Re: Newspapers and Bank of Japan Are All Wrong About Bad Loans

["Charles Jannuzi" <jannuzi@xxxxxxxxxxxxxxxxxxxxxxxxx>]

> what do you think of the Krugman proposal that the Bank of Japan set an
> inflation target of 2 or 3 percent per year in order to fight deflation
and
> get real interest rates down (to stimulate spending)?
> Jim D

To my mind, Krugman is more a paid consultant and NYT author than he is an
economist or anyone I should take very seriously. The 'liquidity trap' is
nonsense. Where was he when I said deflation was the problem 4 years ago
(but then again, where was I, obscurity knocks!).

I don't buy all of the Krugman analysis or the proposals (pegging the yen to
the dollar at 150 to the dollar, lowering interest rates on loans by raising
savings interest rates, and increasing personal consumption). The last part
is the weak part of the whole argument. Reflate the economy and stablize it
and quell peoples fear and consumption will go up. Consumption isn't going
to go up just because everyone can take out even more affordable loans. To
my eyes, consumption never went away. Unlike all the empty malls I saw in
the US two years ago, shopping places here are always crowded.

However, there is the 'Uniqlo effect'. You buy two coats made in China with
the strong yen and you just consumed less than you did last year buying one
coat made in Japan. Uniqlo is a retail and mailorder company that sells high
quality, low priced clothes nationwide. It's been able to do this because it
has its own design, production and distribution system that links it with
both its producers in China and its stores and customers all over Japan.
It's also been able to do this because the Chinese currency is way, way
undervalued against the yen. Another example: a McD's hamburger sells for
less in Tokyo than NYC. These phenomena now pervade the retail sector in
Japan.

If you unilaterally set hard targets and pick simple means to achieve them,
venture/vulture capital (mostly from the US but also France) eats you alive.
Raising interest rates on savings might just ruin banks' profits still
further, and it would seem thousands of small and medium sized companies
just want to pay off the loans they have now instead of taking still more.

 What's needed is coordinated dollar-yen policy from both the US and Japan
to push the yen back in stages toward PPP and keep it there til the economy
reflates. Then companies will start to make money, whether or not they
export (now a mixed bag since Japanese exporters have so much of their
production of commoditized stuff in China, Thailand, Malaysia and even the
US). And loans will start to become payable again (for the thousands of
small and medium sized companies many of which have restructured and redrawn
their business plans after the keiretsu abandoned them).

The US doesn't care about coordinating a weaker yen; I'm sure 140 is the
line that the Japanese can't cross, and in fact the markets are betting more
like 135 as the level O'Neill has set.
When O'Neill and Bush say 'restructure' what they really mean is: Japan can
be the next Philippines for all we care, US venture capital (e.g., Carlyle
Group) will now run the show. This ties in neatly with the priorities of the
US administration on the next round of WTO: free up venture capital to buy
up anything that is networked (telecoms, internet, finance, energy markets,
etc) and the US leads the way. Japan is well on board; too bad it's going to
destroy their financial system in the process.

Right now the only thing that is happening is Koizumi thinks 'reform' and
'liberalization' and 'restructuring' are miracles performed by 'markets' and
vulture capital gathers, circling the drain, closing in...closing in all
those wonderful 'bad' loans and billions in luchre!

Charles Jannuzi