Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Silver Short-Term Trend Analysis - 26th June 19
Iran and the Dying Days Of the US Empire - 26th June 19
Why a Saturated Online Gaming Market Spells Good News for Gamblers - 26th June 19
Natural Gas Sets Up Bottom Pattern - 26th June 19
Has Gold Price Broken Out Or Not? Technicals And Fundamentals - 26th June 19
Stocks and XAU Gold Miners Next Bull and Bear Markets are Now Set Up - 26th June 19
Gold Price Trend Forcast to End September 2019 - Video - 25th June 19
Today’s Pets.com and NINJA Loan Economy - 25th June 19
Testing the Fed’s Narrative with the Fed’s Data: QT Edition - 25th June 19
What "Pro Traders" use to Find Profitable Trades - eBook - 25th June 19
GDX Gold Stocks ETF - 25th June 19
What Does Facebook’s LIBRA New Crytocurrency Really Offer? - 25th June 19
Why Bond Investors MUST Be Paying Attention to Puerto Rico - 25th June 19
The Next Great Depression in the Making - 25th June 19
The Bad News About Record-Low Unemployment - 24th June 19
Stock Market New High, but…! - 24th June 19
Formula for when the Great Stock Market Rally Ends - 24th June 19
How To Time Market Tops and Bottoms - 24th June 19
5 basic tips to help mitigate the vulnerability inherent in email communications - 24th June 19
Will Google AI Kill Us? Man vs Machine Intelligence - 24th June 19
Why are Central Banks Buying Gold and Dumping Dollars? - 23rd June 19
Financial Sector Paints A Clear Picture For Stock Market Trading Profits - 23rd June 19
What You Should Look While Choosing Online Casino - 23rd June 19
INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - 22nd June 19
Here’s Why You Should Drive a Piece of Crap Car - 22nd June 19
How Do Stock Prices React to Fed Interest Rate Cuts? - 22nd June 19
Gold Bull Market Breaking Out! - 21st June 19
Post-FOMC Commentary: Delusions of Grandeur - 21st June 19
Gold Scores Gains as Draghi and Powel Grow Concerned - 21st June 19
Potential Upside Targets for Gold Stocks - 21st June 19
Gold Price Trend Forcast to End September 2019 - 21st June 19
The Gold (and Silver) Volcano Is Ready to Erupt - 21st June 19
Fed Leaves Rates Unchanged – Gold & Stocks Rally/Dollar Falls - 21st June 19
Silver Medium-Term Trend Analysis - 20th June 19
Gold Mining Stocks Waiting on This Chart - 20th June 19
A Key Gold Bull Market Signal - 20th June 19
Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - 20th June 19
Investing in APPLE (AAPL) to Profit From AI Machine Learning Stocks - 20th June 19
Small Cap Stocks May Lead A Market Rally - 20th June 19 -
Interest Rates Square Minus Zero - 20th June 19
Advice for Financing a Luxury Vehicle - 20th June 19
Stock Market Final Blow Off Top Just Hit… Next Week Comes the FIREWORKS - 20th June 19
US Dollar Rallies Off Support But Is This A Top Or Bottom? - 19th June 19
Most Income Investors Are Picking Up Nickels in Front of a Steamroller - 19th June 19
Is the Stock Market’s Volatility About to Spike? - 19th June 19
Facebook's Libra Crypto currency vs Bitcoin: Five Key Differences - 19th June 19
Fed May Trigger Wild Swing In Stock Index and Precious Metals - 19th June 19
How Long Do Land Rover Discovery Sport Brake Pads Last? - 19th June 19
Gold Golden 'Moment of Truth' Is Upon Us: $1,400-Plus or Not? - 18th June 19
Exceptional Times for Gold Warrant Special Attention - 18th June 19
The Stock Market Has Gone Nowhere and Volume is Low. What’s Next - 18th June 19
Silver Long-Term Trend Analysis - 18th June 19
IBM - Watson Deep Learning - AI Stocks Investing - Video - 18th June 19
Investors are Confident, Bullish and Buying Stocks, but… - 18th June 19
Gold and Silver Reversals – Impossible Not to Notice - 18th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

Japan Learns to Live with Deflation, If Only Analysts Could Figure Out How

Economics / Deflation Feb 01, 2011 - 03:17 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleIn Japan, wages are lower, but so are prices for goods and services, even food. Japan's companies are devising ways to profit from deflation, says Bloomberg writer Aki Ito in Japan Learns to Live with Deflation.


Ben Bernanke has been lecturing on deflation's perils since he joined the Federal Reserve in 2002 and has often held up Japan as Exhibit A.

There's something curious about the way the deflation syndrome has played out in Japan, though. The Japanese don't feel that threatened anymore. "Everyone knew deflation was bad for jobs and bad for the economy, but gradually households and companies just got used to it," says Martin Schulz, a senior economist at Tokyo's Fujitsu Research Institute.

