Let us not be afraid inflation. Our economies are still on artificial life support, so the rejection of the stimulus package at this stage may cause catastrophic consequences. As far as real inflation threat for the world economy? Conservative economists and organizations such as the International Monetary Fund and Organization for Economic Cooperation and Development, have different opinions on this matter. IMF and OECD forecasts a very low level of inflation in the next few years. But the former chairman of the Federal Reserve, Alan Greenspan, is concerned about the threat of inflation. Some bond markets also expect a sharp rise in inflation. Whatever the view was not correct, it largely determines the strategy. If the crisis is replaced by inflation, and this remains a major problem to date, the Government will have to cancel the policy to stimulate the economy (to withdraw money) as soon as possible. If the crisis does not retreat, then policies to stimulate the economy will need to maintain or even expand.
Everyone expects the inflation rate. In the period of low inflation that prevailed in the early 90-ies, in developed countries this figure, on average, did not exceed 2.4%. Inflation-targeting central bank, as a rule, hold at 2%. Proponents of monetarism believe the era of low inflation as his greatest achievement. They are proud of skilled work on central banks' management of expectations. But monetary policy has almost nothing to do with. Low level of inflation was triggered by a combination of supply of cheap goods and low demand. Producer prices in Asian countries with low wages have been under strong pressure, and, in turn, the percentage of unemployment in developed countries has reached an average of 5-6%, which is two times higher than in the first postwar decades. Rising inflation, observed before the crisis in 2008, was due mainly to sharp increases in commodity prices.
That is the basis on which today we can speculate about how real the threat of deflation. One of the first consequences of the crisis can be noted decline in capacity utilization compared to the situation 15 months ago: World production fell by 5% since 2008, and the performance of developed countries by 4.1%. Together with the fall in output was expected slowdown of inflation, this is what happened. Annual inflation rate fell in the OECD average of 3.7% in 2008 to 0.5% in 2009. We again observed its growth, mainly associated with changes in commodity prices. In addition, the IMF and the OECD believes that global inflation will be below average in 2008 for several years in other words, the era of low inflation is replaced by the era of even lower inflation.
But what about the massive quantitative easing (printing money)? Since the beginning of the crisis the Bank of England has invested 325 billion dollars in the UK economy, the Fed increased the monetary base to nearly U.S. $ 1 trillion. dollars, and the People's Bank of China has granted loans to a record $ 1.4 trillion. dollars. Only these actions constitute 4% of world GDP. Undoubtedly, this means that inflation is not far off, will not begin until the removal of excess liquidity. For those who have visited a couple of lessons on the quantity theory of money, such a conclusion seems quite substantiated. According to the quantity theory of money, the general price level will increase in proportion to the growth of money supply. Thus, if the money supply has increased globally by 5% last year, world prices would rise by 5% with a slight time lag. But, as never ceased to celebrate John Maynard Keynes, the quantity theory of money applies only under conditions of full employment. If the economy has unused capacity, a part of any increase in money supply will be spent rather on increasing production than the purchase of existing products.
But it's not so bad. By "money supply" experts usually understand monetary aggregate M3, a broad measure that includes bank deposits. Filling of banks with central bank money does not guarantee that the contributions arising from spending or borrowing money, in proportion to increase. In the 90 years the central bank of Japan has invested huge sums in banks, hoping to increase the money supply. In some cases, the increase of the Central Bank reached 35% in the year, despite a measure of M3 grew only 7%. These United States and Europe show that the rate of M3 fell most of 2009, despite unusually low interest rates and quantitative easing. A waste of money, not printing matters. Only when the money is spent, they cease to be a bundle of worthless paper. Any central bank can print money, but he can not guarantee that they will be spent. Money can be accumulated in bank reserves or savings accounts, or may propagate bubbles in asset markets. But in such cases, monetary growth is either very small or completely absent. The new money simply replace the old, which were eliminated during the economic meltdown.
