Japan takes a big gamble....

Explore the business, economy, finance and trade aspects of human society.

Moderators: Calilasseia, ADParker

Japan takes a big gamble....

#1  Postby Macdoc » Apr 05, 2013 12:20 am

ouch ...is this going to rock the boat globally...buying into the old metrics..
Get out your popcorn.

Japan Initiates Bold Bid to End Years of Tumbling Prices
By Ben Werschkul, Channon Hodge, Pedro Rafael Rosado, Erica Berenstein and Alyssa Kim

Japan’s Bet on Reignition: The Times’s David Gillen on why Japan’s central bank is acting now to stem years of deflation.
By HIROKO TABUCHI
Published: April 4, 2013

TOKYO — Haruhiko Kuroda, the new governor of the Bank of Japan, delivered on his promise to drastically change Japan’s economic policy to end a long, debilitating era of deflation.

Haruhiko Kuroda, the new governor of the Bank of Japan, laid out the new monetary policy at a news conference in Tokyo.

The nation’s central bank announced on Thursday that it would double the amount of money in circulation and try to produce annual inflation of about 2 percent. “This is monetary easing in an entirely new dimension,” Mr. Kuroda said after the bank’s decision


more

http://www.nytimes.com/2013/04/05/busin ... ml?hp&_r=0
Travel photos > https://500px.com/macdoc/galleries
EO Wilson in On Human Nature wrote:
We are not compelled to believe in biological uniformity in order to affirm human freedom and dignity.
User avatar
Macdoc
THREAD STARTER
 
Posts: 17156
Age: 73
Male

Country: Canada/Australia
Australia (au)
Print view this post

Ads by Google


Re: Japan takes a big gamble....

#2  Postby Steve » Apr 05, 2013 2:26 am

As I understand MMT the risk is if that money flows overseas. If it is used in the domestic market it will probably be OK, but if it becomes payable outside Japan they will have a problem.
As your desire is, so is your will.
As your will is, so is your deed.
As your deed is, so is your destiny
Blue Mountain Center of Meditation
User avatar
Steve
RS Donator
 
Posts: 6908
Age: 66
Male

New Zealand (nz)
Print view this post

Re: Japan takes a big gamble....

#3  Postby Ihavenofingerprints » Apr 05, 2013 2:48 am

If they do it in stages then they can simply abort the idea if that starts happening.
User avatar
Ihavenofingerprints
 
Posts: 6903
Age: 28
Male

Australia (au)
Print view this post

Re: Japan takes a big gamble....

#4  Postby jamest » Apr 06, 2013 8:57 pm

What are the pros and cons of deflation? And exactly when does deflation become a problem that needs resolving?
Il messaggero non e importante.
Ora non e importante.
Il resultato futuro e importante.
Quindi, persisto.
jamest
 
Posts: 18548
Male

Country: England
Jolly Roger (arr)
Print view this post

Re: Japan takes a big gamble....

#5  Postby Sovereign » Apr 07, 2013 1:49 am

jamest wrote:What are the pros and cons of deflation? And exactly when does deflation become a problem that needs resolving?


I was under the impression that deflation caused consumers not to spend because why spend when your dollar is worth more tomorrow than it is today.
Sovereign
 
Posts: 2989
Male

United States (us)
Print view this post

Re: Japan takes a big gamble....

#6  Postby Ihavenofingerprints » Apr 07, 2013 2:51 am

jamest wrote:What are the pros and cons of deflation? And exactly when does deflation become a problem that needs resolving?



Deflation is simply the price of goods in the economy going downwards year to year.

So if prices are going downwards, there is less demand for products. Or there is too much supply.

Generally it is the former though. And if deflation continues it hurts almost everyone involved (ie: companies/employees/shareholders).

I don't know if you can put a number on when it becomes a problem. But a long term outlook for deflation is undoubtedly a problem, once you have that you should start trying to do something.

Generally governments try to keep inflation at about 2-3% a year. Higher inflation generally means higher employment, but too much inflation would result in little economic growth.
User avatar
Ihavenofingerprints
 
Posts: 6903
Age: 28
Male

Australia (au)
Print view this post

Re: Japan takes a big gamble....

