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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Hawkmoon who wrote (5456)	1/24/2002 8:40:46 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 33421

Hawk, I've come to similar conclusions. Demographics will be an issue in many Western nations but is the most intractable in Japan because of the xenophobic nature of the society. The US gets through it the easiest because the open nature of our society welcomes immigrants. Europe falls into the middle. Japan, as you say, needs to import younger workers to prop up the tax base. This need becomes even more acute when you consider retirement funding. There has been little discussion of this issue. Both private and public retirement benefits are funded on a largely pay as you go basis (there are a few exceptions). We may complain about the Social Security Trust Fund but at least it exists and is already factored into the national debt numbers etc. Also private pensions are tightly regulated and the money is segregated. Very few Japanese companies have segregated any funds for future benefits. This will only exacerbate the problems of an aging population. As much as I have looked at Japan it is hard to find any solution other than a massive devaluation and effective repudiation of the debt. It is the repudiation of the debt that is essential. Since an outright repudiation is politically impossible the currency debasement is the only option. But this carries its own problem. First off its trade benefit will be short lived, imo, as imported inflation flows through quickly. But most importantly it will meet incredible political resistance globally. There are plenty of hard memories of Japan building its economic engine on exports. Much of this was due to their hard work but there were plenty of legitimate questions about one sided trade practices. For Japan to now come back to the global community and say that they now need to be allowed competitive devaluation to bail themselves out of this problem will fall on deaf ears in most of the world. The question is how long will the Japanese people endure the current situation before they radicalize. My personal suspicion is that they are not near that breaking point yet so the current governing philosophy will continue. Given that I suspect the government will get the world to accept a series of half measure. They will devalue a little bit each year while taking half measures internally. This will keep the economy semi comatose. Meanwhile as each year passes the world economy reconciles itself to Japan as the 'sick man of Asia'. At the same time China continues to grow as an Asian economic power. China brings its own geopolitical issues of course but it is inevitable that it becomes a more important economic engine for Asia. Under this scenario the Japanese economy stumbles its way from half measure to half measure. It doesn't resume strong growth but it doesn't collapse either. It just becomes less important each year, it goes with a whimper not a bang. Just a growing suspicion on my part. By the way if anyone thinks such a resolution is impossible it is worth remembering that Argentina was once an economic power with per capita income on par with the US. It became an economic basket case slowly over decades (40s,50s,60s,70s). Henry