For this reason, according to official figures, in the next few years will experience an extremely low level of inflation, although monetary and fiscal stimulus. This should serve as a warning: to assert that at the present high level of unemployment, inflation will remain low, it means to say that in the next five years, economic recovery will be sluggish. Moreover, after the crisis, the economic recovery is usually paired with a taller than average. This means that prices will be faster than usual. The lack of confirmation of price growth in the process, demonstrates a lack of clear evidence of economic recovery. Economy still in need of stimulation. Refusal of him is tantamount to death. Discussions about the threat of inflation - just intimidation. Instead, think about possible ways of healing. Undoubtedly, different economies at different stages of recovery, and rapid economic growth in some countries such as China and India, will help these countries with weaker economies like Europe and America. But until then, until the next quarter does not appear strong evidence of economic growth, European and U.S. authorities should be ready to accelerate and expand existing expenditure programs. Otherwise, the economies of these countries at risk of getting stuck in a state of crisis.
Tuesday, February 16, 2010
Tuesday, February 2, 2010
The December unemployment rate in the United States was the worst since the Great recession.
Does history repeat? Some economists have accused President Obama is that he made the same mistakes that have made the policy in the United States during the Great Depression began with the collapse of Wall Street in 1929. The number of unemployed increased by 661 000. These data were not included in the main indicator of unemployment, because too many Americans simply dropped out of the system. Broader U6 unemployment rate was 17.3%, and only that matters. On Wall Street revival. And the bulls are hoping that the weak employment data will delay the time of tightening of monetary policy: a ray of light in the darkness, or further evidence of immaturity of the market.
Foreclosure home mortgage usually occurs approximately one year after the loss of work and disposal of all accumulated savings. The local sheriff evicted the deadbeat of the house, of course, with sympathy - That's what police in 1932, mostly Irish Catholics, who donate 1% of their salary to a charitable kitchen. According to Realtytrac, in February, the number of non-payments and transfers of property to the bank of more than 300 000 per month. One million American families lost their homes in the fourth quarter. Projected Moody's Economy.com, this year is 2.4 million homes will lose their owners. All this is terribly like "Grapes of Wrath" Steynbeka. Judges are looking for ways to block the eviction. A magistrate in the state of Minnesota dismissed the case, calling the creditor "gross, disgusting, vile and disgusting" human being. We are not far from being able to declare a de facto moratorium in some areas. This is what happened in the years 1932-34. When half of U.S. states have declared a moratorium or "Farm holidays". This flexibility has become a vaccine for the U.S. economy against the "Red Unions and fascists Father Coughlin. Alienation of houses continues, despite the furious efforts of the Obama administration to slow down this process.
Such a policy is absolutely justified, taking into account the extent of social crisis. However, it also masks the continuing decay of the housing market, allows creditors to hide their losses and contributes to the further growth of the surplus of unsold property. Must be extremely naive to think that the worst for the U.S. housing market are behind us (my apologies traditional Goldman Sachs). Another mortgage only to detonate a bomb in this year or next year, when he grew up floating interest rate on mortgage contracts totaling $ 134 billion (£ 83 billion). Case-Shiller index shows that housing prices in the U.S. grow for five months, but in October, half of urban dynamics began to fade even before the growth of mortgage rates by 40 bps According to Charles Keyes (author index), prices could fall another 15%. "When issued in 2008-2009. Credits will be bad, we find ourselves in the same place and were - in a nightmare."
David Rosenberg of Gluskin Sheff noted with surprise how little support had zero interest rates and incredible scale measures of financial incentives. In the third quarter of 2009 growth rate of the U.S. economy amounted to 2.2% (completely through incentives for the Obama administration). This compared to an average of 7.3% in the first quarter after every recession since the Second World War. The hawks at the Fed are playing with fire when raising the question of exit strategies, and not the first time. This theme was raised in June 2008. And we know perfectly well what happened after three months. For your information, capacity utilization was 67.2% and the rate of "auto purchase intentions" has reached a record low.
