Recently I have found myself interested in Japans economy, in particular the notion that they went through a similar experience to that currently being experienced by Europe 20 years ago, and have still not recovered. Despite this they are still considered the third largest economy in the world.

The strong yen and declining exports are hitting Japan hard, and nobody has any idea how to solve this problem in the long-run.

It is easy for me to suggest that decreasing the barrier to entry for foreigners to enter Japan could help them, in particular with their aging population, but that is simply because I am biased.

It almost seems like it is too late and nothing can be done, and if that is the case what will happen to Japan?

I honestly know nothing about economics so any of my own speculations are nothing more than guesswork.

Is Japan a glimpse into the future of the rest of the world? Are there any opportunities to be had from the situation?

Letting foreigners in won't solve their current predicament. Importing labor is something they will need to do 20-30 years down the road to fix the demographic crash, but right now they are kind of ok.

Japan's biggest problem is they lack innovation and new designs, which are what drove Japan in prior decades. Excluding video games and cars, and the former is quickly growing bleaker, Japan doesn't export much that makes an impact. Japan's electronic manufacturers still produce electronics, but they are constantly being beat out by new competitors such as Samsung. Panasonic, Sharp, and even Sony have either closed or scaled back their TV and electronics divisions considerably.

Its really not like Japan is lacking in great minds either. Japan produces a lot of advanced research in the sciences, but there seems to be a gap between this research and the engineering/innovation that leads to products.

The reason for the lackluster advances in Japan probably has to do with stagnant demand and ill-timing. When the bubble collapsed back at the beginning of the 90's, you had a lot of companies and people in deep debt. Many filed bankruptcy or cut back immensely on operations and payed off their debts using their own money (not with the stimulus money that the govt. was offering). Theres a wiki page that talks about this post-bubble scene. The thing is, after the debts were gone, companies didn't return to spending but instead switched to saving mode. Cash reserves increased and nothing major was done. Incidentally, people also started to do the same thing; saving instead of spending. When companies don't spend/invest, that can stagnate the economy, but when the populace doesn't want to spend and instead wants to save, that's even worse.
Right as 2007-2008 was rolling around it was actually starting to look pretty for Japan. Spending was starting to increase in Japan, but then the mortgage bubble in the US popped and it sent Japan spiraling again. Wages have kind of stagnated in Japan, just like they have in the US.

The solution probably isn't clear and as with most things involving the economy, some things will help the economy some while others will hurt it some, but the economy will work itself out on its own. I think some things that could help Japan would be changes in business mindset.There needs to be a lot more positive media on entrepreneurs and starting businesses. The govt. should open up lines of credit for people willing to try and start businesses since many banks aren't interested in the risky ventures like that right now. The most idealistic solution would be to create a 'Silicon Valley' in Japan somewhere around the Kanto area.

Its been said China is probably headed to something like what happened to Japan, if they can't pull themselves out of a tailspin they are in.

"When companies don't spend/invest, that can stagnate the economy, but when the populace doesn't want to
spend and instead wants to save, that's even worse."

That's an interesting sentence. I would argue that there's nothing inherently wrong with spending or saving (for a rainy day) so it logically follows that it is the economic system itself that is the problem with the economy.

Does anyone get what I am trying to say?

Capitalism runs on spending. Without spending, the capitalist machine will stall. Obviously you can't stop buying stuff completely, since you need food and other necessities; however, you can cut back on other consumer based spending which will put a considerable dent in your economy and cause jobs to stagnate as demand stagnates.

Unless you are saying capitalism is the problem, then I don't know what you mean.

Japan doesn't have good jobs for the people living there now. Allowing more immigration would help only to the extent that the newcomers start a lot of successful businesses that expand the economy, or take jobs that Japanese won't do.

vix86 Wrote:Capitalism runs on spending.

Capitalism runs on trade in general, not just spending (spending is of course a form of trade, but not the only one). People are willing to trade whenever it is mutually advantageous to trade.

When Capitalism stalls, it's because of the unwillingness and/or inability to trade. In the short term, that can be due to market volatility or a recession, but, in the long term, it's government related.

Capitalism is stalling in Japan (and Europe as well), because of two reasons:

1. direct government restrictions and penalties on trade (be it income taxes, on people trading their time and effort for money, sales taxes, etc.).

2. government deficit spending. This affects institutional investors more than consumers and workers directly. People are unwilling to invest (investment is a form of trade, where you trade material value you have now for the promise of greater material value in the future) into a country that is spending beyond its means, because such a country will eventually have to start confiscating more of the wealth of the people participating in its economy, to pay for itself.

