More deflation in Japan

[The Don]

what I mean is that banks are still undergoing their slow-motion implosion, having already been bailed out and consolidated once before (Bankia) the implosion continues, more bailouts will be required (perhaps 2-300 billion Euros) still required if everybody told the truth.

http://uk.reuters.com/article/2013/03/27/uk-spain-banks-ceiss-idUKBRE92Q16I20130327

Spain's banking crisis is on pause, for the moment but a long way from over, and as I understood it, banking crises are somewhat deflationary in nature?

Whether or not they are "deflationary in nature" (which, if they reduce the amount of money in circulation they may be) the truth is that deflation is not happening in Spain.

but life is a zero sum gain? your win is always somebody else's loss, inflation or deflation doesn't change that. everybody can never win can they, whether their money gets more or less valuable is just different challenges.

In an inflationary environment (positive sum) it is possible that competing companies can all grow.

In a static economy (zero sum) growth of one company can only be done at the expense of another

In a deflationary environment (negative sum) companies have to gain business from other companies merely to stand still

the economy has been and is still deflating, there's no doubt about that.

Is your conflation of contracting (which the Spanish economy is) and deflating (which the Spanish economy is not) deliberate or accidental. In either case, please stop.

from your link, inflation weightings are quite different to the US, what would US figures work out to if calculated like this, do we think?

Why should inflation calculations from one country relate to spending patterns in another ?

By all means do the calculations but they would be nonsensical.

I guess the question is "what things are getting cheaper in Spain these days ?"

I wonder how inflation in some other places would look using these weightings and whether it would alter the perceived "need" for stimulus

..not Japan, I believe them, at least.

I don't know, but see my earlier comment about calculating inflation in one country based on spending patterns in another.

 

[kevsta]

Whether or not they are "deflationary in nature" (which, if they reduce the amount of money in circulation they may be) the truth is that deflation is not happening in Spain.

In an inflationary environment (positive sum) it is possible that competing companies can all grow.

money for nothing and magic business for free? some of us don't believe in magic. putting more money into the supply isn't real extra business.

In a static economy (zero sum) growth of one company can only be done at the expense of another

you are saying that with a stable money supply, growth is impossible unless someone else loses?

In a deflationary environment (negative sum) companies have to gain business from other companies merely to stand still

Or open a bond dealer shop.

Is your conflation of contracting (which the Spanish economy is) and deflating (which the Spanish economy is not) deliberate or accidental. In either case, please stop.

do bubbles not first inflate then deflate? we had a huge housing bubble that was not allowed to fully deflate and recognise full losses, and is still trying, was what I meant. apologies for incorrect terminology, wasn't aware it was critical.

Why should inflation calculations from one country relate to spending patterns in another ?

By all means do the calculations but they would be nonsensical.

really, I could counter why, are simple mathematic calculations of how much things actually cost, then and now, ie how much the same things went up, then taken and run through different arbitrary spending pattern models to give "weightings" and different figures in every country?

how about a standard basic index that is the same everywhere in the world, just the price of a basket of the same things, as a reference point at least?

otherwise presumably you can at least see the silliness of trying to compare inflation between countries when everybody does it differently.

I guess the question is "what things are getting cheaper in Spain these days ?"

cars, boats, housing, local grown food, plenty of clothing sales on as the shops are all closing down. many hotels reducing off-season pricing.

fuel climbing, imported food climbing, taxes climbing, foreclosure and evictions were still climbing until the landmark ruling preventing many evictions, further non-performing debt still hanging..

much of this debt just isnt getting paid, somebody is going to take the hit. I do consider this to be deflationary. (were it ever allowed to happen, obviously)

edit. afterthought, because presumably you would agree what just happened in Cyprus was somewhat deflationary?

they have inflation too, but a whole load of money just vanished into the banking system nonetheless

http://www.tradingeconomics.com/cyprus/inflation-cpi

 

[lomiller]

In an inflationary environment (positive sum) it is possible that competing companies can all grow.

In a static economy (zero sum) growth of one company can only be done at the expense of another

In a deflationary environment (negative sum) companies have to gain business from other companies merely to stand still

Exactly. With the caveat that this is sales/company value and doesn’t account for population growth.

Accruing money/wealth is not a zero sum game unless you have some sort of fixed money supply like the gold bugs want

 

[kevsta]

Exactly. With the caveat that this is sales/company value and doesn’t account for population growth.

Accruing money/wealth is not a zero sum game unless you have some sort of fixed money supply like the gold bugs want

your version of money is not wealth. far from it.

