The Recovery Thread

[Trajan]

I have read several pieces by Richard Koo. He seems to be the most vocal proponent of Keyneisanism, arguing that Japan has been a success, not a failure. Without the Keynesian response, Koo argues, Japan would have been much worse off.

15-20 years of what we have seen is success? Okay, so what does defeat look like, empty shelves circa March 45?

Koo's argument is that it would have been much worse. Debt deflation - like we are facing here - would have collapsed the Japanese economy. Instead, Japan was able to avoid the pernicious affects of deflation and maintain one of the highest standards of living in the world.

I don't know if he is correct or not. I think "something bad" is coming in Japan this decade. But that is his argument.

you are prescient amigo or just well educated and good at your job.


* JANUARY 5, 2011

Tokyo's Fiscal Reckoning
Japan is running out of time to choose how it handles the crunch.


s nip-
In other words, Japan is about to run into the late economist Herb Stein's obvious but oft-overlooked law, which states that if something cannot continue it won't. The crunch is coming in one form or another.

If Mr. Kan or his successor cannot convince legislators to put entitlement spending on a sustainable track, despite the inevitable anger of retirees who will see their spending power cut back, all of Japan will have to suffer an even more catastrophic loss as taxes rise to confiscatory rates. That would reveal Mr. Kan's increase in the consumption tax for what it is, rearranging the deck chairs on the Titanic.

thats the end of the article the rest is at-

Opinion: Tokyo's Fiscal Reckoning - WSJ.com

 

[Trajan]

Trajan, a simpler way to look at what is going on is to see China, Japan and Germany relying on the US and to a much lesser extent Canada, Australia, New Zealand and the British Isles as consumer of last resort and provider of transparent financial investment vehicles. That's why three of the four deepest capital pools are English speaking: Chicago, London, New York and Tokyo. For example the paperwork for shipping from China to Japan is usually handled out of London.

I understand the above.

however....


[/quote]
With English speaking deleveraging fewer goods and services can be exported and less money can be invested in Real Estate (note Sauerkraut's comments on housing) and for that matter equity investing also becomes more chancy. Tokyo is one of the big four capital markets because it is relatively transparent compared to other non-English speaking countries. In China only tracking stocks for state owned and/or controlled enterprises have sufficient volume to be worth buying. Germany has other problems mostly dealing with an unusual business model of family firms and industrial banks. Nothing shady about it but the capital structure of businesses are sufficiently different from the English law model that non-natives do not know how to price the stocks and bonds. Japan has similar problems but it goes much further in trying to make its market more Gaijin friendly.

If English language consumption goes down the sideeffects in the next three biggest economies will be drastic.[/QUOTE]

I Think I get your point here....operative word think. Can you make this more clear to a relative neophyte? thank you.

 

[william the wie]

Sorry the British Empire and the American ascendancy made English law the normal method of computing Asset values over the past 200 years.

Think of Canada and the US as Russia and Siberia with warm water ports and defensible borders. Access to Russian crops, herds and minerals has driven old world history for at least 4,000 years and has been recorded in such works as the Iliad.

Since 1763 the new and improved Russia has been English speaking. Therefore the language of shipping, grains, herds and minerals has been disproportionately English since then. Australia and South Africa later added to this advantage. All industry and financial wealth is based on access to raw materials. With the fall of the European empires after WWII this advantage increased.

So, wealth more easily flows to English speaking countries like Botswana and Singapore than to more resource rich countries like Brazil and the Congo.

That means that when you are looking to invest you go to the English language capital markets. Sort of like going to Houston for oil equipment or using a silver spoon instead. Them that has gets.

 

[Trajan]

Ok. I understand the common law asset calc.. explanation, so they , that is the others calc. according to that measure, but its not their primary language or they are heavily anglicized , so we have a built in advantage because this is so in say capital markets etc.?

 

[william the wie]

Ok. I understand the common law asset calc.. explanation, so they , that is the others calc. according to that measure, but its not their primary language or they are heavily anglicized , so we have a built in advantage because this is so in say capital markets etc.?

