Michael Perelman wrote:
Nomi, why could you not say that the rate cuts prevented a more serious implosion?
Then Doug posted:
<http://www.federalreserve.gov/pubs/ifdp/2002/729/default.htm>
Preventing Deflation: Lessons from Japan's Experience in the 1990s Alan Ahearne; Joseph Gagnon; Jane Haltmaier; Steve Kamin 2002-729 (June 2002)
---------
We discussed this paper before I believe. The biggest difference is the US has the world's currency and Japan is stuck with a 'floating' yen (a misnomer considering what the yen did in 1985 after it was decided it should gain 100% in value).
Basically, the message the US almost always sends is: the yen can't get strong enough.
I tried to get serious discussion on the point with Brad Delong, but, well, that was stupid idea.
So, when the Japanese stock market tanked and the economy went into recession, the yen got stronger. The gov't cut rates down to the third decimal place, and the yen got stronger. The economy starts to pick up--relative to the US, the yen, well, it gets stronger.
The US is going for a relatively cheap dollar to keep some inflation going, that much is pretty obvious.
If the yen could be pegged at 150-160 yen to the dollar, with or without a booming US economy, I think Japan's malaise would ease. Just look at the last year of a yen at 125-130 to the dollar. The Japanese government even started to hint that Japan was coming out of recession. Then, no sooner had it been thought out loud, and, wham, the yen was back to 115 . It has since backed off a bit, but not really at any level that is going to counter deflation here. So more of same, with the economy holding in place with 'bad' debt mounting. The problem is not the loans, it's the lack of profits in all the companies the loans go back to. This may well be a problem in the US, now, too. But words like 'profit' don't actually seem to have a clear cut place in the American Business English lexicon right now.
I think the lesson that the Japanese economy holds is: with or without a bubble, if you have deflation, profits dry up everywhere, and it becomes all but impossible for the unhedged company to float its debt, even if the debt isn't that geared.
Charles J
__________________________________________________ Do You Yahoo!? HotJobs - Search Thousands of New Jobs http://www.hotjobs.com