Japan's deflation problem

Discussion in 'Economics' started by polpolik, Dec 18, 2009.

  1. Ok, I'm obviously oversimplifying things but Japan has been struggling and fighting deflation and threats of it for a while now.

    Isn't it easier for them, seriously, to just print a boatload of money, or cut taxes to almost zero, and trigger an inflationary cycle then just turn off the spigot when it has reach its full effect?

    Inflation is just too much money chasing too few goods right? so basically, give people lots of money, by printing money or lowering tax for 1-2 years to virtually zero, then people will have more disposable income to spend on anything and everything.

    i know it's an oversimplification but they've been battling the big D for a long time and still can't seem to get out of its shadow.
  2. Japans real estate bubble puts our to shame. Peak bubble values were 10 to 50 TIMES original prices.

    The amount of debt required to support those prices is astronomical. Consumers and business couldn't service anywhere close to that debt level, hence the entire thing collapsed. Just like the US real estate bubble, lenders justified unserviceable loans to borrowers on the premise that property values would appreciate forever. Where's the risk in floating a loan to an unqualified borrower when even after repossession, the property is worth 20-30% more than the loan value?

    Deflation after a bubble is not a bad thing. It's a HEALTHY thing.

    Bubble prices are unsustainable. Consumers and business can't support them. It's only good for property owners who unload at the top. It screws new entrants (makes homes less affordable), and builders (who would otherwise build new homes but nobody can afford them at artificial prices)

    Japans deflation is totally healthy and necessary. Their real estate and stock markets were extremely overvalued and slowly, returned to mean - despite massive Government intervention to maintain bubble price levels to save banks. Sound familiar? Exact same scenario playing out in America.

    Also notice, the oft-hyped "deflationary spiral" boogie-man never appeared in Japan. Consumers and business never stopped their purchase of cars, computers, homes or big ticket items. And production never dramatically collapsed. Even though persistent deflation lasted for nearly 2 decades. Another lie pushed on us by Wallstreet and their idiots in Media. "Catastrophic Deflation". It's a fairy tale to justify endless money printing. It's never happened in a fiat-money economy. Ever.

    Of course, after too many bubbles, prices get so inflated that a return to mean is brought about by a Great Depression and total restructuring of the economy. But that has to happen, regardless. There's no way around it.
  3. Daal


    I guess in 2070 the austrians will proclaim 'Japan adjustment is done, you guys will rock from now on' :D
  4. 2070 is about right if the BOJ continues to prop their banks and real estate market. :cool:

    What's the alternative ?

    Keynesianism doesn't work to support bubble prices. Japan already tried that.

    Their intervention just stretched-out the problem over several (lost) decades instead of allowing prices to correct quickly and naturally. Recessions (and depressions) are necessary to clean out excessive debt and inflated prices brought about euphoric spending bubbles. That's life.

    If we want bubbles, we have to pay for them with big recessions and Depressions. There's no way around it.
  5. Who is this "we"? You got a mouse in your pocket?
  6. Little cranky today ?
  7. Daal


    The alternative is to create positive inflation(1-3%) which the BOJ has failed to do. Reflation worked in a 26 countries sample during the great depression and is working now in the US
  8. at current interest rate, they're still not creating inflation. Could they just cut income taxes to almost zero? How hard is it to inflate? just keep printing and devaluing their currency I guess.

  9. The question shouldn't be: Why does Japan still suffer from deflation? The question should be: Where's the huge wave of hyperinflation? :cool:
  10. Yea, after prices returned to 1925-levels !

    The economy always rights itself. Inflation *can* resume after prices return (read: deflate) to pre-bubble levels.

    Inflation hasn't worked for Japan because their inflated real estate prices, propped banking sector, and residual mortgage debts are a huge drag on national income, and therefore, new borrowing.

    Inflation doesn't work unless lenders lend and borrowers, borrow. Bubbles stifle future borrowing because consumers take on way too much debt NOW, that gets paid back later in a recessionary economy. Lenders, as we've seen, can leverage themselves up so much during the bubble, future loan making proves too risky. Hence, the liquidity trap and viscous circle. etc.
    #10     Dec 18, 2009