Deflation—the steady drop in prices of goods, wages, and services—has many ill effects. Households are stuck paying off mortgages, car loans, and other debt even as their take-home pay has declined. Also, as housing values fall, consumers have smaller nest eggs for retirement. Companies, meanwhile, are unable to raise prices, which puts pressure on profits.

Yet the Japanese have discovered the benefits of deflation as well. Monthly pay dropped to an average 315,294 yen ($3,800) in 2009, the lowest level since the government began tracking wage data in 1990. "It's not like I'm promised any pay raises," says Momoko Noguchi. The 24-year-old Tokyo resident gets by on two part-time jobs by shopping for everything from nail polish to dinner plates at her local 100-yen outlet (the Japanese equivalent of an American dollar store), and she pays 400 yen or less for lunch. "I hope prices keep falling." Four out of five Japanese say higher costs would be "unfavorable," according to a central bank survey.

To help reverse a seven-year decline in same-store sales, McDonald's Holdings Japan, a unit of McDonald's (MCD), introduced a 100-yen menu in 2005. The chain's 100-yen hamburger sold for 210 yen in 1990. "We wanted our customers to know that we've changed," says Kazuyuki Hagiwara, Tokyo-based senior marketing manager at the company. Since the debut of the lower-priced menu, same-store sales have climbed every year. McDonald's Japan shares have returned 17 percent in the past three years.

Price cutting by companies has helped Japanese consumers adjust to deflation. The average household owns 1.4 cars and 2.4 color TVs, about a quarter more than in 1990, a Cabinet Office survey shows. Deflation has helped home buyers, too, by forcing prices down from their peaks in 1990: According to calculations based on yearly Land Ministry data, Japan's residential land prices have dropped by an average of 2.9 percent a year over the past two decades.

So is deflation a blessing in disguise? Not to analysts such as Richard Jerram, head of Asian economics at Macquarie Securities (MGU). He points out that as businesses cut prices to compete, it becomes harder to borrow and invest. "It's extremely corrosive," he says. Deflation, adds Jerram, will steadily sap Japan's nominal growth and deprive the government of tax revenue. Eventually, Japan may no longer be able to finance its borrowing. The country will then either have to default on debt that's about twice the size of the economy or devalue its currency to reduce the real value of liabilities. "That's the unavoidable endgame," says Jerram, who has analyzed the Japanese economy since 1987. "As long as it's in the future, everybody can pretend it's someone else's problem."

The bottom line: Although deflation ultimately poses a serious threat to Japan, ordinary consumers are benefiting from lower prices.

Erroneous Conclusions

It is painful to watch someone gather the facts then jump to the wrong conclusions.

Even worse than Ito's fallacious "bottom line" conclusion is the thought process from Richard Jerram at Macquarie Securities (MGU), supportive of that conclusion.

It would help if Jerram thought for 15 seconds (about the right things) before yapping nonsense. Japan is in debt to the tune of 200% of GDP because it squandered massive Japanese savings over the course of decades, in a foolish and futile fight against deflation.

Japan would not be at risk of default and would instead be sitting on a mountain of cash instead of a mountain of debt had it not squandered money building bridges to nowhere in a battle that should not have been fought, and clearly was not winnable in the first place.

Moreover, if prices are falling, they are falling for the government as well (at least they should be). Therein lay the problem. Governments want ever increasing amounts of revenue to support huge untenable, and needlessly growing bureaucracies, regardless of what prices and wages are doing.

That is what saps a country's strength. Yet, Jerram comes to the amazing conclusion that inability to collect higher taxes saps a country's strength.

The last time I checked, Toyota, Subaru, Nissan, Mitsubishi, Mazda, and Honda were still in business and doing fine. So are Sony, Panasonic, Kyocera, Nippon, etc.

Since Ito never explained his bottom line "Although deflation ultimately poses a serious threat to Japan, ordinary consumers are benefiting from lower prices" I suspect it came from listening to Keynesian clowns like Jerram who has studied this problem for 24 years and failed to learn a damn thing.

The fact of the matter is there is nothing corrosive about deflation per se. Indeed falling prices and rising lifestyles as a result of increasing productivity should be expected.

However, there is something corrosive about going deep into debt that cannot be paid back. That is the situation Japan finds itself in today (primarily because the government listened to Keynesian and Monetarist jackasses who insisted that deflation was something that needed to be fought).

Of course the US (led by Bernanke), Europe (with its sovereign debt crisis), and Australia, Canada, and China (with their housing bubbles) are in the same sorry condition.

What cannot be paid back won't. That is the message of Japan. That is the message of Greece, and Ireland. That is the message in the US. That is the message in Australia, Canada, and China.

With so many messages and with savers wanting lower prices (please see Hello Ben Bernanke, Meet "Stephanie"), how the hell can people like Ito and Jerram get it 180 degrees wrong?

By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2011 Mike Shedlock, All Rights Reserved.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules