ahhaha -
Your explanation of the current account and the marginal efficiency of labor was very enlightening, and I thank you for taking the time to explain. I have also heard it argued that the increasing trade deficits with Japan were offset by the long term decline of the dollar vs the yen. Sort of a long term competitive devaluation.
I find my thinking challenged on the question of Japan, however. They have pushed interest rates as low as they can go, and yet, for many months I have been reading that Japanese businesses are going under because they are unable to obtain financing. It is not that there is a lack of demand for money, but that lending restrictions have been exceedingly tight. It seems that there is apparently little incentive for banks to make loans, particularly at the margins. A few months back the MOF apparently called the heads of some of the largest banks into their offices and beat them about the heads and shoulders concerning their lending policies, and insisted they start loaning out more money. One unidentified banker was heard to mumble afterwards, "What a joke." I've heard this situation in Japan called a "liquidity trap."
Low interest rates in Japan have failed to stimulate investment (unless we are talking about overseas investment), instead, they seem to have had the opposite effect. The reluctance to lend has contributed to an increasing number of business failures, which have been helping to drag Japan into recession. Perhaps these failures are inevitable, and Japan will be better for it. Milton Friedman says they should just crank up the printing presses.
Do you recall last year just before he came over to the US Hashimoto was telling Japanese investors that by the end of the year the JGB would be a better buy than US treasuries? That would seem to imply a decline of the dollar vs the yen, and a narrowing of the spread between the Treasuries and the JGB's. Obviously, something didn't work out as he'd hoped. Still, it seems that current holders of JGB's have to get hurt when rates go back up, as they eventually must.
regards - Tom |
