Rajiv
06-08-08, 08:34 AM
Interesting article from Elaine Supkis - "Weak Yen Status Quo Returns (http://elainemeinelsupkis.typepad.com/money_matters/2008/06/weak-yen-status.html)"
Yesterday the G7 central bankers got together to puzzle about the mysterious banking collapse. The head of the Bank of Japan, Shirakawa, was very smug about things. As he should be! Japan is getting away with destroying the international banking system thanks to openly running their system at the dreaded near 0% rate. He even charmingly admits that Japan's real rate of inflation is far above the interest rate he charges industrialists and carry traders. But the rest of the bankers are happy with this! The entire international banking system is based on the Japanese carry trade. We are trapped in this nexus that depends on 0% interest at one point. All others are supposed to struggle to suppress inflation but not Japan. Japan doesn't even have to starve the workers to get negative inflation numbers. Thanks to this addiction to easy Bank of Japan lending, the other bankers are forgiving the upside down interest rate regime. But this system is doomed. It will cause FUTURE global inflation that will not stop unless the Japanese carry trade is killed.
Keynote Speech by Masaaki Shirakawa, Governor of the Bank of Japan
(http://www.boj.or.jp/en/type/press/koen07/ko0806a.pdf)
These global economic forces, both downside and upside, affect Japan’s economy through a variety of channels, adding to uncertainty for policy-makers. In this situation, Japan’s economy is slowing because of the deterioration of the terms-of-trade associated with higher import prices. Corporate earnings are squeezed by soaring energy and raw material prices, and industrial production and capital investment are losing traction somewhat. Business sentiment is increasingly on the cautious side with greater downside risks to the global economic outlook. As these headwinds are likely to stay for some while, Japan’s economy seems to slow for the time being. With regard to the baseline scenario for the next one to two years, however, I am of the view that Japan’s economy will grow near potential. To be more specific, Japan’s growth rate will pick up again after some hiatus to reach one-and-half percent in 2008 and somewhat higher in 2009, both of which are close to Japan’s potential growth rate.
I notice that when the Bank of Japan talks, outside of China, no one listens. Everyone waits in agony to decipher the mutterings of the US Federal Reserve bankers. But I seem to be nearly alone in watching Japan like a hawk. At first, several years ago, I assumed after arguing with people like Krugman and Setser that they were ignorant about the truth about Japan's economy due to their fixation on China's currency values. I thought, if I were to pepper them with charts, graphs and numbers showing clearly how the Bank of Japan is operating this bizarre scheme to exploit the concept that they were in a depression, they would see the light. But I failed. It was impossible.
This is due to people communing with each other. People, when they talk to only their own kind, end up being 'elitists' and can't see things clearly since they are involved in 'group think.' So huge parts of reality become opaque and vanish in the fog of the moment. I hoped as the years made it crystal clear that my understanding about the Bank of Japan would take hold due to a mountain of obvious data. Then, everyone would turn and see the danger to our backs. The looming victory of China over the US in the international arena has blinded people to the other side of our danger. For we are in deep trouble not just with rivals but our allies! One thing is now absolutely certain: the silence about Japan is no longer ignorance. It is a collective desire to restart and regain the stupid, dangerous Japanese carry trade!
I have posted more than once, my disgust with this desire. If they do desire this deadly deal, they at least should talk about it and discuss in public how the goofy near 0% Japanese interest rate scheme dominates global banking. And how it is the WELLSPRING of all new money. All new Funny Money™, that is. The only explanation I can give as to why they collectively refuse to talk about this wonderful well of eternal easy credit is because they desperately want to continue to tap it. Instead of facing the truth, they hope that if no one notices this interesting source of easy lending, no one will question the results. Or if they do, the economists and bankers can blame the people who take on this vast well of debts. 'Why, they can't pay interest even on these infinite loans!' cry the bankers as they pump more and more easy lending into the monetary system.
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.
(contd)
Yesterday the G7 central bankers got together to puzzle about the mysterious banking collapse. The head of the Bank of Japan, Shirakawa, was very smug about things. As he should be! Japan is getting away with destroying the international banking system thanks to openly running their system at the dreaded near 0% rate. He even charmingly admits that Japan's real rate of inflation is far above the interest rate he charges industrialists and carry traders. But the rest of the bankers are happy with this! The entire international banking system is based on the Japanese carry trade. We are trapped in this nexus that depends on 0% interest at one point. All others are supposed to struggle to suppress inflation but not Japan. Japan doesn't even have to starve the workers to get negative inflation numbers. Thanks to this addiction to easy Bank of Japan lending, the other bankers are forgiving the upside down interest rate regime. But this system is doomed. It will cause FUTURE global inflation that will not stop unless the Japanese carry trade is killed.
Keynote Speech by Masaaki Shirakawa, Governor of the Bank of Japan
(http://www.boj.or.jp/en/type/press/koen07/ko0806a.pdf)
These global economic forces, both downside and upside, affect Japan’s economy through a variety of channels, adding to uncertainty for policy-makers. In this situation, Japan’s economy is slowing because of the deterioration of the terms-of-trade associated with higher import prices. Corporate earnings are squeezed by soaring energy and raw material prices, and industrial production and capital investment are losing traction somewhat. Business sentiment is increasingly on the cautious side with greater downside risks to the global economic outlook. As these headwinds are likely to stay for some while, Japan’s economy seems to slow for the time being. With regard to the baseline scenario for the next one to two years, however, I am of the view that Japan’s economy will grow near potential. To be more specific, Japan’s growth rate will pick up again after some hiatus to reach one-and-half percent in 2008 and somewhat higher in 2009, both of which are close to Japan’s potential growth rate.
I notice that when the Bank of Japan talks, outside of China, no one listens. Everyone waits in agony to decipher the mutterings of the US Federal Reserve bankers. But I seem to be nearly alone in watching Japan like a hawk. At first, several years ago, I assumed after arguing with people like Krugman and Setser that they were ignorant about the truth about Japan's economy due to their fixation on China's currency values. I thought, if I were to pepper them with charts, graphs and numbers showing clearly how the Bank of Japan is operating this bizarre scheme to exploit the concept that they were in a depression, they would see the light. But I failed. It was impossible.
This is due to people communing with each other. People, when they talk to only their own kind, end up being 'elitists' and can't see things clearly since they are involved in 'group think.' So huge parts of reality become opaque and vanish in the fog of the moment. I hoped as the years made it crystal clear that my understanding about the Bank of Japan would take hold due to a mountain of obvious data. Then, everyone would turn and see the danger to our backs. The looming victory of China over the US in the international arena has blinded people to the other side of our danger. For we are in deep trouble not just with rivals but our allies! One thing is now absolutely certain: the silence about Japan is no longer ignorance. It is a collective desire to restart and regain the stupid, dangerous Japanese carry trade!
I have posted more than once, my disgust with this desire. If they do desire this deadly deal, they at least should talk about it and discuss in public how the goofy near 0% Japanese interest rate scheme dominates global banking. And how it is the WELLSPRING of all new money. All new Funny Money™, that is. The only explanation I can give as to why they collectively refuse to talk about this wonderful well of eternal easy credit is because they desperately want to continue to tap it. Instead of facing the truth, they hope that if no one notices this interesting source of easy lending, no one will question the results. Or if they do, the economists and bankers can blame the people who take on this vast well of debts. 'Why, they can't pay interest even on these infinite loans!' cry the bankers as they pump more and more easy lending into the monetary system.
.
.
.
.
.
.
(contd)