The money multiplier Fed in mid-December has fallen to historic lows 0,809. The volume of commercial paper from October-the month decreased by $ 280 billion (£ 175 billion). The reduction of bank lending in June, the month has been horrendous. On November 25 the volume of bank lending fell from $ 10.844 trillion. to $ 9.013 trillion. Annual rate of decline MZM money supply is 3%. While the decline in the broader indicator of money supply M3 is greater than 5%. Professor Tim Condon of International Monetary Research said that the Fed's actions will lead to an increase of deflation this year and possibly a recession with a double bottom. Situation is even worse in Europe. However, all these facts do not stop the army of commentators, which tries to bring the Fed's tightening of monetary policy. They accuse Ben Bernanke to repeat the mistakes of 2004, when the Fed waited too long. Sometimes on this just want to scream. In 2004 there was a collapse in the housing market, the unemployment rate was 5.5%, the banking system was in good health, and the multiplier Fed was at 1.73.
It is not clear how someone could see the looming inflation extinguished in terms of pure PCE, which in November was only 0.1%. Customers asked Mr. Rosenberg, why Wall Street is clearly not agree with his gloomy analysis. His answer was as follows: it is the same market that bought shares in October 1987, when prices were inflated by 25%, 10-year standardized basis earnings "Schiller - like today - and in 2007 bought them even more overpriced when the collapse of the housing market has long occurred, Bear Stearns funds had burst, and the crediting of August experienced a heart attack. Stock market has become a lagging indicator. Just throw his books.
Foreclosure home mortgage usually occurs approximately one year after the loss of work and disposal of all accumulated savings. The local sheriff evicted the deadbeat of the house, of course, with sympathy - That's what police in 1932, mostly Irish Catholics, who donate 1% of their salary to a charitable kitchen. According to Realtytrac, in February, the number of non-payments and transfers of property to the bank of more than 300 000 per month. One million American families lost their homes in the fourth quarter. Projected Moody's Economy.com, this year is 2.4 million homes will lose their owners. All this is terribly like "Grapes of Wrath" Steynbeka. Judges are looking for ways to block the eviction. A magistrate in the state of Minnesota dismissed the case, calling the creditor "gross, disgusting, vile and disgusting" human being. We are not far from being able to declare a de facto moratorium in some areas. This is what happened in the years 1932-34. When half of U.S. states have declared a moratorium or "Farm holidays". This flexibility has become a vaccine for the U.S. economy against the "Red Unions and fascists Father Coughlin. Alienation of houses continues, despite the furious efforts of the Obama administration to slow down this process.
Such a policy is absolutely justified, taking into account the extent of social crisis. However, it also masks the continuing decay of the housing market, allows creditors to hide their losses and contributes to the further growth of the surplus of unsold property. Must be extremely naive to think that the worst for the U.S. housing market are behind us (my apologies traditional Goldman Sachs). Another mortgage only to detonate a bomb in this year or next year, when he grew up floating interest rate on mortgage contracts totaling $ 134 billion (£ 83 billion). Case-Shiller index shows that housing prices in the U.S. grow for five months, but in October, half of urban dynamics began to fade even before the growth of mortgage rates by 40 bps According to Charles Keyes (author index), prices could fall another 15%. "When issued in 2008-2009. Credits will be bad, we find ourselves in the same place and were - in a nightmare."
David Rosenberg of Gluskin Sheff noted with surprise how little support had zero interest rates and incredible scale measures of financial incentives. In the third quarter of 2009 growth rate of the U.S. economy amounted to 2.2% (completely through incentives for the Obama administration). This compared to an average of 7.3% in the first quarter after every recession since the Second World War. The hawks at the Fed are playing with fire when raising the question of exit strategies, and not the first time. This theme was raised in June 2008. And we know perfectly well what happened after three months. For your information, capacity utilization was 67.2% and the rate of "auto purchase intentions" has reached a record low.
