Abenomics: Japan's economic revolution will rock our world. BOJ blows big bubble say experts.; Japanese people have a bubble every 50 years. Once Japan does have a bubble they do it really big.
Tweet Topic Started: 22 Jan 2013, 12:01 PM (13,756 Views)
The GFC isnt over. It is still here and building momentum.
Funnily enough, they more or less stopped calling it the GFC in Europe in 2009.
Its just "the recession" or "the crisis" there.
In fact, I am open to correction on this point, but I think even the acronym GFC is pretty much only used here.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
The GFC isnt over. It is still here and building momentum.
The increasing volatility in the markets are signalling a move away from steady oscillation to runaway resonance which will likely end in the self destruction of the system. Today for example, 10Y JGBs swung from +11bps at the open to -6bps at the close for their second biggest range day in an entire decade.
The increasing volatility in the markets are signalling a move away from steady oscillation to runaway resonance which will likely end in the self destruction of the system. Today for example, 10Y JGBs swung from +11bps at the open to -6bps at the close for their second biggest range day in an entire decade.
Indeed, the end game has arrived. 9 months ago I described the mechanism behind this, I guess that post was ignored and/or forgotten.
It's difficult for many to comprehend, but nearly all systems with logarithmic growth do not reach an equilibrium state, or even a dynamic equilibrium state. They boom and they bust. If you try to suppress that cycle, the effect is like that of a standing wave (like noise cancellation). To the outside observer, it appears contained because the amplitude has decreased, but internally, the energy builds, until the oscillation can no longer be contained, the amplitude suddenly spikes, and overwhelms the containment barrier.
Krugman mentions the V word, then dismisses it. Obviously he hasn't been aware of the JGB 5y and 10y trading halts in the last few days.
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But I thought it might be interesting to try doing a bit of deductive analysis on the sudden 7 percent plunge in the Nikkei.
One important thing to bear in mind, when it comes to big financial market moves, is that there may be no fundamental explanation at all. I’m old enough to remember the 1987 stock crash, which was followed by many theories about which policy move might have been responsible. As it happened, however, Robert Shiller managed to do a real-time survey as the market was plunging, and found essentially nobody mentioning any of the reasons later given for the selling wave. Instead, everyone said that they were selling because … prices were falling.
Still, to the extent that there is some fundamental story, what clues would we look for? And the answer, surely, is to ask what was happening in other markets, especially bonds and currencies.
Let me give you three different stories, each of which could explain a Nikkei plunge:
1. Fears about weak Japanese and Asian growth. 2. Fears about Japanese debt– the bond vigilantes have finally arrived. 3. Fears about the resolution of the Bank of Japan, its willingness to persist in very expansionary monetary policy for a long time.
All of these imply a fall in stocks; but they have different implications for bond and currency markets.
Story 1 should mean a fall in Japanese interest rates, since weaker growth should imply looser money for longer. Indeed, the recent runup in Japanese stocks and interest rates have gone hand in hand, suggesting that what we’ve been seeing is basically rising optimism. (Many of us have used similar arguments to wave away the claims that debt fears are driving occasional upticks in US rates). But in this case Japanese interest rates went basically nowhere.
Story 2 should have seen bond rates rising sharply, which they didn’t. Also, it should have meant a weakening in the yen — which actually rose significantly. So, not the bond vigilantes.
What about story 3? The impact of expected future monetary policy on long-term interest rates is ambiguous — rates might rise because they expect the BoJ to tighten, or fall because they fear that it will fail to end deflation. But worry about the BoJ’s resolve should have a clear impact on the yen, which should strengthen — which it did.
So to the extent that this wasn’t just markets doing their occasional panic thing, it looks like a sudden outbreak of concern about whether the Bank of Japan has really changed as much as it seems.
Obviously Krugman is pretending any events which didn't confirm his thesis, never happened. BOJ yields have and did spike higher in fact they have nearly TREBLED in 7 weeks(10y). The trading halt and the BOJ with 2 trillion yen (20 Billion $) just enough to stabilise the market. I really hope the BOJ buys every new issue, and every bond on the secondary market so this fool cannot say they didn't do enough,
The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.” ― Friedrich A. von Hayek
"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.
Krugman.........I really hope the BOJ buys every new issue, and every bond on the secondary market so this fool cannot say they didn't do enough,
You realise of course if all the bonds are bought by the BOJ and there is no inflation or even significant inflation there is nothing to worry about? There would be no government debt and the government would be in an enviable position.
Abenomics involves reversing deflation and fiscal and structural reforms.
You seem to be overly focusing on an inflation that has not yet happened.
The GFC isnt over. It is still here and building momentum.
