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Re: Asian deflation
by Charles Jannuzi
06 November 2003 00:52 UTC
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  >>     Essentially, the question is this:  Is Japan caught in a cycle of
funding deflation in transferring capital in the form of low interest rate
international loans (1%?) to the US ?\
KR <<

It sounds quite plausible. At a very macro level, Japan is a huge creditor
to the US. It is Japanese money that largely keeps the US gov't and non-junk
bond markets afloat. It is Japanese money that helps keep the Wall Street
stock bubbles going, even as the dollar depreciates, hurting global
investors in US equities.

My picture of deflation in Japan includes these things: 1. the yen has been
largely overappreciated in value, which has a dramatic effect on inputs and
future pricing when an economy has to import ALL its materials
2. oil was cheap throughout much of the 90s 3. even with the bad economy,
there was a retail building boom, with lots of competition and price-cutting
4. everyone who sells in the Japanese consumer markets (which are about as
open as any, if not more so, despite the propaganda you hear coming out of
the US) manufactures in China and retails it in Japan--this includes
European, North American and Japanese brands.

A related issue is the so-called bad loans at Japanese banks. First, let's
get clear on this, if these loans are so bad, why do US interests want to
securitize them and sell them off for huge profits. Second, a lot of the
duff loans seem to go to a loaning pattern back in the early to mid 90s when
all sorts of Japanese companies, trying to stay in business, borrowed money
and built plants in China and SE Asia without good business plans. The Asia
crisis really hit the Japanese banks because not only did they lose money
lent directly to other Asian countries, but they lost money they loaned to
small and mid-size Japanese companies trying to establish bases in other
parts of Asia.

The US  has tried to avoid the deflationary trap (Greenspan saw it as the
number one threat til Bush told him to get on the 9-11 bandwagon) through
artificially high oil prices, military Keynesianism and a cheap dollar. I
think the US economy is more likely stagflationary, and the job picture at
least bears this out. Anyone ever wonder why most economic, business and
financial news in the mainstream media doesn't discuss inflation in the US
anymore? I'll bet there is real inflation in things like university
education and health care.

C. Jannuzi

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