The money multiplier Fed in mid-December has fallen to historic lows 0,809. The volume of commercial paper from October-the month decreased by $ 280 billion (£ 175 billion). The reduction of bank lending in June, the month has been horrendous. On November 25 the volume of bank lending fell from $ 10.844 trillion. to $ 9.013 trillion. Annual rate of decline MZM money supply is 3%. While the decline in the broader indicator of money supply M3 is greater than 5%. Professor Tim Condon of International Monetary Research said that the Fed's actions will lead to an increase of deflation this year and possibly a recession with a double bottom. Situation is even worse in Europe. However, all these facts do not stop the army of commentators, which tries to bring the Fed's tightening of monetary policy. They accuse Ben Bernanke to repeat the mistakes of 2004, when the Fed waited too long. Sometimes on this just want to scream. In 2004 there was a collapse in the housing market, the unemployment rate was 5.5%, the banking system was in good health, and the multiplier Fed was at 1.73.
It is not clear how someone could see the looming inflation extinguished in terms of pure PCE, which in November was only 0.1%. Customers asked Mr. Rosenberg, why Wall Street is clearly not agree with his gloomy analysis. His answer was as follows: it is the same market that bought shares in October 1987, when prices were inflated by 25%, 10-year standardized basis earnings "Schiller - like today - and in 2007 bought them even more overpriced when the collapse of the housing market has long occurred, Bear Stearns funds had burst, and the crediting of August experienced a heart attack. Stock market has become a lagging indicator. Just throw his books.
Wednesday, January 27, 2010
The economic downturn makes it difficult objective perception of the "Eastern Europe"
This definition has never been logic, but now it is becoming more and defamatory. "Eastern Europe" - Geographical curiosity, which includes the Czech Republic (located in the middle of the continent), but not Greece or Cyprus (which are supposedly located in the "western" Europe, but in fact are in the south-east). This is also little sense from a historical perspective: The region includes countries (eg Ukraine), who for decades belonged to the Soviet bloc, as well as those countries (eg Albania), which were marginally associated with the Union. In some of these countries there were stringent planning of the economy, in other versions were "local communism" (Hungary) or "self-governing socialism" (Yugoslavia). Being unreasonable is already in 1989. this label in general has become meaningless, because after the fall of communism the way these countries differed. Almost 30 mill, which once called communist, now have more differences than similarities. However, the name "Eastern Europe" includes not only a common destiny in a totalitarian regime, but also a lot of problems: severe history of time, ineffective leadership and the economic disaster now. The economic downturn has shown how misleading such an approach. Concerns about the "contamination" of the Latvian banking crisis led to an increase in risk premiums in stable under different circumstances, economies such as Poland and the Czech Republic - is nonsense, based on the perception by outsiders fears other unauthorized persons. In fact, the most severe financial difficulties currently facing Iceland and the largest budget deficits in the European Union is projected in the next year not weaken the ex-communist East, and in Britain and Greece. The new Athenian government is struggling with budget deficits of the size of at least 12.7% of GDP and, possibly, a maximum of 14.5%. This issue was discussed recently in Greece, the members of the European Commission.
None of the ten "Eastern" countries that joined the EU, is not in such a deplorable situation. There is also advanced workers, and conservatives, and quite modern place, and regions, reminiscent of past disturbances. For example, the Czech Republic and Slovenia reached the level of life, recorded in Portugal, the poorest country in the "western" camp. None of them was seriously affected by the economic downturn. Some ex-communist countries have a higher credit rating than the old EU members, and can take more than cheap credit. Slovakia and Slovenia joined the euro area, which is not done in Sweden, Denmark and Britain. Estonia - at least so it seems from outside - one of the least corrupt countries in Europe, which is easily ahead on this indicator founding members of the EU, such as Italy. It is divided into three categories. One of them includes five former autocratic republics of the Soviet Union, located in Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan). They can hardly be attributed to the "Europe", while a tenth of (the size of Britain), Kazakhstan (about 200,000 sq. km.) Situated directly in Europe. Also in Kazakhstan this year chairs the Organization for Security and Cooperation in Europe - a consultative body created after the Cold War (Vienna). However, none of the former Central Asian republics of the Soviet Union did not become a member of the Council of Europe (one more deliberative body and the guardian of human rights, Strasbourg). That's the problem. Definition of "Europe" as unreliable as the word "oriental".