Exactly. Eating is fundamental and even though Russia has the biggest and best grain and mineral resources in the world but market access is through the Kattegut and Bosophorus both of which are easily swum and neither of which is in Russian hands. Bad management of those resources is traditional because those outlets regularly get blocked by weather or war to give a huge boom and bust cycle. Russians have dug canals and built railroads to try to overcome this problem but geography is against them. They are slowly using canals such as the Manyc (Manych) seaway to raise the Caspian sea level to increase their productivity and improve their barge network but that does not increase their throughput that they do not control.

The alternative to Russia is Anglo North American food. Or as LBJ put it "Grab 'em by the short and curlies and their hearts and minds will follow."

What is the unexplained oddball is Brazil. Food output, barge network and resource access is third best in the world so they should have a GDP about the size of Germany's but don't. Why no one knows.

 

[loosecannon]

Two key economic reports from private analysts today point to big improvement on the jobs front, although the stock market appears to be waiting on the sidelines for Friday's official monthly report from the Labor Department.

The global outplacement consultancy Challenger, Gray & Christmas says downsizing activity in 2010 fell to its lowest level since 1997. Employers announced plans to eliminate less than 530,000 positions. The company says planned layoffs of 32,004 in December represent a 34% drop from November.

The ADP National Employment Report finds private-sector employment increased by 297,000 from November to December -- a pace it calls "well above what is usually associated with a declining unemployment rate."

Early response from Wall Street was cautious, as investors apparently prefer to wait for Friday Labor Department statistics.

The Montreal Gazette calls the ADP figure "eye-popping" but quotes one analyst as noting that the survey is not always an accurate guide to the official number. Still, the Gazette finds a consensus among analysts that "this ADP reading is just too big, and too positive, to ignore."

Two key economic reports show layoffs tumbling, private jobs soaring -

We have clearly passed the trough in the latest business cycle.

I don't expect a robust recovery but we are out of the rough and onto the green.

 

[CrusaderFrank]

Harding, Coolidge and Mellon had the correct answer to deflation. let the assets reprice to market so recovery can begin. In under 2 years the economy went from 12% unemployment to 4% and ended at about 1 or 2% when Coolidge was finished.

Like Hoover and FDR, Obama kept trying to avoid the obvious and has turned a recession into a worldwide calamity with whole US States and sovereign nations about to go under.

Yeah, some recovery.

 

[JakeStarkey]

Very myopic thinking, Frank. 1919 to 1921 was not the same model or econom issues from 1929 to 1933.

 

[CrusaderFrank]

Very myopic thinking, Frank. 1919 to 1921 was not the same model or econom issues from 1929 to 1933.

Yes you are correct as usual.

Smart people like Coolidge and Mellon who understood and respected the US economy ran the government until 1929. Then the Central Planners like Hoover and FDR took control and gave us the worst civilized economy in human history

Are you saying things improved after 1933?

 

[loosecannon]

are you saying that FDR "caused" the Great Depression?

 

[JakeStarkey]

Frank has no conception of how economics in the modern world, either in socialism or capitalism, work. He proves that here on a daily basis.

 

[CrusaderFrank]

Frank has no conception of how economics in the modern world, either in socialism or capitalism, work. He proves that here on a daily basis.

Jake, please keep digging.

Please explain what you meant by comparing 1921 to 1929.

Take your time. Google.

 

[Toro]

Harding, Coolidge and Mellon had the correct answer to deflation. let the assets reprice to market so recovery can begin. In under 2 years the economy went from 12% unemployment to 4% and ended at about 1 or 2% when Coolidge was finished.

Like Hoover and FDR, Obama kept trying to avoid the obvious and has turned a recession into a worldwide calamity with whole US States and sovereign nations about to go under.

Yeah, some recovery.

Two problems.

First, the 1919-1920 recession and the Depression were two totally different recessions. The recession after WWI was caused by the withdrawal of government war spending, which precipitated a boom during the war. For example, corporate profits were at all time highs in 1916-17, and never reached those highs until the 1950s. The economy merely readjusted to the cutback in war spending. From 1920 to 1929, average incomes stagnated while inequality skyrocketed. To keep up, people increased debt to drive consumption. Increased debt levels found its way into the stock market, which crashed and contributed to the Depression. Sounds familiar, doesn't it?

