Re: Japan

["J. Barkley Rosser, Jr." <rosserjb@xxxxxxx>]

Geoffrey,
      Very interesting data source.  It definitely shows a
peak in land prices around 1991 with gradual declines
since.  This contradicts what is in Ito and Iwaisaku.
Barkley Rosser
-----Original Message-----
From: GGard97342@xxxxxx <GGard97342@xxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Date: Thursday, February 24, 2000 9:03 PM
Subject: Japan


>In a message dated 24/02/2000 15:32:43 GMT Standard Time,
>bmoore@xxxxxxxxxxxxxxxxx writes:
>
>> 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?
>>
>>  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?)
>
>Very good questions, Basil Moore. Open the mind and try these answers for
>size.
>
>Japanese land prices are available from the Japanese Real Estate Institute
at
>
>http://www.reinet.or.jp/index-e.htm
>
>Start your student off by reading Thornton or Tooke to learn the
following:-
>If a country's interest rates are lower than all other countries' rates,
>money is lent abroad, not at home. This causes price deflation in the low
>interest rate country and price inflation in the high interest rate
country.
>(Schumpeter gives a good summary and references.)
>
>The theory that the opposite relationship is true derives from the answer
>given in 1832 by the then Governor of the Bank of England, J Horsley
Palmer,
>to question 678 of the Althorp Committee. They are in the report of the
"The
>Secrecy Committee" of the Bank of England (see Schumpeter page 698). Send
>your student to the Bank of England's Archives - Mr Gillett, the archivist,
>is a very nice man - and ask him of her to read the answers to the other
912
>questions which Palmer answered. Among them he will find some empirical
>evidence, given by Palmer, which refutes his own armchair theorising about
>interest rates.
>
>Next get in touch with Professor David Llewellyn of Loughborough University
>to learn something about the way the Japanese banks were affected by the
>Basle Accord of 1988. A popular version appeared in the January 1992
edition
>of "Bankers' World", then the journal of the Chartered Institute of Bankers
>in London. To comply with the Accord the Japanese Banks had to raise their
>tier one capital adequacy ratios, and as unprofitable banks cannot raise
>extra capital, they probably had to reduce lending. Get him to check out if
>this is true. The value of property depends upon how much one can borrow to
>buy it, so reduced lending means crashing property prices.
>
>It can mean crashing share values too, if people have been borrowing to buy
>shares. Japanese banks' capital base is commonly invested in company
shares,
>so if lending to buy them is reduced, the prices go down, and the capital
>base of Japanese banks falls, leading to further reduction in lending
>capacity. For an account of the origins of the Basle Accord see "Essays in
>International Finance No. 185", December 1991, International Finance
Section,
>Department of Economics, Princeton University.
>
>It is of course a clever wheeze to buy the shares of companies to whom you
>lend money, and the Japanese possibly thought they were improving upon a
>German practice. But the German banks have long term liabilities in the
form
>of their internally invested pension funds, so they do not have to take the
>risk of using their shareholders' funds to buy equities.
>
>To add to the problems the Japanese Government fell for the propaganda of
the
>Henry George claque, and introduced a "Land Value Tax" in 1996. A land
value
>tax is a disguise for full or partial land nationalisation so it naturally
>lowers land values.
>
>On second thoughts the first thing you should do is remind your student of
>the wise words of Dr Samuel Johnson, "You must rid your minds of cant."
>
>The Japanese could be justified in thinking that the Basle Accords were an
>Anglo-American conspiracy to wreck the Japanese banking system.
>
>Have fun,
>
>Geoffrey Gardiner
>
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