 

[lomiller]

money for nothing and magic business for free? some of us don't believe in magic.

You not understanding the economics involved doesn’t make it magic.

putting more money into the supply isn't real extra business.

Incorrect. Insufficient liquidity means business deals can’t be made because there is insufficient liquidity in the system to allow them to take place. Give the system enough liquidity and these deals can now occur which is very real “extra business”.

 

[lomiller]

Or open a bond dealer shop.

Bonds are something that all but disappear in a deflationary environment. There is no point in lending someone money when that money becomes more valuable simply by holding onto it. Why risk your money for a 0% return when you can keep it for a guaranteed increase in value?

Again, this is because deflation punishes investment.

 

[kevsta]

You not understanding the economics involved doesn’t make it magic.

inflating the money supply and achieving proportional nominal growth doesnt make it real either.

Incorrect. Insufficient liquidity means business deals can’t be made because there is insufficient liquidity in the system to allow them to take place. Give the system enough liquidity and these deals can now occur which is very real “extra business”.

define: "insufficient liquidity" does sufficient liquidity mean amongst other things a continually devaluing currency to trade in?

and what business deals can't be made? you mean people cant borrow from banks or spend their revenues unless extra money is being printed by CBs?

it also doesn't look much like they want to borrow in general at the moment, is this because we have got deflation everywhere and things will be cheaper next year?

 

[kevsta]

Bonds are something that all but disappear in a deflationary environment. There is no point in lending someone money when that money becomes more valuable simply by holding onto it. Why risk your money for a 0% return when you can keep it for a guaranteed increase in value?

Again, this is because deflation punishes investment.

yes. that will be why the Japanese bond market has been so strong these last 20 years then lol.

 

[The Central Scrutinizer]

your version of money is not wealth. far from it.

Yeah, all those billionaires sailing on 400 foot yachts aren't wealthy at all.

 

[lomiller]

define: "insufficient liquidity" does sufficient liquidity mean amongst other things a continually devaluing currency to trade in?

Generally speaking liquidity is measured by the size of the M2 money supply. These days the levels it should be at are judged by its symptom, inflation/deflation. Friedman advocated sizing it by formula but reacting to inflation levels seems to have won the day.

and what business deals can't be made? you mean people cant borrow from banks or spend their revenues unless extra money is being printed by CBs?

Correct. If there is insufficient money (M2 or the national equivalent of US M2) banks have no money they are willing to lend. They can spend their revenue, but since people don’t have enough money to spend your customers have no money to buy anything from you and you have no revenue.

 

[lomiller]

yes. that will be why the Japanese bond market has been so strong these last 20 years then lol.

What part of the Japanese bond market is strong? People consider the government of Japan such a safe bet to repay it’s loans that lending to it for 0% is still safer than keeping cash buried in their back yards. This means the market think there are no issues with it being too far in debt and that they are not willing to put money into other investments.

 

[kevsta]

Yeah, all those billionaires sailing on 400 foot yachts aren't wealthy at all.

and their wealth is entirely moving digits on a computer screen also I suppose?

the boat is the wealth, along with the land and art and cars, and business it came from.

they convert one form of wealth into another through money.

 

[lomiller]

and their wealth is entirely moving digits on a computer screen also I suppose?

the boat is the wealth, along with the land and art and cars, and business it came from.

they convert one form of wealth into another through money.

So I have a billion dollars but now boat so I have no wealth, but if I buy a boat suddenly I do have wealth? If I had no wealth at the start how did a get the boat?

 

[kevsta]

So I have a billion dollars but now boat so I have no wealth, but if I buy a boat suddenly I do have wealth? If I had no wealth at the start how did a get the boat?

it is in a highly transitory form, and will not be a billion real value in the not very far off future.

being as Alien analogies are ok for genius Nobel Laureattes, perhaps I can use one?

..so there's this benign bunch of stoner Aliens that have been watching us for a while in near orbit, who are a bit slack on their maintenance and accidentally blow a warp drive while over the mid Atlantic.

This has the unfortunate side effect of letting off a powerful EMP taking out all electronics across Northern America & Europe.

being your average sort of Billionaire, you've got a boat, a few houses, a jet, a big pile of gold, a garage full of armaments and some guys working for you and approx $750 million in various stocks and shares and bonds.

what do you think your wealth is after the EMP? real wealth will survive generations, not just vanish like an idea under the right circumstances.