Second, the Depression was all about deflation. The policies of Hoover and the Fed were massively deflationary. The difference between the deflation after WWI and the Depression was the deflation of 1919-1920 was a reaction to massive inflation of the war while deflation during the Depression was caused by a collapse in debt and a withdrawal of money from the financial system.

 

[Toro]

More good news today.

First, ADP employment was +297,000, meaning that the survey estimates 297,000 private sector jobs were added during December. This is the highest level in years.

Econoday Report: ADP Employment Report*January*5,*2011

Next, the ISM services index came in at 57.1, well ahead of expectations, and also the highest level in years. A reading above 50 implies expansion. A reading below 50 implies contraction.

Econoday Report: ISM Non-Mfg Index*January*5,*2011

The economy is recovering. The recovery is weak, but it is growing.

 

[CrusaderFrank]

are you saying that FDR "caused" the Great Depression?

Is English not your first language? I said Hoover started it and FDR exacerbated it

 

[Ravi]

Gas prices are going up on speculation that the economy is improving.

 

[CrusaderFrank]

Harding, Coolidge and Mellon had the correct answer to deflation. let the assets reprice to market so recovery can begin. In under 2 years the economy went from 12% unemployment to 4% and ended at about 1 or 2% when Coolidge was finished.

Like Hoover and FDR, Obama kept trying to avoid the obvious and has turned a recession into a worldwide calamity with whole US States and sovereign nations about to go under.

Yeah, some recovery.

Two problems.

First, the 1919-1920 recession and the Depression were two totally different recessions. The recession after WWI was caused by the withdrawal of government war spending, which precipitated a boom during the war. For example, corporate profits were at all time highs in 1916-17, and never reached those highs until the 1950s. The economy merely readjusted to the cutback in war spending. From 1920 to 1929, average incomes stagnated while inequality skyrocketed. To keep up, people increased debt to drive consumption. Increased debt levels found its way into the stock market, which crashed and contributed to the Depression. Sounds familiar, doesn't it?

Second, the Depression was all about deflation. The policies of Hoover and the Fed were massively deflationary. The difference between the deflation after WWI and the Depression was the deflation of 1919-1920 was a reaction to massive inflation of the war while deflation during the Depression was caused by a collapse in debt and a withdrawal of money from the financial system.

How odd that the deflation after an entire World War ended in a relative eye-blink as pro business Presidents let the economy work its way out of it while the Hoover/FDR Soviet style Central Planning turned it into a decade long rout only ending with the start of another world war.

And again we need to question the actions of the Fed under Hoover as opposed to under FDR and how starting a trade war in the middle of a recession, and not allowing wages to fall was not the best idea anyone ever had on letting a recession work its way out.

 

[loosecannon]

are you saying that FDR "caused" the Great Depression?

Is English not your first language? I said Hoover started it and FDR exacerbated it

Is the USA not your first nation?

Hoover didn't cause the depression dum dum. Ever hear of "Black Tuesday"?

 

[Toro]

How odd that the deflation after an entire World War ended in a relative eye-blink as pro business Presidents let the economy work its way out of it while the Hoover/FDR Soviet style Central Planning turned it into a decade long rout only ending with the start of another world war.

Totally different types of deflation. Deflation caused by a readjustment after an inflationary boom is very different than deflation caused by a collapse of credit.

And again we need to question the actions of the Fed under Hoover as opposed to under FDR and how starting a trade war in the middle of a recession, and not allowing wages to fall was not the best idea anyone ever had on letting a recession work its way out.

The Fed sucked. Smoot-Hawley sucked. NIRA sucked.

But deflation was part of the problem during the Depression, not part of the solution.

 

[Toro]

are you saying that FDR "caused" the Great Depression?

Is English not your first language? I said Hoover started it and FDR exacerbated it

Is the USA not your first nation?

Hoover didn't cause the depression dum dum. Ever hear of "Black Tuesday"?

Hoover didn't cause the Depression. That's conservative revisionism.

Capitalism didn't cause it either, but blaming Hoover isn't taken seriously by anyone outside of the far right-wing.