Oct 092010
A year ago, it was discussed
… why present policies cannot work and why we will likely end up with a Japan-like lost decade or two.
One year later, matters have not improved and more people recognize, even if they don’t fully understand, that “this time it is different” in the sense that old remedies will not work.
Indeed, they never worked.
Monty: I am enjoying very much your recent contributions.
I would like to know your opinion about the Japan comparison. I agree that economic manipulation does not work and that it could easily lead to a decade or more of stagnation–hence, Japan. However, the deflationistas use the Japan analogy to say that US current fiscal policy will not lead to inflation; they say, “Look at Japan.” Yet I find this unconvincing. It is as if there is no possible way that Federal Reserve’s money creation to abet ever-growing federal debt can cause hyperinflation, and it leaves me baffled as to why there is ever any inflation anywhere–what in their opinion could possibly create inflation in a stagnate economy since no amount of money creation will ever do it. Yet the US is not Japan by any stretch of the imagination. I merely point to the continual trade surpluses that the country continues to enjoy by comparison to US trade deficits; I mean my simple mind believes that trade deficits, plus huge private debt, combined with gargantuan public debt will only lead to fiscal insolvency, followed by hyperinflation or the more honest and painful default. I don’t understand why we always cite Japan these days. Why not cite Argentina, Chile, Zimbabwe, Austria or Weimar Germany?
Mr. Dunn,
There is little I can add to your comments.and am in agreement with them.
I am not familiar enough with the particulars of the Japanese experience to offer useful comments. They appear to be an outlier regarding money and credit expansion and their two lost decades. I do not know the unique factors that have prevented the hyperinflation that has occurred almost universally in other countries that have followed a similar path.
The issue should be whether government stimulus works at all. I argue that it does not and cannot. We know that it eventually impoverishes a country at best (Japan) and most often destroys a country (Zimbabwe, Germany, etc.). If you are going to murder an economy, do you get less blame if you freeze it or burn it to accomplish the purpose?
We are going to have economic collapse regardless of what the government does. My preference, naive as it might be politically, is that they do nothing. That hastens the collapse, does no further damage and enables us to get on with the rebuilding process sooner.
Monty