In the US, it's unclear whether the economy is going to stall for good or it's just the recession. It depends on the next few years of government policies. But, in Japan and Europe, it's pretty clear. Unless there are massive institutional changes towards less government control and spending, those economies are stuck, and likely even on an unsustainable path towards a repeat of Argentina and Greece (especially Europe).

lardycake Wrote:It is easy for me to suggest that decreasing the barrier to entry for foreigners to enter Japan could help them, in particular with their aging population, but that is simply because I am biased.

"the economy" is the sum of all trades performed within the borders of a country. Immigration control is a form of restriction on trade (a restriction on foreigners trading their labor for money, and then trading that money for goods and services or investing it within Japan), therefor it hurts the Japanese economy's "growth" by whatever amount of trade those foreigners would be doing if left alone.

I've just finished reading a book about this, so let's see if i can cement some by telling you what Krugman says (sorry if i get anything wrong)...

He says Stansfield is completely wrong.

Japan is basically in a liquidity trap, like Britain and America, only further along due to bad policy decisions. A liquidity trap happens when, like Vix said, people aren't really buying enough stuff. People tend to not buy enough stuff when they feel they don't have enough money. Therefore the solution is to get more money into the economy, people can buy more stuff, businesses will have more money to invent new stuff and pay higher wages, people buy more stuff, everyone's happy. (Except, yknow, the environment).

This is basically the complete opposite of the ridiculous austerity programs that people have for some reason clung to dogmatically, despite the evidence that austerity leads to contraction, not growth (on thinking about this for more than 2 seconds, this should be obvious to anyone... squeeze the population's cash supply, they can't buy stuff, economy goes into decline).

The argument that Stansfield presented says that we need austerity because government deficits are high, and everyone's gonna end up the way Greece has. But the situation for Britain, America and Japan is significantly different from the problems the Euro is facing at the moment. Despite both America and Japan being downgraded by ratings agencies, the actual market says investor confidence is very high... this is shown by the ultra low interest rates on bonds. Scaremongers like to say that these bond prices are going to shoot up, but there's been absolutely no evidence that they will so far, and there seems no good reason to act on the assumption that they will. It's just more dogma that serves the short term interests of creditors, but harms the economy in the longer term. (Of course creditors don't want any inflation, because they don't get as high a real rate of return on their loans. But inflation only hurts the population in general when wages stagnate.)

Europe is in a much worse situation... and Spain was a paragon of virtue when it came to deficits. The reason why it's in a much worse situation is the trade inbalance between North and South, and the lack of agreement on what to do. There is no investor confidence in Greece for quite specific reasons (they're forced into austerity with no currency or central bank of their own, can't devalue their currency, etc), which means bond interest rates shoot through the roof, leading to more default. And they don't have a central bank that's willing to buy the bonds when investors won't. The USA has the Fed, Britain has BoE, and Japan has BoJ for this purpose. The other problem for Europe is that Germany refuse to inflate out of the trade inbalance, meaning that the only way to get out of it is for the struggling countries to go down till they are at the place they should have been at without the bubble. This is obviously pretty harsh for the people involved, and pretty dangerous in political terms, as people look to the extremes. Anyway, the path for Japan should be much clearer due to extremely low interest rates.

Interestingly, the new government (however ugly their social policies, i don't know much about them but i'm guessing they're no good), seem to be doing the right thing economically, and preparing for stimulus (i have no idea whether they are going to do it to the right extent, hopefully it's not gonna be half-assed like America and Britain). So it'll be an interesting experiment in Keynesianism. Although i think Vix is probably right too, and they also need to look at business practice. Anyway, it'll be interesting to watch how it plays out...

EDIT: Just found this... you can read what Krugman says about Japan from himself: http://www.nytimes.com/2013/01/14/opinio...share&_r=0

Quote:This is basically the complete opposite of the ridiculous austerity programs that people have for some reason clung to dogmatically, despite the evidence that austerity leads to contraction, not growth (on thinking about this for more than 2 seconds, this should be obvious to anyone... squeeze the population's cash supply, they can't buy stuff, economy goes into decline).

Austerity measures are to lower government debt and indeed work if the situation hasn't deteriorated too badly, but no one is arguing they are good for the economy in the short term. Governments can't keep on borrowing forever with unrealistic expectations of growing their way out of debt. If they take that gamble and lose, you end up with a bankrupt state resulting in greater economic and social chaos unless they devalue their currency, which carries a whole host of problems.