#7  Postby jamest » Apr 07, 2013 10:09 am

Ihavenofingerprints wrote:
jamest wrote:What are the pros and cons of deflation? And exactly when does deflation become a problem that needs resolving?



Deflation is simply the price of goods in the economy going downwards year to year.

So if prices are going downwards, there is less demand for products. Or there is too much supply.

Can deflation not have the opposite effect? I mean, if consumers see that products are coming down in price, do they not think "let's buy X before its price goes up again"? Or do they just hang on, absurdly waiting for the price of X to approach zero?

I guess there are precedents to confirm what you say, not least in Japan, but the situation seems rather odd to me - people refusing to spend their money until products become more expensive. :scratch:
Il messaggero non e importante.
Ora non e importante.
Il resultato futuro e importante.
Quindi, persisto.
jamest
 
Posts: 18548
Male

Country: England
Jolly Roger (arr)
Print view this post

Ads by Google


Re: Japan takes a big gamble....

#8  Postby GT2211 » Apr 08, 2013 2:22 am

jamest wrote:
Ihavenofingerprints wrote:
jamest wrote:What are the pros and cons of deflation? And exactly when does deflation become a problem that needs resolving?



Deflation is simply the price of goods in the economy going downwards year to year.

So if prices are going downwards, there is less demand for products. Or there is too much supply.

Can deflation not have the opposite effect? I mean, if consumers see that products are coming down in price, do they not think "let's buy X before its price goes up again"? Or do they just hang on, absurdly waiting for the price of X to approach zero?

I think it depends on their expectations of the future price level. However if they expect that the fall in prices is going to be short lived it would open the opportunity for arbitrage and if people started increasing their consumption it would start pushing prices back up.


I guess there are precedents to confirm what you say, not least in Japan, but the situation seems rather odd to me - people refusing to spend their money until products become more expensive. :scratch:


I would add that think about the effects of debt in the short/medium run. You have a house on a 30 year mortgage at 6% nominal interest rate with 2% inflation. That means the real rate of interest is 4%. If inflation falls to -2% now you have a 8% real interest rate.

Your mortgage amount is fixed so as each dollar becomes worth more your mortgage becomes effectively more difficult to pay off. For businesses they see falling revenue so they are going to require falling labor costs as well.
gt2211: Making Ratskep Great Again!
User avatar
GT2211
 
Posts: 3089

United States (us)
Print view this post

Re: Japan takes a big gamble....

#9  Postby Ihavenofingerprints » Apr 08, 2013 6:18 am

jamest wrote:
Ihavenofingerprints wrote:
jamest wrote:What are the pros and cons of deflation? And exactly when does deflation become a problem that needs resolving?



Deflation is simply the price of goods in the economy going downwards year to year.

So if prices are going downwards, there is less demand for products. Or there is too much supply.

Can deflation not have the opposite effect? I mean, if consumers see that products are coming down in price, do they not think "let's buy X before its price goes up again"? Or do they just hang on, absurdly waiting for the price of X to approach zero?


You hit the nail on the head. "lets buy X before it goes up again". The key point is that you have to have expectations that the price is going up again in the future to behave like this (obviously in Japan recently there isn't much of an expectation). And yes, when some factor changes and the future outlook seems good, then people start buying again and the prices rise by themselves basically.

GT's example of a mortgage is a good one. (as to why it's a problem)
User avatar
Ihavenofingerprints
 
Posts: 6903
Age: 28
Male

Australia (au)
Print view this post

Re: Japan takes a big gamble....

#10  Postby susu.exp » Apr 08, 2013 8:49 am

jamest wrote:on not have the opposite effect? I mean, if consumers see that products are coming down in price, do they not think "let's buy X before its price goes up again"? Or do they just hang on, absurdly waiting for the price of X to approach zero?

