here's a response to the author of that post that might answer part of your question...... btw... you can subscribe to this email list at longwaves....
here's the response from von Baronav
Other than the effect of the "long wave" the comparison is not valid. The
1930's had an excess of labor - worldwide. This does not appear to be the
case in Japan today. The timing is different. If anything the crisis in
Japan is more of a financial one than an economic one. Sure unemployment is
up but the economy is still cooking along. True, no where near the boom
days of the 1980's but the Japanese now have competition to deal with. Go
take a look at the new products by Sony - especially in the computer area -
they are innovative and cheap. The refinement of product is where Japan
shines. With the Computer Juglar going into the down grade refinement and
narrowing of margins is a positive event for the Japanese Electronics
industry.
Today liquidity worldwide is very high - even in Japan. In the 1930's
liquidity, as is typical of the worst part of the down grade, was tight.
Yes savings were up as is now true in Japan, but not the same way. Savings
were redirected to small insurance policies much like savings were recently
redirected in Turkey to gold.
Yet looking at the Eastern Banking crisis in the 1890's a parallel situation
existed. Money moved away from the East Coast in favor of the West Coast,
just like it is moving away from Japan. People are not stupid. With
interest rates at or near zero and the Yen declining in value there is no
reason to invest in over capacity at home. This is a direct result of
excess liquidity that cannot get a good return - not a result of a lack of
liquidity. I believe England went through a similar crisis towards the end
of WW II very similar to the 1890's East Coast Banking Crisis - Mike is more
up on this than I am.
Of course the best thing that Japan could do today would be to raise rates
to world levels and compete for funds - not very Keynesian. This would
drive money out of savings and into spending. It would also improve the
balance sheets of the banks. A side note, I would expect consumer spending
to pick up in the U.S. as a result of the recent stock market decline. Why
would you spend money on other than capital investment when stocks are going
up? When the return in multiplying dollars is too great consumption is
discouraged. After the decline then it becomes profitable to consume before
all of the gains are eaten away by the bear market.
Eric Von Baranov
-----Original Message-----
From: longwaves-owner@csf.colorado.edu
[mailto:longwaves-owner@csf.colorado.edu]On Behalf Of Tom Drake
Sent: Saturday, March 24, 2001 12:51 PM
To: longwaves@csf.colorado.edu
Subject: Liquidity Gaps and the Long Wave
Paul Krugman's notion that Japan has been in a Keynesian
liquidity trap has been widely trumpeted about by him, at least until
after the 1998 Asia meltdown. ("The Return of Depression
Economics")
The usual way of putting the liquidity trap has been that it is like
pushing on a string, and that low or non-existent rates do not
create demand. Slight increases in the demand for money can and
do push rates up, and people (markets) do not believe that rates
can stay down at very low levels for very long. Thus rates tend to
rise in such a way as to counter the effects of the stimulus.
The Keynesian/Krugman solution is to create or administer
inflation so as to counter the tendency to save at the higher rates
rather than to spend or invest. The prevailing mythology, as I
showed before in quotes from Antal Fekete, was/is that it was
World War II that "saved" the economy of the 1930's by massive
inflationary spending.
As Fekete showed it was massive deficit spending throughout the
1930's which swelled the government bond market and prolonged
the "flight to safety" which bled deposits out of banks. With a much
smaller bond market the bond prices would have roared up quite
quickly and rates would soon have dropped to levels conducive to
new investment in business. As it was it took far longer, 1941 or
1942, well after the start of WW II. It wasn't a loss of confidence
per se which caused the run on banks; it was the loss of deposits
running into government bonds at high real yields which eroded the
lending base and reserve base.
(More later.)
TD |