All of these former Soviet republics differ from each other (Tajikistan - poor, a Kazakhstan - enterprising state). However, it is unlikely that even one of them will enter the EU in our era. Hence the second category: the potential members of the Union. This primarily includes unconditional candidates for membership, such as Croatia and other small states of the Western Balkans, for example, Macedonia. This category includes such problematic countries like Turkey and Ukraine, and even - in the long term, 20 years - four other former Soviet republics of Georgia, Moldova, Armenia and Azerbaijan (the latter possibly with the support of Turkey). The third and most difficult category - a group of 10 countries, formed in 2004. major merger, which was expanded in 2007. This group includes the exemplary citizens of the EU - the Estonians (recently hit by the crisis, real estate, but ready to receive this year's resolution to join the euro), Romania and Bulgaria, corruption and organized crime which, respectively, have already become a byword in Brussels . Eight of them (except for Romania and Bulgaria) have joined the Schengen Agreement. Most (except Poland) have agreed on the abolition of visas to America. All (unlike EU members - Austria, Cyprus, Ireland and Malta) are members of NATO.
Some concern still remains: a small country within or adjacent to the EU, and stronger among those who expect the membership or those to whom it does not shine. Missed because of its communist past and the possibility of key positions in international organizations still cause irritation (according to some, another consequence of defamatory label "Eastern Europe"). The negative legacy of the past, such as all-powerful secret agents and secret police files, provide an opportunity for blackmail and causing other damage, especially in countries with weak institutions. The powerful state security service in Lithuania, VSD, located in the center of political scandal, but a wave of concerns about lawlessness and foreign invasion swept from the Baltic to the Black Sea. Four countries - Poland and the Baltic countries - Russia is seriously concerned about revisionism (or revanchism). Hungary, the Czech Republic and Slovakia, too, are concerned, but more energy and economic security than military threat. However, in other countries, for example, in the former Yugoslavia, such fears are simply puzzling and seem to be paranoid.
And new and future members need capital. They all need a lot of foreign money (from the safes of the EU capital markets and through foreign bank loans) to bring the economy in accordance with the standards of the rest of the region. However, the admissibility of the category called "the new member countries, over time, definitely reduced. At Oxford University, there is still a "New College", whose name in 1379g. perfect to highlight it in the existing structure of the university. Now it looks a bit strange. The Poles, Czechs, Estonians and others hope sooner or later get rid of the epithet "new" to them could be judged on their merits, not the past.
None of the ten "Eastern" countries that joined the EU, is not in such a deplorable situation. There is also advanced workers, and conservatives, and quite modern place, and regions, reminiscent of past disturbances. For example, the Czech Republic and Slovenia reached the level of life, recorded in Portugal, the poorest country in the "western" camp. None of them was seriously affected by the economic downturn. Some ex-communist countries have a higher credit rating than the old EU members, and can take more than cheap credit. Slovakia and Slovenia joined the euro area, which is not done in Sweden, Denmark and Britain. Estonia - at least so it seems from outside - one of the least corrupt countries in Europe, which is easily ahead on this indicator founding members of the EU, such as Italy. It is divided into three categories. One of them includes five former autocratic republics of the Soviet Union, located in Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan). They can hardly be attributed to the "Europe", while a tenth of (the size of Britain), Kazakhstan (about 200,000 sq. km.) Situated directly in Europe. Also in Kazakhstan this year chairs the Organization for Security and Cooperation in Europe - a consultative body created after the Cold War (Vienna). However, none of the former Central Asian republics of the Soviet Union did not become a member of the Council of Europe (one more deliberative body and the guardian of human rights, Strasbourg). That's the problem. Definition of "Europe" as unreliable as the word "oriental".
