Thanks Hawk, I suspected that the $12 trillion figure was something of the sort. And it is an asset number so cash would be some subset. And, while I doubt anything but a negligible portion will be directed towards gold, I won't deny that they could. Just for the record Citibank, and many foreign banks, in Japan offer non yen savings deposits. So if the Japanese do lose faith in the government, and given the national character that could take a long time, they do have alternatives.
Fwiw comparing the current situation with the 1930s is a bit of apples and oranges. The 30s was an era with very stringent international capital controls. In addition exchange rates were a matter of international agreements. So when the US wanted to devalue they could do so by fiat. The system does not work like that any longer. They would have to balloon money supply or get inflation reignited. No easy task for a deflationary environment.
However, as much as I hate to ever even consider the notion that I might agree with Paul Krugman on anything, I do agree that the only way out for Japan is significant currency depreciation. Actually the route is to repudiate the debt but the only politically feasible way to do that is via currency debasement. Your synopsis of Japanese economic conditions is spot on.
My disagreement is with the notion that gold will protect Japanese capital better than foreign currencies. IF the situation becomes truely Argentine, at least a decade off imo, the biggest arguement pro gold is that the government would forcibly convert non yen currency acounts as is being done in Argentina. But if they go to that extreme what stops them from seizing private gold holdings as well. Its happened elsewhere. So if that is the worst case scenario to defend against then the only defense is capital flight. And once the money is in a safer offshore environment it gets back to, imo, the point that a currency like the dollar which provides a real rate of return offers better long term protection than gold.
Btw I agree that Japan needs a skock to the system to break them out of this Sargasso Sea of inaction.
Henry |
