Re: Gen. Theo. Sem. response to Basil Moore

[Warren Mosler <mosler@xxxxxxxx>]

Basil Moore wrote:

> Warren
>
> I agree wholeheartedly that we must find an explanation for Japan. Why is
> it that low rates there have not induced the private sector to deficit
> spend, so that the government must do it?

It could be a lot of things, including the tax structure and other institutional
structure.  Not to mention cultural biases.

So why not let the public sector use that which the private sector won't,
at least until the private sector 'kicks in?'

>
>
> I have a student working on this, and think one reason may be asset deflation:
>
> Stock prices fell sharply from 89 to 91, but land prices did not. (My
> student is trying to find a series for Japanese land prices. Have you seen
> one?)

A couple of years ago.  I think it was from one of the dealers, maybe Nomura.

>
>
> I have heard that land prices are still falling, but relatively slowly, say
> 10-20 % per year. Given the high price of land, (1 Million US$ a lot), and
> the expectation that land prices will be lower next year, these
> expectations serve to deter spending. Asset deflation may be viewed as is
> deflation generally, as raising the real rate of interest on loans. This
> was the case in the late 30's in the US, when expectations of further falls
> in the goods and asset price levels were prevalent?
>

Probably true.  Sounds like prices are still 'too high' and the adjustment has
further to go?
Income is still too low relative to prices for private sector expansion?

>
> Comments?

ELR would work wonders in Japan.  Make ELR employment respectable with
decent pay and public purpose, so that corporations
would feel good about laying people off and restructuring themselves.
This would then allow the adjustment on the corporate side and the deficit
would float to levels where desired net nominal savings equal actual net nominal
savings
in the private sector, stabilizing prices and creating profitable opportunities in
the private sector?  And, as the economy recovered, the private sector could
begin to hire the elr workers away from the govt, automatically cutting fiscal
expenditures countercyclically?  And don't forget to leave overnight rates
at 0 bid forever!

Best,

Warren

> Basil
>
> Another reason may be that people do not trust that the banks will remain
> solvent, since they suspect that they would have negative net worth, if
> assets were valued at market. As a result they just save, as a precaution
> against future losses on deposits.
>
> At 11:44 PM 12/18/99 -0500, you wrote: