William - I'm still a bit perplexed about the whole deflation/inflation debate. I tend towards the view that inflation is ultimately a monetary phenomenom, and everything I've read says that the major economiies are pumping out currency at a rapid clip, much of it going to paper over the problems in Asia, all part of the effort to keep the credit/debt revolving.
Still, it doesn't seem to me that all of this has changed the facts one bit, ie the debts haven't disappeared, the loans haven't been repaid, many of them never will be, they are still there and they are not going away. When you look at Korea and Japan, it really begins to look like a fascade, the whole aim of the game is to maintain confidence that the debt can be serviced. Can it? The idea is that over time, economic growth will overcome all of the bad debts. But that hasn't worked in Japan, where the cask has developed a vacuum as growth languishes and balance sheets deflate. Who is going to finance growth in Korea? I think the Korean investor will be a long, long time getting back into the market, just as in Japan. Japan has had .5% rates and hasn't even started to fix her debt problems, I think Milton Friedman is correct, eventually they are going to have to print money. Yet, liquidity has gone to the point that they have to be concerned about the stability of the yen. Liquidity trap? When your currency is devalued, then you are suffering inflation. It seems to me that right now, inflation/deflation is a matter of which side of the border you are on, or in what currency your debt is donominated. Is it correct that Japan's foreign currency reserves don't come anywhere near to her burden of bad loans? This crises was not supposed to affect us, was supposed to be an Asian problem, then it became clear that overseas banks were threatened and we started getting down to the nitty-gritty: can't allow a default, because then we have a problem. What about the US ability to service her debt? The US is faced with massive, growing budgetary liabilities going forward. What will be the cost of servicing these debts? Can we be assured of servicing our debt at 6% indefinitely? How about in a slowing economy, with declining tax reciepts? We are already paying a considerable premium over our counterparts in Germany, France, and Japan! Why? Isn't the dollar supposed to be King?
Tom |