The GFC will remain until the governments change their strategy in dealing with it. Australia needs a recession and a big one at that. When private debt reduces substantially and house prices correct to an affordable level, wages and incomes drop back we might be a chance. Capitalist societies are failing. We need a new model that encourages wealth through hard work not speculation, limits private debt and one that makes housing what it really is .....shelter
You realise of course if all the bonds are bought by the BOJ and there is no inflation or even significant inflation there is nothing to worry about? There would be no government debt and the government would be in an enviable position.
Abenomics involves reversing deflation and fiscal and structural reforms.
You seem to be overly focusing on an inflation that has not yet happened.
Andrew, you really should spend some time looking at the numbers. The BOJ buys 50 trillion Yen of JGB's a year to fund the fiscal deficit. The package announced on 4th April was to purchase 60 trillion. That leaves 10 trillion pa to manage yields. They bought 2 trillion yen yesterday.
To monetise a quadrillion yen JGB market will definitely cause inflation and a lot of it, the yen will be toast. There is very little room to move.
Higher rates will widen the fiscal deficit, requiring even more purchases.
Jens Widerman last night wished Japan "Good luck in their experiments"
Enjoy The Ride!
The case for individual freedom rests chiefly on the recognition of the inevitable and universal ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depend. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it. Humiliating to human pride as it may be, we must recognize that the advance and even the preservation of civilization are dependent upon a maximum of opportunity for accidents to happen.” ― Friedrich A. von Hayek
"I, on the other hand, am a fully rounded human being with a degree from the university of life, a diploma from the school of hard knocks, and three gold stars from the kindergarten of getting the shit kicked out of me." Blackadder.
Andrew, you really should spend some time looking at the numbers. The BOJ buys 50 trillion Yen of JGB's a year to fund the fiscal deficit. The package announced on 4th April was to purchase 60 trillion. That leaves 10 trillion pa to manage yields. They bought 2 trillion yen yesterday.
To monetise a quadrillion yen JGB market will definitely cause inflation and a lot of it, the yen will be toast. There is very little room to move.
Higher rates will widen the fiscal deficit, requiring even more purchases.
Jens Widerman last night wished Japan "Good luck in their experiments"
ETR
You were attacking Krugman, presumably because if the BOJ cannot cause sustainable inflation then you will mock him for saying 'they did not do enuf'
Evidently it is difficult to create sustainable inflation in Japan by buying assets. If they do create inflation then they do not need to buy so many assets.
All this is fairly obvious i think you will agree. However you appear to be already saying the sky is falling before even the slightest sign of inflation occurs.
As for higher yields these will not make much difference to the current total interest payment for many years to come, so even if there is a huge spike in inflation before it gets brought under control it is not a big deal.
You were attacking Krugman, presumably because if the BOJ cannot cause sustainable inflation then you will mock him for saying 'they did not do enuf'
Evidently it is difficult to create sustainable inflation in Japan by buying assets. If they do create inflation then they do not need to buy so many assets.
All this is fairly obvious i think you will agree. However you appear to be already saying the sky is falling before even the slightest sign of inflation occurs.
As for higher yields these will not make much difference to the current total interest payment for many years to come, so even if there is a huge spike in inflation before it gets brought under control it is not a big deal.
The Austrians are actually performing a very useful service in modern political/economic discourse.
All you have to do is listen to their predictions to know exactly what isn't going to happen.
Thanks guys.
Property acquisition as a topic was almost a national obsession. You couldn't even call it speculation as the buyers all presumed the price of property could only go up. That’s why we use the word obsession. Ordinary people were buying properties for their young children who had not even left school assuming they would not be able to afford property of their own when they left college- Klaus Regling on Ireland. Sound familiar?
The evidence of nearly 40 cycles in house prices for 17 OECD economies since 1970 shows that real house prices typically give up about 70 per cent of their rise in the subsequent fall, and that these falls occur slowly. Morgan Kelly:On the Likely Extent of Falls in Irish House Prices, 2007
Evidently it is difficult to create sustainable inflation in Japan by buying assets. If they do create inflation then they do not need to buy so many assets.
Wha? Japan imports all of it's energy. If the Yen weakens, they get inflation. Full. Stop.
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All this is fairly obvious i think you will agree. However you appear to be already saying the sky is falling before even the slightest sign of inflation occurs.
As for higher yields these will not make much difference to the current total interest payment for many years to come, so even if there is a huge spike in inflation before it gets brought under control it is not a big deal.
Bond redemption is 12.5% of annual government spending. As the government runs a deficit, it needs to re-issue those bonds as they mature, which means that 12.5% of notional outstanding will need to be re-issued at market, unless the BOJ starts monetizing the bonds outright, at which point there will no longer be a secondary market, and the government and BOJ will be the market in bonds (moral hazard not withstanding).
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