 

[The Central Scrutinizer]

it is in a highly transitory form, and will not be a billion real value in the not very far off future.

As the gold bugs have been saying now for decades. When will they finally be right? Oh, I know....any day now^(tm).

 

[kevsta]

As the gold bugs have been saying now for decades. When will they finally be right? Oh, I know....any day now^(tm).

what part of "continually devaluing", do you not understand?

 

[lomiller]

it is in a highly transitory form, and will not be a billion real value in the not very far off future.

The boat is likely to deprecate in value more quickly than cash would. Furthermore it’s pretty easy to find extremely low risk investments to place your money in that more than offset inflation. Government bonds are often used for this. The deprecation of the boat would not be so easy to offset, and in fact boats are quite expensive to have stored.

..so there's this benign bunch of stoner Aliens that have been watching us for a while in near orbit, who are a bit slack on their maintenance and accidentally blow a warp drive while over the mid Atlantic.

This has the unfortunate side effect of letting off a powerful EMP taking out all electronics across Northern America & Europe.

being your average sort of Billionaire, you've got a boat, a few houses, a jet, a big pile of gold, a garage full of armaments and some guys working for you and approx $750 million in various stocks and shares and bonds.

what do you think your wealth is after the EMP? real wealth will survive generations, not just vanish like an idea under the right circumstances.

First of all I suggest you consider a comparable question. If your “wealth” is a boat what happens if your boat catches fire?

Now as to what happens to your wealth in the case of this EMP? Since the EMP would effectively stop businesses from operating it would have a similar but more extreme effect than a lack of liquidity. The business your investments are predicated on would no longer make money and loose all their value. You would still be entitled to collect on the bonds but since the bond issuers are most likely bankrupt as well, you would not be able to collect.

The boat house may or may not be worth something to someone but what would you ask in return?
There always seems to be someone silly enough to accept gold in trade, but what they would offer is certainly going to be drastically less than what you could get before the EMP. You can’t eat the stuff after all.
Guns could be traded no doubt, or you could use them to steal what you wanted.
The men working for you, who knows. Since you can no longer pay them they may just leave. You could give them some of the guns and have them steal stuff for you and pay them out of the proceeds, but why would they give you any of what they stole when they could just keep it all for themselves.

The real value item in this scenario would be freeze dried/canned food, seeds, maybe livestock, other useful items like matches, etc. Things you don’t seem to have on your list. You could of course use the guns to steal some of these but that carries a whole set of risks of it’s own.

None of your “wealth” survives generations in this scenario IMO.

 

[kevsta]

What part of the Japanese bond market is strong?

the 960 trillion Yen outstanding at record high prices (low yields) part ?

are you saying then that the bond market will weaken, or strengthen if they now get inflation?

People consider the government of Japan such a safe bet to repay it’s loans that lending to it for 0% is still safer than keeping cash buried in their back yards. This means the market think there are no issues with it being too far in debt and that they are not willing to put money into other investments.

I'm not sure you really get bonds and deflation. one of us doesn't anyway.

As far as I'm aware investors head towards bonds as things get deflationary, because it is +0.5% on top of the deflationary gain, from about as risk free source as you can get it.

Witness the pile into Treasury bonds in 2008 / 2009 which caused such dollar strength, and the same in every scare, ever since.

Negative yields? this is caused by extreme fear of deflation. People heading into bonds causes that, not away from them?

Its also why pension and general fund managers are so heavily into fixed income as guaranteed risk free spread, without the risk of inflation eating your real returns? & it's the whole basis of the carry trade "free money" to speculate on risk assets with.

This is also why people (allegedly) rotate out of bonds and into risk assets as a recovery starts?

what am I missing?

 

[The Central Scrutinizer]

what am I missing?

Mods: Please add extra hard drive space.

 

[kevsta]

The boat is likely to deprecate in value more quickly than cash would. Furthermore it’s pretty easy to find extremely low risk investments to place your money in that more than offset inflation. Government bonds are often used for this. The deprecation of the boat would not be so easy to offset, and in fact boats are quite expensive to have stored.

First of all I suggest you consider a comparable question. If your “wealth” is a boat what happens if your boat catches fire?

well its not all your wealth, is it? it is a metaphor for "real things"

None of your “wealth” survives generations in this scenario IMO.

don't confuse you not surviving with the wealth not surviving

your land is still there, your gold is still there, you think nobody else in the world wants it now? in a year or two when you've all died off I'm sure some settlers might make good use of it all.

of course they wont be using dollars though.