Gyroscopic Investing

Japan is the fastest aging major economy. How it copes offers valuable lessons to other countries that will follow in the aging process. The first lesson is that the political process needs to change to offer more weight to the youth. Otherwise, the society won't invest in the future, which is a recipe for decline. Further, burdening the young discourages them from having children, reinforcing the aging trend.

Pointedstick wrote: I didn't read anything in that article predicting a failure or default of the Yen. Seemed like a pretty interesting article overall, especially the part about the looming challenges stemming from a large budget deficit alongside a trade surplus, a shrinking savings rate, and lukewarm foreign appetite for bonds.

"If the fiscal deficit doesn't decline, there isn't enough money at home to fund it. The emergence of a trade deficit now and current account deficit soon reflect a savings shortage in Japan. What foreign investors think of Japan will begin to matter to its bond market. Foreign investors are unlikely to buy into Japan's crazy policy combination"

Gumby wrote:

Pointedstick wrote: I didn't read anything in that article predicting a failure or default of the Yen. Seemed like a pretty interesting article overall, especially the part about the looming challenges stemming from a large budget deficit alongside a trade surplus, a shrinking savings rate, and lukewarm foreign appetite for bonds.

Yes. So, it implied demise, but only predicted a weaker Yen. But, that's what everyone wants. The Yen is too strong.

I find it annoying to read articles whining about the dwindling savings rate while simultaneously whining about large deficits. The two are directly tied together in a debt-based monetary system.

When the government runs a deficit, private (and foreign) savings increases. The government's liability is the private and foreign sector's asset. When the government runs a surplus, private (and foreign) savings dwindle. Certainly investment and private credit can be a form of savings, but those are often unstable forms of savings and are hard to find during an economic depression.

Finally, the article makes the following unproven fearmongering statement:

"If the fiscal deficit doesn't decline, there isn't enough money at home to fund it. The emergence of a trade deficit now and current account deficit soon reflect a savings shortage in Japan. What foreign investors think of Japan will begin to matter to its bond market. Foreign investors are unlikely to buy into Japan's crazy policy combination"

This shows a real lack of understanding of where the money to fund the deficit comes from. Every single Yen that is issued from debt goes into the banking system and becomes fresh Yen that is available to purchase future government debt with. Japan will never run into a situation where the private and foreign sector will run out of money to buy Japanese debt.

And the idea that foreigners will lose their appetite for JGBs is unfounded. If foreigners have Yen in their pockets, and want to save it, they have an incentive to buy bonds with those Yen — rather than letting them sit idle in a bank account. And if they do let those Yen sit idle in a bank account, then the bank has an incentive (and are often required) to use those Yen to buy JGBs with.

(And finally, the Bank of Japan can buy an unlimited amount of JGBs directly from the Ministry of Finance and all the interest is returned to the Ministry of Finance. The ability to roll over an unlimited amount of interest free debt is the equivalent of printing fiat money.)

In the end, it makes no difference if domestic savers or foreign savers are holding Yen. Both have an equal incentive to trade in their Yen for bonds — much like Harry Browne recommends that we save our cash as Treasuries. Whether we live domestically or abroad makes no difference.

doodle wrote: Our entire system is bound to fail if it is based on the idea of constant exponential growth. That is a system that contradicts the very laws of nature. Someone above pulled out a quote from the article that referenced Japans declining population as an economic problem. Well, at some point in time populations are going to have to level off or even decline unless we all want to be packed into chicken coop like cages fighting over scraps of natural resources. Economics certainly lives up to its name as the dismal science when its paradigm for the world contradicts natural reality.

melveyr wrote: Sometimes I wish I never learned any of this stuff because it is so frustrating reading the news. I kind of missing being scared of this stuff and being part of the herd. Combining that with having the PP as one's investment portfolio it is hard to not feel very disconnected and somewhat lonely.

Slotine wrote:My reading of it was that they thought the Postal Bank and Pension would have to start selling bonds to meet cashflow.  That tends to drive up yield to the point where the other banks (or foreigners) are willing to clear it.

doodle wrote: Maybe the Japanese are all afflicted with ERE philosophy. Maybe a lack of growth in demand is rational once an economy produces enough to satisfy ones basic necessities. I tend to think of voracious consumer demand for material products a more troubling affliction than simple contentment. Of course, our present economic system finds it problematic that a group of people refuse to continually gorge themselves on lifes buffet cart of material garbage. The fact that the monetary system is ill adapted to deal with sane human behavior comes down to a design flaw in the money system, not that of the humans that it supossedly serves.

doodle wrote: Maybe the Japanese are all afflicted with ERE philosophy. Maybe a lack of growth in demand is rational once an economy produces enough to satisfy ones basic necessities.

melveyr wrote:

doodle wrote: Maybe the Japanese are all afflicted with ERE philosophy. Maybe a lack of growth in demand is rational once an economy produces enough to satisfy ones basic necessities. I tend to think of voracious consumer demand for material products a more troubling affliction than simple contentment. Of course, our present economic system finds it problematic that a group of people refuse to continually gorge themselves on lifes buffet cart of material garbage. The fact that the monetary system is ill adapted to deal with sane human behavior comes down to a design flaw in the money system, not that of the humans that it supossedly serves.

Yes, I agree entirely. The government's monetary system is not accommodating the private sectors demand to save currency. If I could have some fancy shmancy Milton Friedman-esque quote attributed to me it would be "Unemployment is strictly a monetary phenomenon."

If you think about it, the idea of unemployment is impossible in a barter economy. In a barter economy people simply create things of value, and exchange them with other things of value. If I can create something of value I will do so. Most neoclassical economists assume we are operating in a barter economy which is why they absolutely suck at explaining unemployment.

In a monetized economy we are forced to interface through the monetary system. If I can create something of value, and you can create something of value, we are both forced to acquire this external thing (money) to facilitate a transfer that leaves both of us better off.

1NV35T0R (Greg) wrote:

melveyr wrote:

doodle wrote: Maybe the Japanese are all afflicted with ERE philosophy. Maybe a lack of growth in demand is rational once an economy produces enough to satisfy ones basic necessities. I tend to think of voracious consumer demand for material products a more troubling affliction than simple contentment. Of course, our present economic system finds it problematic that a group of people refuse to continually gorge themselves on lifes buffet cart of material garbage. The fact that the monetary system is ill adapted to deal with sane human behavior comes down to a design flaw in the money system, not that of the humans that it supossedly serves.

Yes, I agree entirely. The government's monetary system is not accommodating the private sectors demand to save currency. If I could have some fancy shmancy Milton Friedman-esque quote attributed to me it would be "Unemployment is strictly a monetary phenomenon."

If you think about it, the idea of unemployment is impossible in a barter economy. In a barter economy people simply create things of value, and exchange them with other things of value. If I can create something of value I will do so. Most neoclassical economists assume we are operating in a barter economy which is why they absolutely suck at explaining unemployment.

In a monetized economy we are forced to interface through the monetary system. If I can create something of value, and you can create something of value, we are both forced to acquire this external thing (money) to facilitate a transfer that leaves both of us better off.

There might not be unemployment in a barter economy but what if someone is producing something that no one values? You state "if" I can create something of value, which perhaps a lot of people can't. Wouldn't that be a group of people then in the barter economy that are building buggy-whips when everyone else is driving and trading cars? No one wants what they are selling but buggy-whips are all they know how to make currently.