years we are still heading into inflation. So why is this accusation only being aimed at cash for clunkers? If one buys a car today because of the cash for clunkers scheme that won't stop those people buying a car next year. They already have a car that probably still works in the first place, and next year there will be some other marketing scheme convincing enough to get them to part with their cash.

Monday, September 28, 2009 03:05PM Report Comment

2. tyrellcorporation said...

I seriously doubt Cash-for-Clunkers has generated much 'new' demand. Those who could afford a new car anyway might have been tempted to bring forward their purchase but like many people, I'm not going to march down to the local Ford dealership to buy a new £16k Mondeo just to take advantage of a slight discount.

Once the scheme ends (after the election) demand will fall again as future demand has been exhausted.

Monday, September 28, 2009 03:18PM Report Comment

3. mountain goat said...

tyrellcorporation - I suppose my point is that demand, like greed, is never exhausted. Only the availability of money can be exhausted.

Monday, September 28, 2009 03:38PM Report Comment

4. tyrellcorporation said...


Money from income growth credit growth and from savings are all in decline so demand is being satisfied (in this case) by tax revenue or future taxation/debt.

What a mess eh?

Monday, September 28, 2009 03:45PM Report Comment

5. drewster said...

The figures speak for themselves. Cash-for-clunkers has had a significant positive impact on sales figures.

Nice post. I'm particularly interested in this line:

Japan’s post-bubble policy was to let property prices decline gradually. Hence, living costs also declined gradually. On the other hand, the economy stopped growing, which caused income expectations to quickly adjust downward. The combination of high property prices and low income growth rapidly pushed down Japan’s birth rate.

Looks like we're due the same combination of high property prices and low income growth. Yay.

The point about the birth rate is interesting. Conspiracy theorists will go nuts :)

Monday, September 28, 2009 04:03PM Report Comment

6. bellwether said...

MG demand like anything is infinite if you put it on an infinite time frame. The borrowing from demand point is simply to say from a finite group of people with finite resources, more people buying something durablish like a car this month will inevitably mean fewer buying next month. The point I think is simply that the stimulus measures in the short term do not really improve matters within the forseeable future, they simply mean that the problems (say peak credit) are masked a bit in the hope that we might somehow be better equipped to cope further down the line.

Monday, September 28, 2009 04:46PM Report Comment

7. little professor said...

Japan's attempts to avoid deflation by going all printy printy didn't work because of the yen carry trade - people would simply borrow the money they were printing in Japan cheaply, and take it out of the country to invest in the UKUSA, thus pumping up our stock market and property bubbles.

Our situation is very different now. The money we are printing, in a pathetic attempt to reinflate our property bubble, will remain in this country, causing generalized high or hyperinflation. The threat of deflation in this country is a ruse, it's simply not going to happen. Japan is a false comparison.

Monday, September 28, 2009 05:05PM Report Comment

8. stillthinking said...

Great article. But why is the yen high?

Monday, September 28, 2009 05:05PM Report Comment

9. icarus said...

In the Great Depression US government revenues were only about 7% of GDP. Even allowing for government deficits, the early '30s Keynesian stimulus as a % of GDP must have been small compared to today's ineffective 'stimuli'. In other words, governments are getting less and less bang for their stimulus bucks.

Monday, September 28, 2009 05:07PM Report Comment

10. uncle tom said...


The Yen is high because I think they still have a trade surplus. They also have a small budget deficit, compared to other developed nations.

While much is made of Japan's national debt, it has to be remembered that they also have a huge amount of forex, which partly offsets the figure.

So while they have a large debt legacy to deal with, they have a more stable outlook than most developed nations.

Monday, September 28, 2009 05:32PM Report Comment

11. cynicalsoothsayer said...

It's too easy to be dismissive of comparisons with Japan. Every slump in every country is different, but it's still valid in seeing the effect of government interventions. No matter what the Japanese government do, their hpc continues. If anything our government has less room to manoeuvre.

Monday, September 28, 2009 07:10PM Report Comment

12. japanese uncle said...

Prices (food and other daily commodities) in Japan are almost the same as they were 50 years ago. House prices are coming closer to that level as well. No wonder yen is appreciated.

