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Japanss Scary Lesson on Slashing Interest Rates

By someone else follow someone else   2013 Apr 25, 2:33pm 3,703 views   33 comments   watch   nsfw   quote   share    


http://www.bloomberg.com/news/2013-04-25/zero-rates-are-harder-to-escape-than-the-imf-thinks.html

Japan is on its sixth central-bank governor since its bubble burst in 1990, and like his predecessors, Haruhiko Kuroda is doubling down on quantitative easing. Why? Politicians, bankers, investors and businesspeople alike get addicted to free money all too easily and clamor for more. Once central banks start embracing assets such as corporate debt, commercial paper, mortgage-backed securities, exchange- traded funds, real-estate trusts and the like, monetary officials tend to get stuck. Thats especially so in nations carrying large, and growing, debt burdens.

#housing

1   C Boy   ignore (0)   2013 Apr 26, 1:47am     ↓ dislike (0)   quote   flag        

So the article fails to mention anything scary happening to Japan in the past 23 years.

2   everything   ignore (1)   2013 Apr 26, 12:13pm     ↓ dislike (0)   quote   flag        

The fed won't be raising rates, ever, we are in an extended deflationary period, much like Japan. Once money is exclusively cheapened it stays that way, as it always has before. This is why hard assets like land, RE, gold, energy, collectibles, etc. are safe havens.

3   epitaph   ignore (0)   2013 Apr 26, 12:29pm     ↓ dislike (0)   quote   flag        

C Boy says

So the article fails to mention anything scary happening to Japan in the past 23 years.

Lost decade(2).

4   C Boy   ignore (0)   2013 Apr 26, 1:33pm     ↓ dislike (0)   quote   flag        

epitaph says

C Boy says

So the article fails to mention anything scary happening to Japan in the past 23 years.

Lost decade(2).

I don't think deflation is scary.

5   fedwatcher   ignore (1)   2013 Apr 26, 2:52pm     ↓ dislike (0)   quote   flag        

Roberto is right here. The Fed will hold down rates for many years. About 2016 the house of cards falls.

This is a false economy that can not hold together forever, yet it can for longer than most believe. Watch the 10-year rates. They have been below 1.7% before and can fall below 1%, but they can also rise.

No one knows the future and my guess at 2016 is just that, a guess.

6   C Boy   ignore (0)   2013 Apr 27, 2:06am     ↓ dislike (0)   quote   flag        

The top tax rate in 1944 was 94%.

7   someone else   ignore (0)   2013 Apr 28, 10:50am     ↓ dislike (0)   quote   flag        

C Boy says

I don't think deflation is scary.

I agree. Deflation is the friend of savers.

8   Reality   ignore (6)   2013 Apr 28, 12:35pm     ↓ dislike (1)   quote   flag        

The cycle of government spending, borrowing and taxation to pay back public debt is actually highly deflationary . . . simply because the borrowed money has to be paid back with interest. Even if the interest rate on public debt is low, the real return on government "investment" is even lower (e.g. wars, roads to nowhere, dead solar power companies, dead electric car companies, etc. all having negative returns), so the productive sectors of the economy would have to be taxed more in order to pay back the public debt principle and interest.

Money is not just base money, but also credit (and overwhelmingly credit money in our current financially system). That means real money supply has to include how much people are willing to borrow against their future productive income. The uncertainty (or certainty of loss) due to the future higher taxation to pay back rising public debt means people would have to plan on less against which they will be able to borrow. . . . that means monetary deflation gets worked into people's calculations and current reality even before the long time horizon arrives.

Gradual price deflation due to increasing supply of products and services is a good thing. e.g. electronics and computers. More and more human desires are met in that gradual price decline, while businesses are willing to invest more in the industries due to more and more new human desires are discovered as prices come down gradually.

9   C Boy   ignore (0)   2013 Apr 28, 12:39pm     ↓ dislike (0)   quote   flag        

robertoaribas says

C Boy says

I don't think deflation is scary.

I agree. Deflation is the friend of savers.

Not so much, as it turns out. Most "savers" actually need jobs and economic activity to not tap that savings. Deflation kind of kills that, savers need their money to eat and live...

Again, Japan has had deflation for 20+ years now. Japan does not have record unemployment. The Japanese economy is still trucking along.

There hasn't even been a Godzilla attack in years.

10   mell   ignore (4)   2013 Apr 28, 1:03pm     ↓ dislike (0)   quote   flag        

Reality says

Deliberate monetary expansion greatly benefit the leveraged players. That's why we have witnessed the drastic polarization of wealth distribution during this recovery (7% vs. 93%) and pretty much ever since the early 1970's when the USD became pure fiat currency.

Yep.

11   mell   ignore (4)   2013 Apr 28, 1:09pm     ↓ dislike (0)   quote   flag        

That's nonsensical - they do the same thing that the rentiers do because capital formation is not rewarded compared to leveraging the money in the stock or housing market. If they would stop that criminal QE bullshit then loaning money - either directly - or via bank accounts would become very lucrative and pay nice interest and it would be lent out to people who need it as the outlook of a safe return of let's say 5%-10% beats gambling in an even slightly deflationary stock or housing market.

12   mell   ignore (4)   2013 Apr 28, 1:12pm     ↓ dislike (0)   quote   flag        

Plenty of countries had great economic stability, quality of life and employment throughout years of slight deflation to max. slight inflation, look no further than Germany or Switzerland.

13   mell   ignore (4)   2013 Apr 28, 2:27pm     ↓ dislike (0)   quote   flag        

marcus says

With devaluation, it hits us all. Really it hits the poor, middle class, and rich who don't have enough real assets, the hardest.

That makes no sense, are you talking about asset or currency devaluation (devaluation is usually associated with currency)? Furthermore the government's job is to keep taxes as low as possible for everybody, prevent monopolies by not introducing and signing off on crony capitalist bills, not to pick winners and losers and preserve the people's liberty.

14   mell   ignore (4)   2013 Apr 28, 2:47pm     ↓ dislike (0)   quote   flag        

Btw. Switzerland doesn't even have a capital gains tax (for personal/non-corporate sales) with the exception of some levied by the cantons. Not very socialistic.. ;)

15   ad   ignore (0)   2013 Apr 28, 3:09pm     ↓ dislike (0)   quote   flag        

marcus says

With devaluation, it hits us all. Really it hits the poor, middle class, and rich who don't have enough real assets, the hardest.

How does this apply to a senior citizen who is on fixed income? If someone is earning $1,400 a month for 5 consecutive years, and consumer prices decrease 3% annually during that period, then would not the senior citizen have more buying power ? Of course this is based on no other source of income being available to the senior citizen.

16   C Boy   ignore (0)   2013 Apr 28, 11:30pm     ↓ dislike (0)   quote   flag        

adarmiento says

marcus says

With devaluation, it hits us all. Really it hits the poor, middle class, and rich who don't have enough real assets, the hardest.

How does this apply to a senior citizen who is on fixed income? If someone is earning $1,400 a month for 5 consecutive years, and consumer prices decrease 3% annually during that period, then would not the senior citizen have more buying power ? Of course this is based on no other source of income being available to the senior citizen.

Governments would be the big winner as tax revenues would increase nominally as the year progressed.


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