All of these former Soviet republics differ from each other (Tajikistan - poor, a Kazakhstan - enterprising state). However, it is unlikely that even one of them will enter the EU in our era. Hence the second category: the potential members of the Union. This primarily includes unconditional candidates for membership, such as Croatia and other small states of the Western Balkans, for example, Macedonia. This category includes such problematic countries like Turkey and Ukraine, and even - in the long term, 20 years - four other former Soviet republics of Georgia, Moldova, Armenia and Azerbaijan (the latter possibly with the support of Turkey). The third and most difficult category - a group of 10 countries, formed in 2004. major merger, which was expanded in 2007. This group includes the exemplary citizens of the EU - the Estonians (recently hit by the crisis, real estate, but ready to receive this year's resolution to join the euro), Romania and Bulgaria, corruption and organized crime which, respectively, have already become a byword in Brussels . Eight of them (except for Romania and Bulgaria) have joined the Schengen Agreement. Most (except Poland) have agreed on the abolition of visas to America. All (unlike EU members - Austria, Cyprus, Ireland and Malta) are members of NATO.
Some concern still remains: a small country within or adjacent to the EU, and stronger among those who expect the membership or those to whom it does not shine. Missed because of its communist past and the possibility of key positions in international organizations still cause irritation (according to some, another consequence of defamatory label "Eastern Europe"). The negative legacy of the past, such as all-powerful secret agents and secret police files, provide an opportunity for blackmail and causing other damage, especially in countries with weak institutions. The powerful state security service in Lithuania, VSD, located in the center of political scandal, but a wave of concerns about lawlessness and foreign invasion swept from the Baltic to the Black Sea. Four countries - Poland and the Baltic countries - Russia is seriously concerned about revisionism (or revanchism). Hungary, the Czech Republic and Slovakia, too, are concerned, but more energy and economic security than military threat. However, in other countries, for example, in the former Yugoslavia, such fears are simply puzzling and seem to be paranoid.
And new and future members need capital. They all need a lot of foreign money (from the safes of the EU capital markets and through foreign bank loans) to bring the economy in accordance with the standards of the rest of the region. However, the admissibility of the category called "the new member countries, over time, definitely reduced. At Oxford University, there is still a "New College", whose name in 1379g. perfect to highlight it in the existing structure of the university. Now it looks a bit strange. The Poles, Czechs, Estonians and others hope sooner or later get rid of the epithet "new" to them could be judged on their merits, not the past.
Tuesday, January 19, 2010
What is taught Japan problem
Twenty years ago no one doubted that Japan - The most successful high-income countries in the world. Only a few could have expected what would happen in the next two decades. Today Japan is experiencing a protracted recession. What went wrong? What do the new government in Japan? What are the lessons to be learned from this? What is happening should be viewed in its proper context. The quality of the railway system and the food is among the guests from the UK feel that they came from a very backward country. If that is so evident decline, the majority of people will be quite happy to him. Nevertheless, the country is really going through a recession. In the past two decades the average annual growth rate was 1.1%. According to Angus Meddisona, a historian in the field of economy, gross domestic product per capita in Japan (at purchasing power parity) in 1950 increased from 20% of the U.S. level to a maximum of 85% in 1991 to 2006, he dropped to 72%. In real terms the size of the index of the Tokyo Stock Exchange Nikkei is a quarter of its value two decades ago. Most frightening is that the net and gross public debt rose from 13% and 68% of GDP in 1991 to a projected 115% and 227% in 2010
What happened? Richard Koo of the Nomura Research points to the "deflation balance accounts. According to Mr. Koo, the economy, which heavily indebted residents persist in trying to repay their debts, has three characteristics: it stops the growth of credit and money supply, and not because banks are reluctant to lend, so that business and households refuse to take them, the traditional monetary policy is largely ineffective, but the desire of the private sector to improve their balance sheets makes the state in the last of the borrowers. As a result, all attempts to normalize the financial and monetary policies are in vain until, until you finish adjusting the balance sheets of the private sector. The balance between savings and investment (income and expenditure) in the Japanese economy shows that it is happening. In 1990, all sectors were close to equilibrium. Then the crisis erupts. In the private sector in Japan for a long time arose excess savings. But since the level of private savings is reduced, the main reason is the persistently high percentage of corporate gross savings to GDP and reducing capital investments. The huge surplus of savings of the private sector was in turn absorbed by the outflow of capital and current account deficit.