Even supposing the bet paid off, if the government overspent in times of previous prosperity, it will do so again in times of future prosperity, and we end up back in the same situation at the time of the next economic lull. This expectation that economic productivity will rise almost continually towards the heavens is verging on religious belief.

Besides, people are buying stuff aplenty. When the economists are saying "the frenzied consumerism is not sufficiently frenzied to keep the system going" we need to stop and think.

dizmox Wrote:When the economists are saying "the frenzied consumerism is not sufficiently frenzied to keep the system going" we need to stop and think.

I definitely agree with this, the whole basis of how our economy works is screwed to begin with. That's not an excuse for bad policy if we are going to continue with capitalist economies to begin with though. It's not about taking some half hearted measures, the whole system would need to be rethought. If we're not going to rethink the system though, austerity is still a horrible policy in bad times.

The argument Krugman was giving just shows that there is no direct link between the amount of debt / dept to GDP ratio, and investor confidence, it is based on other factors. Therefore, we shouldn't be shouting about how large the deficit is, it's irrelevent. Japan has a debt to GDP ratio of over 220%, and still some of the lowest interest rates in the entire world. There are also measures the government can take to control interest rates if they did get too high. There are just no real good reasons to think that USA/Britain/Japan are anywhere close to bankruptcy to begin with.

Eventually, of course it does have to be paid back. But in the middle of recession / depression is completely the wrong time, because that's the time when you are least able to pay it back. Once you restart growth, tax revenues go up without cutting into anyone, (or they would, if HMRC actually did their job rather than simply trusting business to be honest: http://uk.reuters.com/article/2012/12/27...3420121227 ... with the shortfall from this, we could have already paid back some proportion of the deficit and not be bothering with hate campaigns directed at the poorest in society and divide and conquer politics) and inflation helps by devaluing that debt. And slight austerity during periods of growth don't harm as much, because the shortfall in government spending is made up through other economic activity. On the contrary, austerity in bad times also lowers tax income, meaning the deficit is going to grow, not shrink, unless you do even stricter austerity, leading to a negative spiral.

I mean, look at what happened with the UK... we hardly had any deficit at all until the government bailed out the banks, at which point the conservatives instantly started on and on about Labour's Deficit and how we must pay it back Immediately! Now! This year! Why would we need to do that? Investors lent the money with good faith, with the expectation that it would help the country back to growth, and nothing has actually changed since then (apart from austerity, which undoes what good the stimulus would have done). And in fact, interest rates are still close to 0%. It's just dogma.

p.s. there are problems with growth as a thing in itself, but i think you'll find that there's plenty of people who still want more stuff than they have at the moment, they just can't afford to buy it. I'd like to be able to rent a proper flat for example, rather than having to live in an abandoned council building. I'd like a washing machine. Maybe a Japanese rice cooker. Some new clothes, as i haven't bought any in years now. There's plenty of places i'd like to travel. I'm sure most of the younger Japanese people still living with their parents would prefer their own place if they could afford it too. I mean, i actually don't care very much about stuff, i'd rather not have too much cos of the environment, and i'm actually really looking forward to moving into my abandoned council building. But anyway, the point is, to suppose that no more growth is possible is wrong, even in advanced economies. There's still too much poverty around for that. As long as the population is growing, and / or people still want more stuff than they have, there can be growth. Well, as long as the top however many percent don't keep stealing all the gains from growth and keeping everyone else down, anyway...

I guess everything you said was right, though I think a little amount of budget tightening is necessary to achieve sustainability even in the case the economy never picks up...

The Reuters link is crazy

The economy will pick back up. We have nearly 3000 years of history to show us that open economies do not "never pick up."

IceCream Wrote:I've just finished reading a book about this

Good. Now read one that holds a different view. If you insist on it being from another Nobel prize winner, just go with Milton Friedman. If you wanna go a little lighter and are willing to forego the Nobel requirement, read Greenspan's essay "Gold and Economic Freedom". It's short.

IceCream Wrote:, so let's see if i can cement some by telling you what Krugman says (sorry if i get anything wrong)...

He says Stansfield is completely wrong.

This, I can get behind. Paul Krugman's and my views are mostly opposed to each other (especially in the fundamentals).

IceCream Wrote:The argument that Stansfield presented says that

This, I cannot agree with. To be exact, I cannot agree with any sentence that starts this way.

The argument I (Stansfield, that's me) presented says what is listed in the post to the right of my (Stansfield) name, just above your post. That is the one and only argument I presented.

