Fed cuts rates; crisis over?

boddhisatva kbevans at panix.com
Fri Oct 23 21:40:32 PDT 1998

To whom...,

A while ago C. Redmond responded to me in the following exchange:

On Mon, 19 Oct 1998, boddhisatva wrote:

> First, you'll have to deal with the fact that American industrial

> capital is now younger on average than Japanese capital for the first time
> in a very long time.

But only because Japan's industrial base, at 26% of their economy, is much bigger than the US industrial base, which is only 18% of our economy or so -- and foreign companies own an eighth of that 18%, whereas foreign ownership of Japanese industries is very small indeed.

-- Dennis

I'm sorry C. Dennis, but this doesn't hold up. We are talking about a very recent change in trend. The argument that Japan has been accumulating older industrial capital faster simply because they have more of it is not reasonable. We are talking about equipment that is about ten years old on average and the clear implication is that Japan has simply stopped replacing old equipment as fast as the U.S. has been. You were arguing that the Japanese have been plowing new money into the industrial sector. If they had been, they would have more new equipment. After all, in America we are allowing older industries to dinosaur while the Japanese are supposedly so vital. That would clearly hurt our trend relative to theirs. I think the Japanese, unfortunately, may be plowing new credit into new inventories and not new productive capacity.

It may be that the Japanese are investing in new equipment outside Japan, but that would indicate that Japan is following the same rentier path the U.S. has followed.


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