Mr. Ku argues that critics of the budget deficit misses the essence. Without the deficit country would be plunged into a depression, instead of a long period of weak demand. Alternatively, one could increase the current-account surplus. But that would require a weaker exchange rate. Japan would have to follow the Chinese exchange rate policy. And it certainly would have caused anger the United States. In spite of the arguments that Mr. Koo had a weak side. They do not explain why such huge surpluses of any debt, or why Japan was so vulnerable to shock the world now, when adjusting the balance sheets of the corporate sector for the most part completed. In my opinion, the underlying structural problem is the excessive corporate savings (retained earnings) and the reduction of investment opportunities. As noted by Andrew Smithers of Smithers & Co in London in 1991, the investments of the private sector to non-residential fixed capital amounted to 20% of GDP, almost twice more than in the United States. But after a modest recovery in 2000-ies. they decreased to 13%. A significant decline occurred in corporate undistributed profits. In the 80's. to address the development of these savings to use monetary policy, which lowered borrowing costs to near zero and increased the number of wasteful investment. In 2000-ies. This problem was solved with the help of a boom of exports and investment, mostly due to trade with China.
Then began the global economic crisis, which adversely affected the exports and investment and slowed economic growth. GDP of 8.6% from its maximum value fell to their lowest point, Japan has suffered more than all the other high-income countries among the Big Seven. According to the Organization for Economic Cooperation and Development, Japan, in 2009 alone reduced net exports led to a reduction of the economy by 1.8%. Now the task of Japan is to achieve growth, stimulated by the inside of the country. The most important requirement - significantly reduce the level of corporate savings. Smithers thinks that this will happen naturally because the savings will be spent as depreciation of fixed capital, which itself is a product of excessive investment. I would like to add that if any need to market economy, which controls the corporation, to collect cash from the hands of a sleepy leadership, it needs to look at Japan. The new government is not beholden to Japanese corporations should adopt policies that are at least change their behavior.
Also, it's time to stop deflation. To do this, the Bank of Japan should cooperate with the government to avoid the excessive strengthening of the exchange rate. The recent rise in the yen would evoke a more aggressive monetary action. Due to the significant inflation in Japan - the absolute minimum of 2% - real interest rates would become negative, so that should the country. Meanwhile, the rest of the world should think about whether they have learned the lessons of economic decline in Japan. Experience has shown that land of the rising sun, even a sustained budget deficit, zero interest rates and quantitative easing does not necessarily lead to inflation in the economy, where the bubble burst, suffering from excess capacity and excess balance sheet accounts, such as the United States. It also shows that the process of getting rid of these surpluses is delayed for a long time. Nevertheless, the history of Japan can serve as a model for the economies of a very different type. She said that if the economy with an extremely high level of corporate savings and the relatively high fixed investment is very rapid growth begins to slow down, demand can spiral out of control. This is especially true when part of a mechanism to stimulate demand is intentionally increased lending and bubbles in asset prices. So, who should be the first to learn this vital lesson? China - That's who.