I guess there are precedents to confirm what you say, not least in Japan, but the situation seems rather odd to me - people refusing to spend their money until products become more expensive. :scratch:


Let´s look at this from the perspective of whether capital is used productively.
Let´s say there is a public company which retains its value. It makes neither a profit or a loss as it goes on, producing something or supplying a service, emplyong people etc. Now you are faced with the two options of putting your capital into that company or putting it under your pillow as cash.
If the infaltion rate is 0, there´s no difference between the two (except that in one case it does help to let the company do whatever it does).
If there is 2% inflation, then investing in the company is better for you - it retains it´s value, while that of money drops, netting you a 2% advantage if you are invested there.
If there is 2% deflation, then putting the capital under your pillow is better for you, the money gains value, while the company doesn´t.

If a company increases it´s value by 1%, it´s still better to hold cash than their stock when there´s 2% deflation. Essentially deflation sets a higher bar for investments. Another decision one could face is whether to start a business. Lets say you want to capitalize this by taking out a loan at 5%. Under no inflation you would need to turn a profit of 5% to break even and keep the business afloat. Under 2% inflation you only need 3%, but under 2% deflation you need 7%. This means that setting up a business becomes harder. In real life that´s compensated by the interest rates the banks charge to some degree, but it simply moves the issue - if giving out loans catches lower interest rates, it means that banks won´t really want to give them out.

To sum that up: Deflation disincentivizes the productive use of capital, while incentivizing a non-productive use. The problem for most people is: They can´t easily convert their capital to money. If I look at myself my main asset is my labour. I can´t get somebody to pay me in advance for let´s say now until retirement and then profit from deflation (and under deflation as capital is becoming less productive it makes it harder to even sell my labour right now). But of course somebody who holds stock can liquidate it easily.
susu
susu.exp
 
Posts: 1690

Print view this post

Re: Japan takes a big gamble....

#11  Postby jamest » Apr 08, 2013 12:39 pm

Thanks for those responses. All very informative for this economics dummy.
Il messaggero non e importante.
Ora non e importante.
Il resultato futuro e importante.
Quindi, persisto.
jamest
 
Posts: 18548
Male

Country: England
Jolly Roger (arr)
Print view this post

Re: Japan takes a big gamble....

#12  Postby Macdoc » Apr 08, 2013 1:05 pm

My hand is too sore from a mcycle fall for an extensive comment but I've run a company forever in a deflationary mode ( computers/electronics ) for decades and it's difficult.
However, every year value for money for the buying public increases every year and no metric measures that properly.

Deflation can make things far more affordable...banks don't like it as their securitization falls or fails outright.

The world is in deflation mode because of the ridiculous property bubble.
There are two routes.....values deflate, banks go under, economies dependent on growth and expansion don't have good optics.

In the meantime the more steady state economy motors along trying to offer more for less.

At one time that was a good thing.
What happened?

Banks want the security of inflation on their assets.

Fuckem I say.

I want more for less, in particular shelter costs

Cuz the other route of the bubble is wages and prices catching up ( inflation ) and while the latter may be occurring - the former is not and leading to a lot of labour strife.

Haircut the financial industry and quit trying to pump up a deflating housing bubble. Get back to real wealth creation instead of catering to speculation. Hell farmers are being put out of business because of stupid property values and the inflated property taxes that go along with them.
Those values do NOT produce more wheat. They feed a fucked financial system and the hangers on that go with it.

Obama is shrinking government ....that's good....that's deflation as well.
Deflation impacts are uneven but the banks could hurt the most ...do you care???

Deflation now makes solar panels cheap enough to kill coal....you should care.

More value for less money is a good thing and getting rid of speculative processes that depend on inflation would go a long way to rebalance values.

But it will be and is a painful process....no Virginia there is no Freedom 55.

Japan is a special case partially because of the carry trade and other factors ( savings ) unique to their culture.
If this technique works to devalue the yen it will help their manufacturing and force more self reliance ( ie away from say imported oil ).

It's a gamble.
Travel photos > https://500px.com/macdoc/galleries
EO Wilson in On Human Nature wrote:
We are not compelled to believe in biological uniformity in order to affirm human freedom and dignity.
User avatar
Macdoc
THREAD STARTER
 
Posts: 17156
Age: 73
Male

Country: Canada/Australia
Australia (au)
Print view this post


Return to Economics

Who is online

Users viewing this topic: No registered users and 1 guest