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Gold/Mining/Energy : At a bottom now for gold? -- Ignore unavailable to you. Want to Upgrade?

To: Vieserre who wrote (1424)	7/15/1998 1:00:00 AM
From: ahhaha	Read Replies (1) \| Respond to of 1911

Banks adjust to loan through capital account. To write off simply means to reduce worth just like businesses. Japanese banks don't want to take the loss. They'd rather limp along than cut off the dead leg. With surgery they're up and running in no time. It's all psychology. The problem evaporates as soon as they wish to think it's gone. It's gone simply by acknowledging it. The BIS is like most in the world. The problem is in the perception that there is a problem. There is no real problem, but the fear that there might be one. All these guys have spent so much time and verbiage believing someone else's fear that they believe it too. The only way to avoid such mesmerization is to have the courage to find or admit the truth. There is no demand deposit threat in Japan. That is tantamount to saying there is a run on Sumitomo coming. It's all whether you will save face or not. The Japanese bankers don't want to be exposed for speculating in neo-mercantilism or the effects of it. It is no longer acceptable to be a beneficiary of Japan Inc. If there were a run on a small bank creating a paucity of reserves, the BOJ has many tools to circumvent any problem. That kind of problem was of 19th century vintage. The problem of the 20th century has been on the other side. The banks don't want to stop over-supplying leveraged reserves (loans). The BOJ is going out of its way trying to avoid the elementary solution to relieving the capital position of the shaky banks. The BOJ knows it means the yen will strengthen which will threaten their hubris-laden unilateral economic hegemony of neo-mercantilism. They once were great competitors. The advent of China has relegated them into the role of neo-mercantilists. This is all an attitude problem. The Japanese people could blow China and their coolee labor away. BIS is claiming a liquidity trap exists. I said that this isn't the 19th century. The BIS is spooked or mesmerized by this "linkage" thinking. The Japanese corporations would borrow to meet demand. Demand comes from confidence and the availability of money. Neither is high in Japan now. Confidence is the expectation that if you borrow, business will be good enough to believe it will be easy to repay the loan. There is tons of money in Japan just sitting, but it isn't locked in like occurs with the fear creating the liquidity trap. The fear is far less than what is needed for lock-up. How do you get money moving? Japan could do that by encouraging the purchase of foreign goods. The only way to do that is to make foreign goods cheap. A rising yen accomplishes that end. The yen would rise if the BOJ lowered reserve requirements, increased currency in circulation, and the MOF dismantled Japan Inc. They don't need to do a thing about the bank "problem" just like we didn't ten years ago. If you cut taxes and free up spending and capital, the level of business rises and the pressure on the bank's capital position is relieved. No doubt that if the banks fail to use this opportunity to reduce their over leveraged balance sheets, they would be creating an environment of actual big trouble. The trouble would be that the BOJ would have to bail them out with overt inflationary efforts just like what took place in Germany after WWI. Maybe Perry never opened Japan enough. Time for Japan to do it. China won't wait. One of the reasons economists like those associated with the BIS make so many errors is that they think capital in flight is the dog and labor output is the tail. It is quite the opposite. Never look to the movement of money regardless of size to determine the outlook of an economy. The Japanese could sell every T-bond of ours they own, but after several days and if the FED had Americans staunchly believing they were anti-inflationists, the price of the bonds would immediately revert back to their pre-dump price. It is like that in the stock market. In 1993 and 1994 the largest negative tick volume I ever measured occurred in MSFT stock, but the stock at worst persisted sideways. It was the expectations of future earnings that kept the stock up in spite of massive institutional liquidation. Expectations set persistence of marginal demand and supply, and they set the price, not total demand and supply. Thus, the only reason the yen is falling is because of confidence, not heavy selling. Confidence would quickly reverse if the BOJ practiced stimulative monetary policy. I can tell you the fiscal policy is constructive, but it alone won't do it. Japan won't wait and under its new liberal government eventually will open the money floodgates. Unfortunately it will happen at an inopportune time and it will be done to excess. They're going to have inflation in Japan. Tell me what that will do for gold? Epstein hasn't a clue. The Fed presidents don't agree with him and neither do the monetarists or supply siders. The market raised rates to 21% and that still didn't bust the real estate boom of the '80s. But the interest rate structure stayed deflationarily high for 15 years. Until 1995 no money measure grew, so all these new era economists have declared null and void the meaning of money supply. They've learned a new lesson. The lesson is that a market out of equilibrium long enough can get you to believe the moon is made out of green cheese. The FED can easily control all money measures. They can't control what people will do with the money. That means the people could save it and not spend any of it. American economists are always complaining we need more savings. Well, if they got that much the country would be in depression. The same thing is true in Japan, but this isn't the 19th century. Now people anywhere don't have a problem borrowing and spending. Why should the Japanese corporations or their people put their money into T-bonds if the rising yen is causing the bond's interest and face to fall? Sure they always get the face yield and return of principal, but who wants that in inflated dollars converted back into fewer yen? It was neo-mercantilism that got them factoring unspendable-in-Japan dollars through our T market. It was also the complete failure of American business and labor to respond to the foreign threat. We are still failed, but it is no longer newsworthy, therefore no one cares. It isn't "operational". This Epstein guy would have flunked my Finance I class 20 years ago. I call his reasoning, running off at the brain. There is less of that done now in comparison to the past, but "linkage" thinking still shows up and usually in the most important managerial positions. The errors: Higher prices cause a decline in the real supply of money. You're in Germany. It's 1922. You take your wheelbarrow to the market. The grocer won't take your paper, but he will lend you some food. How big is the real supply of money? Epstein claims under inflation everything is rising, so how can there be any problem? The only thing that isn't rising is your ability to get more of the falling real money supply. It's falling too. Epstein has to conclude that you can get something for nothing. Just inflate the money. Problem is inflation induces a hopelessness that is far greater of a problem than anything economic. It induces a form of suicide because you know you're doomed like Sysiphus. First Epstein claims the M2 doesn't matter , then he claims it matters. This is an old debate that I thought had been exhausted in the '80s. I guess he means M2 matters when it's being taken away because then it's regaining its value. That's inconsistent with the earlier claim that when it is being supplied excessively, its value doesn't matter to GDP. Forget him. The macroeconomic machine works like this: at any level of interest rate business finds a way to increase its level of activity. The level's rate of change increases until it exhausts the ability of labor, machine, and material, to continue to supply at a fixed cost. Costs rise. Profitabilty slows. More money is demanded to create the last unit of good or service than at existing rates of interest than is supplied back to the interest rate market. Rates rise to adjudicate this disbalance until it becomes unprofitable to borrow to create the marginal unit. Business slows because investment in the final unit and hence production runs slow. The demand for money weakens and rates fall. This process always goes on. If monetary authority interferes with this process by trying to smooth the ups and downs, they just add fuel to the fire or splash water when it's cold. Money supply needs to grow over time to reflect the increased transactions level of a growing world. Central banks only need to create money at this rate and leave interest rates to the free market. What comes out of that regime is a business cycle whose amplitude is so small it is difficult to measure. What comes out of central bank interference is increased amplitude and the uncertainty of exposure to square-well chaotic states. Central banks need to put the effort into determining what is the average long term value add of society. It is that rate to the extent it can be determined that needs to be copied in monetary growth. The economic world wouldn't mind any reasonable error in its determination. Thus the value of money would always be faithful to its price, a zero inflation environment. Greenspan used to say that was the only pertinent objective of policy. He's older now and wiser. He believes a little inflation is ok. That's what Arthur Burns said too.