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

["ÁÎ×Ó¹â HenryC.K.Liu ¹ù¤l¥ú" <hliu@xxxxxxxxxxxxxx>]

Warren Mosler wrote:

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

I think the Japanese are fighting a different but largely unspoken battle.  In order
to revitalized the Japanese economy, they need to restructure it along non-Japanese
lines.  This they are yet not prepared to do.  Their strategy is keep its unique
Japanese characteristics while adopting "gradually" as they have always done in
reaction to external pressure.  They have one trump card - their trade surplus which
permit the government to absorb most of the pain, for another decade if necessary.

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

This is Japan's strategy.

>
> > 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.

Land prices is the floor of the Japanese economy.  The system cannot accept a drastic
devaluation of land prices.  The banks are not merely lenders, but investor in the
kand boom as is the industrial sector, even the government.
Also a downward adjustment of real asset value will stregthen the yen, a condition the
Japanese government avoids at all cost.
Hong Kong has a parallel dilemma, except that the HK$ is peg to the US$. So
theoretically the only adjustment rests on real asset value.  But since the entire HK
economy is bulit on high property value, the government must intervent to keep both
the peg and property value from falling.  The penalty then is protracted economic
shrikage, high unemployment and delayed recovery.

> > 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!

ELR, though a very good concept, may not work in Japan, mostly because Japan does not
have a market-induced high unemployment rate.  Japan has a growth stagnation problem
and a government supoorted underemployment problem.

> > 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.
> >

Worse than that, the Japanese put their money in banks to get a relatively slower rate
of value erosion that in other investment.  That is why a tax on saving did not move
any funds out of the banks.
This is one of the reasons the government decided to borrow from banks to fund its
deficit.

Henry C.K. Liu