Gyroscopic Investing

Posted: **Mon Oct 31, 2011 11:14 am**

Maybe some of you have opinions on this piece, which I found by googling "Japan deflation myth" :-)

http://www.lewrockwell.com/north/north799.html

here is a quote:

Here is the ideal scenario: no monetary inflation and output increasing by 2% to 3% per annum. Consumer prices fall by 2% to 3% per annum. Japan has been close to this ideal for two decades — closer than any other industrial nation.

The Austrian School favors slowly falling prices in response to zero monetary inflation. The Chicago School favors stable prices and a slowly but steadily rising money supply. Japan is more Chicago School than Austrian, but it has been closer to Austrianism than any other nation for two decades with respect to money and prices.

Here is my fundamental point. Japan's central bank has systematically adopted monetary policies that have produced a Chicago School outcome: nearly stable prices. This indicates that Japan's central bank has had a goal, and it has achieved this goal. It has not been fighting systemic price deflation. It has produced deliberate price deflation on a minute scale.

Posted: **Mon Oct 31, 2011 12:34 pm**

Christina, I think the powers that be in the west want asset price price inflation a few percent above consumer price and wage inflation. That transfers power over to those who own the most away from those who own less. They wring their hands about a Japanese type scenario because assets (apart from LTT) have dropped in price. Japanese banks and insurance companies (and wealthy individuals) have I guess compensated by moving to holding foreign investments that were increasing in value. That works fine for Japan because Japan runs a trade surplus (they export more than they import) that acts to make the Yen ever stronger. But for somewhere like the UK that imports a lot and exports little, we rely on UK asset price inflation to attract foreign money and so strengthen the £ so that we can aford foreign goods (we get goods, they get "investment returns" that they reinvest and never draw down).

Posted: **Mon Oct 31, 2011 12:41 pm**

In Japan people who want to keep their jobs and people with cash savings have political power. In the UK speculators have over-whelming political power. The UK strives for rocketting property prices and stockmarket. Japan strives for low unemployment and stable consumer prices. -Thats not to say what is attempted neccessarily gets achieved.

Posted: **Mon Oct 31, 2011 2:54 pm**

I didn't read the article, but from the snippet I get the basic premise. A while back I made mention in a post that Japan has been running a de facto gold standard since m2 growth hasn't exceeded 2% since the late 80s. 2% is roughly the annual rate of both productivity gains as well as gold production so prices typically stay flat in such a scenario.

Posted: **Tue Nov 01, 2011 4:16 am**

Wonk, isn't it true that they have had massive M0 growth (government debt is 250% GDP or something) but private sector deleveraging has counteracted that so as to keep M2 growth low?

Posted: **Wed Nov 02, 2011 2:31 pm**

stone wrote: Wonk, isn't it true that they have had massive M0 growth (government debt is 250% GDP or something) but private sector deleveraging has counteracted that so as to keep M2 growth low?

Yes, Japan hasn't done enough to move M2 over 2% p.a. for nearly 20 years. Whether that's intentional or not I don't know.

Gyroscopic Investing

Japan's deflation is on purpose?

Japan's deflation is on purpose?

Re: Japan's deflation is on purpose?

Re: Japan's deflation is on purpose?

Re: Japan's deflation is on purpose?

Re: Japan's deflation is on purpose?

Re: Japan's deflation is on purpose?