Just have a look at the leaflet of a superstore in Japan. It shows 46 yen (32 pence) for ten eggs!! 97 yen (67 p) for a large bottle of soya source (1 littre)!! 87 yen (60 p) for 100g of Australian beef !!

This will most probably what you will see in Britain soon.

Monday, September 28, 2009 11:50PM Report Comment

13. letthemfall said...

Interesting article, particularly the argument that stimulus keeps inefficient corporations alive, exacting a drag on the economy. Reading that, the financial services corporations immediately sprang to mind. Isn't this exactly what is happening here and in the US? After years of returning value far less than the cost paid by the rest of the economy, they are now supported by the public sector to avoid economic collapse. So if restructuring is not imposed by regulation, then we will be behaving exactly as Japan.

Tuesday, September 29, 2009 09:03AM Report Comment

14. mountain goat said...

JU so does that mean that the greatest QE experiment in history still didn't beat the forces of deflation? This is what I believe will happen here too. The inflation has already happened here in the massive credit growth we have experienced. Despite government bailouts lenders have made big losses and since there are now few credit worthy borrowers left, less credit will be extended and existing debts will be paid back, so the money supply will contract, despite QE. Deflation cannot be beaten after a credit bubble.

Tuesday, September 29, 2009 10:23AM Report Comment

15. nomad said...

I've got huge respect for posters to this site, particularly old hands. But the way the deflation/inflation argument splits such well(financially)read people is surprising. Such extremes of view from eg. lp@7. and mg@14.

JU@12. Pity the poor mortgage holders who have bought in the last five years if you are right - and we do seem to be following the Japanese plan, but without their advantages.

Tuesday, September 29, 2009 10:50AM Report Comment

16. jack c said...

@nomad - interestingly it also has professional fund managers split - some of the most successful fund managers are fearful of inflation whilst others are preoccupied with deflation. It's a tough call because we (UK Plc) are in uncharted waters awaiting the impact of QE etc... - I read daily bulletins and weekly publications and the fund management community are totally divided on this subject - I guess only time will tell on who makes the correct call.

Tuesday, September 29, 2009 11:12AM Report Comment

17. nomad said...

Thanks for the comment jc, it makes it difficult for those of us trying to hang on to the coat tails. Now where's that pin?

Tuesday, September 29, 2009 11:18AM Report Comment

18. jack c said...

@nomad - if you go to you can register for the digital version of this weekly publication - on the front page of this weeks edition (28/09/2009) is an article by Hysni Kaso titled "Strategic bond duo at odds on inflation threat"

"Strategic bond fund managers Nick Garside and Stewart Cowley are positioning their portfolios on vastly differing inflation expectations for the western world in coming years"

This highlights the point I made earlier in that the "experts" (I hate this term) are very much divided

Tuesday, September 29, 2009 12:23PM Report Comment

19. letthemfall said...

Perhaps this goes to show that the so called experts don't really know what's going to happen, and since most fund managers lose money relative to the market, that seems right. John Authers in his short view (FT) argues that they are all tending to index the market at the moment for fear of looking bad against their peers. So much for confident expertise.

Tuesday, September 29, 2009 12:43PM Report Comment

20. kruador said...

Why can't we have inflation and deflation simultaneously? Property and other leveraged assets are deflating; the reinflating oil bubble is infecting all agriculture, manufacturing and transportation with inflation. The oil bubble is inflating as investment fund managers try to hedge inflation, but all their hedging is doing is causing the inflation they're trying to hedge! The problem is that the government is concentrating on trying to maintain the inflated asset prices rather than control the massive commodity inflation, partly due to their myopic inflation measurements which don't reflect the average consumer's experience of inflation.

High interest rates would be a sufficient hedge against inflation to kill off much of the speculation in stock and commodity markets, and cut leverage massively. Better for some areas to fall hard than to sustain a zombie for years to come.

Tuesday, September 29, 2009 12:49PM Report Comment

21. jack c said...

@ letthemfall - valid point - as I said earlier, time will tell on how this plays out in the UK.

Tuesday, September 29, 2009 12:57PM Report Comment

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