Whatever follows from this point, in your post, is a straw man that serves the purpose of misrepresenting my argument. Why, I can only speculate about, but odds are it's because your counter-arguments don't work against what I actually said.

IceCream Wrote:The argument Krugman was giving just shows that there is no direct link between the amount of debt / dept to GDP ratio, and investor confidence, it is based on other factors. Therefore, we shouldn't be shouting about how large the deficit is, it's irrelevent.

Without going into particulars, that "therefor" in the middle of the paragraph is out of place. Just because there is no "direct link" between A and B, it does not logically follow that A is irrelevant to B.

vix86 Wrote:The economy will pick back up. We have nearly 3000 years of history to show us that open economies do not "never pick up."

True, as long as by open you mean free, and define free as government by a state that protects people's rights to trade freely, and enforces mutually agreed upon contracts objectively.

The question is, to what extent is Japan's economy "open". One measure I see relatively few faults with is the Heritage Foundation's yearly Index of Economic Freedom. It attempts to quantify the main aspects of an open marketplace, such as freedom from corruption, fiscal freedom, regulatory efficiency, rule of law, trade and investment freedom, and classifies Japan 24th in the world, with 71 points out of 100 (almost 20 behind Singapore and Hong Kong, 8 behind Canada and 5 behind a quickly declining United States).

vix86 Wrote:The economy will pick back up. We have nearly 3000 years of history to show us that open economies do not "never pick up."

I'm not sure what you mean. Are you suggesting that every state that declined in the last 3000 years fell because their economies weren't open enough? Once you eliminate those (almost all of them), I don't think we have a statistically significant population size to work with here...

To clarify. I added the "open" qualifier just to cover anyone potentially pointing to some small bizarre instance where a small island's economy stagnated because they never had trade with other countries or surrounding people. Most country economies by that standard today, are open. As much as libertarians want to flag-wave about countries being too "isolationist"/"not-free markets"/"closed;" its complete non-sense when you compare it to a truly closed country like North Korea.

Goods are still moving in and out of Japan, just like they are in the US and many other places.

Stansfield123 Wrote:

IceCream Wrote:I've just finished reading a book about this

Good. Now read one that holds a different view. If you insist on it being from another Nobel prize winner, just go with Milton Friedman. If you wanna go a little lighter and are willing to forego the Nobel requirement, read Greenspan's essay "Gold and Economic Freedom". It's short.

I've not read Friedman but i've seen "Free to Choose". I wouldn't mind reading some though, do you have a recommendation?
But even he argues that Keynesianism should be a tool governments should be willing to use, albeit only at very specific times. Krugman (and Stiglitz) argue that this is one of those times.

As for Alan Greenspan, given how much he's messed up, on multiple occasions, represented short term business interests over the population's, put all his faith in models that did not represent reality, and believed in the complete rationality of the market fully equipped with the invisible hand, well. I'm happy to read the essay, but i'll take it with a pretty hefty dash of salt. Although, i think he has at least admitted he was wrong now, so hopefully he's at least intellectually honest.

Stansfield Wrote:

IceCream Wrote:The argument that Stansfield presented says that

This, I cannot agree with. To be exact, I cannot agree with any sentence that starts this way.

Sorry, I was talking about your point 2:

Quote:People are unwilling to invest (investment is a form of trade, where you trade material value you have now for the promise of greater material value in the future) into a country that is spending beyond its means, because such a country will eventually have to start confiscating more of the wealth of the people participating in its economy, to pay for itself.

Yes, i didn't read it properly, sorry. I took it you were talking about investors as in bonds, but were you instead talking about investors as in normal business investment? If so, why do you think that?

It seems like that wouldn't necessarily be true. Once a country is growing, tax revenues go up anyway, without having to raise tax rates. Inflation helps to devalue the debt too. And anyway, the key for investors is usually whether they can make a profit. Nobody's going to make a loss just by investing in a country with high tax rates, since tax is on profit. A good proportion of people will indeed invest elsewhere, somewhere with highest returns they can get, but they're going to do that anyway. None of the developed countries can compete with the developing ones in terms of ROI. But people still have business they want to do here too, so they still invest. People from these countries obviously have a stake in them, and often want to invest closer to home.
Finally, there's just not a lot of hard evidence, apparently, that investors do in fact base their decisions on what a government may or may not do 10 years down the line. In fact, the market is famously reactionary. They'll make a profit while they can and then withdraw later if they have to (as long as their assets are liquid). But even then, if the economy is doing well, it's likely they are making more money anyway than they would be in times of depression and austerity, so even if the government did have to raise tax then, it might not affect them as much as you think.

