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To: GST who wrote (101451)	4/18/2000 11:14:00 AM
From: H James Morris	Read Replies (1) \| Respond to of 164684

Gst, Bio-tech? I still like Amgn...that's the only Bio...I currently have. Re: Japan. I thought this article might interest you. >In the United States, demand exceeds supply and the central bank fears inflation. In Japan, supply exceeds demand and there is chronic deflation. It's symptomatic of the global imbalances that ministers of the G-7 nations, who huddled over the weekend in Washington, talked about: Economically, the United States has been leaving Japan and Europe in the dust, roiling currency and capital markets. The sell-off in U.S. stocks may be considered a relief of sorts: The International Monetary Fund has been warning that American equities are overvalued, worsening the international disequilibrium. (Yes, "disequilibrium" is a word the ministers love to toss about, when they aren't expatiating on "exogenous variables.") After a wave of government spending that artificially propped up the economy in the first half of last year, Japan slipped back into recession in the second half, as growth was sharply negative and prices continued to drop. However, economists think the Japanese economy is growing again this year. Last week, the Economic Planning Agency said the Japanese economy is moving toward full-fledged recovery; two days earlier, the Bank of Japan upgraded its assessment. But it's been like this for more than a decade: The economy sinks, seems to recover, sinks again, struggles upward, recedes again, etc. The analysts who are suddenly bullish on Japan forget that the fiscal deficit will be 8 percent to 9 percent of total economic output this year; public debt could hit 130 percent of output in the next 12 months. That's the highest in the G-7 now. "In the modern period, only a few industrial countries with profligate spending policies such as Italy" have hit a ratio like 130 percent, says Chicago economist David Hale of Zurich Kemper Insurance. The Japanese economy has been in the doldrums for a decade because of "the deadly combination of a deflationary policy bias exacerbating the problems of an insolvent banking system," says John H. Makin of the Washington, D.C.-based American Enterprise Institute. The banking system collapsed with the bursting of the stock and land price bubbles in 1990, Makin says, and policy-makers haven't put banks back together again. Only recently have other financing alternatives, such as venture capital issues and equity flotations, arisen to finance business in any meaningful way, he adds. The insolvent banking system and massive deficits frighten consumers, who account for 60 percent of economic activity. "Japanese consumers remain passive, fearful of the malaise in the banking system and the attendant persistence of deflation," Makin says. Consumers also worry that the massive government spending will lead to higher taxes. That inhibits consumption. Makin believes the Bank of Japan should have an inflation target -- say, 1 percent or 2 percent. It could announce that it would like to see the yen fall to 120 or 130 to the dollar, and intervene to knock down the currency. Over the weekend, the Group of Seven made no mention of a coordinated effort to knock down the yen; presumably, that job will be left to Japan. Last week, Japan's financial leaders were talking about ending the country's loose monetary policy -- perhaps raising interest rates for the first time in 10 years. Early last year, the Bank of Japan had adopted a policy of pushing Japan's overnight call rate (similar to our federal funds rate) virtually to zero. It's called the "zero interest rate policy." Last week, the government was thinking about ending that policy. Over the weekend, it appears, G-7 ministers talked Japan's leaders out of that. The IMF strongly wants the zero interest rate policy to remain in force. U.S. Treasury Secretary Lawrence Summers says that a Japanese recovery is far from clear. Europe is stumbling, too -- and the United States needs other countries to buy its exports. There is no way to explain away the big jump in U.S. consumer prices announced Friday. Our Federal Reserve's interest rate increases have now been validated -- although many think that the Fed caused the stock market bubble, which may finally be bursting, by pumping excessive reserves through the banking system in the 1990s, particularly in 1999. Japan created a somewhat similar bubble in the 1980s. Ten years after the bubble burst, the Japanese still fight deflation. Both countries can learn from each other. Maybe they learned something over the weekend.