Based on my limited but growing knowledge of Austrian economics, it seems like we are heading down a similar path to that of Japan in the '90s. Yes, there are differences, but there are big similarities: real estate bubble, broken banking system; deflation; declining GDP, etc--plus a government that is using a Keynesian framework of fiscal and monetary stimuls to try and fix the problems. This suggests to me that we in for a multiyear period of negative or stagnant growth like Japan underwent in the 90s.
What I'm wondering is did any businesses do well in Japan that we also might expect to do ok in the US over the next decade? Of course the next year or two at the minimum is going to be bad for everyone, but I would think someone is going to benefit from all this stimulus even though the country as a whole won't.
Any thoughts or pointers to reading material will be greatly appreciated.
vp3434: What Happened In Japan?
What Happened In Japan?
vp3434: Based on my limited but growing knowledge of Austrian economics, it seems like we are heading down a similar path to that of Japan in the '90s. Yes, there are differences, but there are big similarities: real estate bubble, broken banking system; deflation; declining GDP, etc--plus a government that is using a Keynesian framework of fiscal and monetary stimuls to try and fix the problems. This suggests to me that we in for a multiyear period of negative or stagnant growth like Japan underwent in the 90s. Any thoughts or pointers to reading material will be greatly appreciated.
Related: http://www.cafehayek.com/hayek/2009/02/what-can-we-learn-from-japan.html
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that link...jesus
it's bad enough when you think politicians are just ignorant...but the guy mentioned in the article was a financial attache in japan at the time and is now advocating the same thing here. It's the grownup version of sticking your fingers in your ears and yelling "LALALA I CAN'T HEAR YOU".
I'm not surprised no other civilizations have made first contact. If i was out exploring my rule would be not to initiate contact with any species that hadn't figured out the non-aggression principal yet.
I have a question about Japan... Was there a lose monetary policy in Japan prior or during real estate boom or something else ("saving glut" theory or something similar)? Any links are appriciated, I googled but cannot find something usefull.
I have not read these:
http://mises.org/journals/scholar/weingarten.pdf
http://mises.org/journals/scholar/cochran2.pdf
but they may be good.
This is how I understand it. Japan's recession had nothing to do with the fact that Japanese had been saving 30% of their incomes annually. To believe this is just a Keynesian arguement for how the economy is stimulated. Japan had a recession because the US dollar was devalued against the Yen by the Plaza Accord in 1985, to stimulate US exports that had slumped because of US dollar strength following high interest rates set by Volcker & Regan's strong dollar policy. This gov't intervention in the economy created a strong Yen which killed the Japan export market in order to stimulate US exports. Then the Japanese attempted to reduce interest rates to weaken the Yen to get exports going. This was very inflationary and created a real estate boom & much speculative malinvestment during a bubble economy. When the Japanese raised interest rates to cool the economy it busted the bubble and everything came crashing down. Rather than let the recession correct the bubble and clean out the bad investments, they instead injected billions in stimulus to attempt to reflate the failed investments. It took a decade for their economy to correct itself because gov't intervention tried to prevent its correction.
azazel: I have a question about Japan... Was there a lose monetary policy in Japan prior or during real estate boom or something else ("saving glut" theory or something similar)? Any links are appriciated, I googled but cannot find something usefull
I have a question about Japan... Was there a lose monetary policy in Japan prior or during real estate boom or something else ("saving glut" theory or something similar)? Any links are appriciated, I googled but cannot find something usefull
Yes there was loose monetary policy in Japan azazel.
When we look at the case of Japan, it represents a classic example of the Austrian theory of the business cycle. Below I show Japan’s interest rates from February of 1980 to August of 1990:... is a secular trend of lower interest rates from early 1980 through early 1989. As one might expect, the monetary stock increased at a year-over-year rate of 9.07% as depicted below: ...
theory of the business cycle. Below I show Japan’s interest rates from February of 1980
to August of 1990:...
is a secular trend of lower interest rates from early 1980 through
early 1989. As one might expect, the monetary stock increased at a year-over-year rate
of 9.07% as depicted below: ...
http://mises.org/story/1099 is also a good source, contrasting Austrian, Monetarist and Keynesian views of the recession.
*EDIT: Looks like bearing beat me to it.
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Wow, that was quick...
Thnx a lot. I've read a lot about austrian theory lately, so I was aware about what Japan did trying to exit depression. Somehow I couldn't find something useful about period that preceeded it.
Another thing to add..
We may appear to be on the same track that Japan took, but we're a different train. Japan had savings and could afford to create stimulus packages. When gov't borrows from its citizens to spend on its citizens it only moves around the wealth. The gov't then pays back its borrowings from its citizens to its citizens with interest. Wealth again gets shuffled around internal to the country. The US however has so savings to tap. The US gov't has to ask the rest of the world to lend us their savings to stimulate us. The world is going through some tough times now and other countries should be saving, reinvesting and spending their savings on their own countries.. not givint it to US gov't so we can build bridges we don't need. Down the road the wealth of the American citizens will have to be transfered outside the US to pay for the incurred debt to "stimulate". If the US gov't decides to print the money to pay back its creditors then that is the same as defaulting. Or the citizens may revolt and force the gov't to default. But there's no way we can ever pay back this debt. That means dollar devaluation and higher interest rates some day and more stagflation.
Japan's Saving Rate
See if you can spot the correlation between the two. Now guess when you'd expect GDP growth to recover...
...oh wait, it doesn't. MAYBE IT HAS SOMETHING TO DO WITH THE LOWEST INTEREST RATES IN THE WORLD.
Let's take one more look at this...
Check my blog, if you're a loser
Most people are now expecting high inflation, it's only a matter of time. However, in a time of deflation, the best course would definitely be to short other major currencies against the dollar. You can easily leverage up 400:1 in the forex market and make big bucks off of a strategy like that.
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Most people are now expecting high inflation
Scary you say that considering one of the driving factors that creates price inflation is the expectation of a weaker future dollar.
The currency traders that I've talked to know that the long term fundamentals of the dollar are weak. It's only short and possibly medium term fundamentals that are keeping the dollar up. I hope that the dollar doesn't inflate too much and remains liquid so I can profit off of it. The forex markets haven't been too friendly recently in terms of trending. My predictions are a strong EUR (due to flight from GBP), NZD (due to strict monetary policy), and AUD (probably the best central bank in the world, ATM).
EUR is weak also... Since exchange rate is based on relative strength, I'm not sure dollar is overvalued now. Basically, EU banks are in worse shape than US banks, EU economy is also hurt more and there is much more regulation and state interference in economy in EU than in the USA (recovery will be weaker than in USA). That's excluding 'systematic risk' of panicking flight from dollar because of sudden hyperinflation caused by excessive monetary pumping. But EU does it too.
GBP is IMHO undervalued now against EUR based on PPP, as USD was undervalued aginst EUR a year ago. There was a mania of flying for shopping to the New York here in Europe last year. Now tourist from EUR area have taken London. My five cents.
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Do we think about what is really done to improve the situation in those places by the organizations that are founded to interfere where it is needed and secure the lives of innocent people? Do we engage in dialogues only when we are the ones being endangered, or do we have a conscience that says that this world is a home to us all, and every nation suffering should be given a helping hand? We should understand that if some conflicts do not effect us directly, indirectly we are all effected as a species that seems to work hard against its own survival. I found some very interesting thoughts on this subject in the book called The Age of Nepotism, you should look it up and read about current affairs in the world from the perspective of Iranian American entrepreneur traveling through the Balkans. There is also a site www.theageofnepotism.com
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