What happened? Richard Koo of the Nomura Research points to the "deflation balance accounts. According to Mr. Koo, the economy, which heavily indebted residents persist in trying to repay their debts, has three characteristics: it stops the growth of credit and money supply, and not because banks are reluctant to lend, so that business and households refuse to take them, the traditional monetary policy is largely ineffective, but the desire of the private sector to improve their balance sheets makes the state in the last of the borrowers. As a result, all attempts to normalize the financial and monetary policies are in vain until, until you finish adjusting the balance sheets of the private sector. The balance between savings and investment (income and expenditure) in the Japanese economy shows that it is happening. In 1990, all sectors were close to equilibrium. Then the crisis erupts. In the private sector in Japan for a long time arose excess savings. But since the level of private savings is reduced, the main reason is the persistently high percentage of corporate gross savings to GDP and reducing capital investments. The huge surplus of savings of the private sector was in turn absorbed by the outflow of capital and current account deficit.
Mr. Ku argues that critics of the budget deficit misses the essence. Without the deficit country would be plunged into a depression, instead of a long period of weak demand. Alternatively, one could increase the current-account surplus. But that would require a weaker exchange rate. Japan would have to follow the Chinese exchange rate policy. And it certainly would have caused anger the United States. In spite of the arguments that Mr. Koo had a weak side. They do not explain why such huge surpluses of any debt, or why Japan was so vulnerable to shock the world now, when adjusting the balance sheets of the corporate sector for the most part completed. In my opinion, the underlying structural problem is the excessive corporate savings (retained earnings) and the reduction of investment opportunities. As noted by Andrew Smithers of Smithers & Co in London in 1991, the investments of the private sector to non-residential fixed capital amounted to 20% of GDP, almost twice more than in the United States. But after a modest recovery in 2000-ies. they decreased to 13%. A significant decline occurred in corporate undistributed profits. In the 80's. to address the development of these savings to use monetary policy, which lowered borrowing costs to near zero and increased the number of wasteful investment. In 2000-ies. This problem was solved with the help of a boom of exports and investment, mostly due to trade with China.
Then began the global economic crisis, which adversely affected the exports and investment and slowed economic growth. GDP of 8.6% from its maximum value fell to their lowest point, Japan has suffered more than all the other high-income countries among the Big Seven. According to the Organization for Economic Cooperation and Development, Japan, in 2009 alone reduced net exports led to a reduction of the economy by 1.8%. Now the task of Japan is to achieve growth, stimulated by the inside of the country. The most important requirement - significantly reduce the level of corporate savings. Smithers thinks that this will happen naturally because the savings will be spent as depreciation of fixed capital, which itself is a product of excessive investment. I would like to add that if any need to market economy, which controls the corporation, to collect cash from the hands of a sleepy leadership, it needs to look at Japan. The new government is not beholden to Japanese corporations should adopt policies that are at least change their behavior.
Also, it's time to stop deflation. To do this, the Bank of Japan should cooperate with the government to avoid the excessive strengthening of the exchange rate. The recent rise in the yen would evoke a more aggressive monetary action. Due to the significant inflation in Japan - the absolute minimum of 2% - real interest rates would become negative, so that should the country. Meanwhile, the rest of the world should think about whether they have learned the lessons of economic decline in Japan. Experience has shown that land of the rising sun, even a sustained budget deficit, zero interest rates and quantitative easing does not necessarily lead to inflation in the economy, where the bubble burst, suffering from excess capacity and excess balance sheet accounts, such as the United States. It also shows that the process of getting rid of these surpluses is delayed for a long time. Nevertheless, the history of Japan can serve as a model for the economies of a very different type. She said that if the economy with an extremely high level of corporate savings and the relatively high fixed investment is very rapid growth begins to slow down, demand can spiral out of control. This is especially true when part of a mechanism to stimulate demand is intentionally increased lending and bubbles in asset prices. So, who should be the first to learn this vital lesson? China - That's who.
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