"D.L." wrote:
> C. Liu,
>
> You make the point that Japan should institute a regime of more
> inflation to stimulate demand.
I did not. This was Krugman's post IMF point and also as of late the US Treasury's point.
> This makes theoretical Keynesian sense but
> is problematic. It seems to me that the voodoo economics of the
> supply-siders "worked" (which is to say that the economy expanded after its
> institution, despite the obvious flaws in the logic) because of one simple
> fact that should be central to any Marxist interpretation of events: The
> capitalists have all the money. If capitalists don't loan out their money,
> the economy grinds to a halt.
Capitalists have no choice, they must lend to somebody or die. If the Third World borrower form a borrower's cartel that refuse interest rates higher than 5%, that will be the norm. What is needed is to tuen the conpetition for funds to a competition for borrowers. It is easily done. Thamarke is oversupplied with funds in relation to borrowers. It requires political leadership which is lacking because the Third World is infested with "democracy".
> The regime of almost continuously falling interest rates and inflation
> instituted by Volcker/Greenspan has made lenders rich and eager to be richer.
Your data are inaccurate. Volcker's legacy was high, double digit interest rates to fight inflation in the 80s. Greenspan's was low interest rate to extend the bubble. He said yesterday that the economic consequences of a burst bubble, while "scarely bengign, needn't be catastrophic if the Fed responds appropriately to a stock-market crash, as it did in 1987." In other words, low interest rates plus a bank bailout. So much for free market and market discipline.
> With Japanese rates at near-zero and inflation low, lenders cannot expect the
> environment to do anything but deteriorate. The higher the inflation rate,
> the lower the value of bonds, etc.
Japan has negative inflation, yet bond prices keeps falling for lack of buyers.
> This devaluation of debt assets might be catastrophic at a time when Japan is
> desperately trying to generate liquidity, their fabled savings rate having
> been pissed away by criminally stupid banking practices.
I said in my post that Japan increased money supply, but credit did not increase becasue banks can find borrowers to lend to.
> The truth is that absent a socialist form of finance, the Japanese need their
> capitalists to part with more money or they will slide into depression.
> Therefore, they have to encourage lenders to lend even, I think, at the
> expense of "encouraging" (if we can term inflation an "encouragement" of any
> kind) consumers to spend.
>
Please give an example of a socialist from of finance. Japanese consumers are not spending because of anxiety about future security due to structural reforms of the economy, not for lack of money.
>
> Your point about currency valuations is not entirely clear to me but I
> will add this observation: I had always assumed that the Japanese only
> pursued a strong yen policy because a weak yen made their trading partners
> angry. However, when the yen began to look like it might go to 150 (running
> up to the Russian crisis) the Nihon Kezai Shimbun reported a survey of
> business leaders as to their opinion of an ideal yen/dollar value. They
> picked a value corresponding to a *stronger* yen than existed at the time
> (about 130, if I remember). The reasons for their attitude was made clear:
> Japan is a large-scale importer of raw materials. If, while commodity prices
> were falling, the Japanese business community wanted a stronger yen, will they
> not clearly want one now that commodity prices have seemingly bottomed out?
The import/export trade off on currency is a bogus argument. It is always a wash at whatever foreign exchange rate, provided it is not volitile. The correct exchange rate for the yen is a political issue. Tokyo wants around 130. Beijing has served notice that if the yen goes above 148, the RMB will not hold. Washington want a yen above 120.
> peace
Not likely if current conditions continue.
Henry C.K. Liu