Stansfield Wrote:

IceCream Wrote:The argument Krugman was giving just shows that there is no direct link between the amount of debt / dept to GDP ratio, and investor confidence, it is based on other factors. Therefore, we shouldn't be shouting about how large the deficit is, it's irrelevent.

Without going into particulars, that "therefor" in the middle of the paragraph is out of place. Just because there is no "direct link" between A and B, it does not logically follow that A is irrelevant to B.

Well, is there anything you want to respond to apart from the wording of this? I only meant to say that what is important is looking at the other factors, not the size of the deficit alone. The size of the deficit alone is completely irrelevent.

EDIT: i reread a few sections that i thought i hadn't remembered properly, and Krugman's actual argument was much more interesting than the one i presented here. It's not just that interests are low, and have remained low, plus the other factors that distinguish USA/Britain/Japan from Europe, he gives a reason why we should expect interest rates to be low specifically in times of depression. People want to invest in business, and normally would in a growing economy. But since there's a lack of consumer demand, business can't really use the money from investment to expand. So instead of investing, people want to save, they can just put their money somewhere safe for a while. This causes excessive demand for government bonds, which drives the interest rates down.

IceCream Wrote:As for Alan Greenspan, given how much he's messed up, on multiple occasions, represented short term business interests over the population's, put all his faith in models that did not represent reality, and believed in the complete rationality of the market fully equipped with the invisible hand, well.

He did what now? Alan Greenspan was the Chairman of the Federal Reserve, not American President or even so much as a legislator. He did not write or approve regulations, the easing of regulations, and did not even formulate economic or fiscal policy.

He just set interest rates. Which he got wrong, no doubt about it. It was an epic fail. Not any more epic than that of any other central bankers, but epic fail nonetheless. However, it was none of the things you listed, because he never had the power to do any of those things. That was all Clinton, Bush and the US Congress. Besides, not being omniscient (which would be the necessary condition of being a good central planner) doesn't mean he's not at least as intelligent or informed as Paul Krugman. In my opinion, he is much more so.

IceCream Wrote:Once a country is growing, tax revenues go up anyway, without having to raise tax rates.

"if", not "once". And a pretty big if, in Japan's case. Especially if you consider by how much they would have to grow, to account for the disparity between spending and revenue.

IceCream Wrote:Inflation helps to devalue the debt too.

If inflation devalues debt, then lenders are all morons, for not keeping their wealth in gold or other material goods instead. But, in fact, the purpose of interest is precisely to account for inflation, so that lenders don't lose their wealth by lending. The notion that a government can "outsmart" its lenders simply through inflationary tactics is naive.

IceCream Wrote:And anyway, the key for investors is usually whether they can make a profit. Nobody's going to make a loss just by investing in a country with high tax rates, since tax is on profit.

Can you guarantee that? The government of any democracy does in fact have unlimited power. There is nothing to guarantee that the government will only appropriate profits.

In fact, they don't now: the US for instance has a 40% or 50% exit tax (on property). They also have similar estate taxes. Then there's the ever looming possibility of nationalizations and corruption in the legal system that amounts to a de facto appropriation of private property.

Sales taxes, property taxes, VAT, payroll taxes, mandated insurance, duties and permit costs are also not taxes on profits.

IceCream Wrote:Finally, there's just not a lot of hard evidence, apparently, that investors do in fact base their decisions on what a government may or may not do 10 years down the line. In fact, the market is famously reactionary. They'll make a profit while they can and then withdraw later if they have to (as long as their assets are liquid). But even then, if the economy is doing well, it's likely they are making more money anyway than they would be in times of depression and austerity, so even if the government did have to raise tax then, it might not affect them as much as you think.

I've seen no evidence to suggest that businessmen are less intelligent or more reactionary than politicians. Quite the opposite.

Quote:I've seen no evidence to suggest that businessmen
are less intelligent or more reactionary than
politicians. Quite the opposite.

When IceCream says the market is reactionary, I don't think it necessarily meant businessmen (who are skilled at exploiting the weak no doubt), but rather investors in general. Which I think they are irrational and reactionary given the "behavioral economics" school of thought.

There are cases of investing hoax "news" sent to the media, and the media without questioning the source, publishes the hoax, and the investors, without asking the companies involved a few simple questions to confirm the validity of the news, makes financial decisions and the stock price drops for no good reason.

If investors nor the media can ask a few simple fact-checking questions, I also doubt that they have the foresight to make decisions based on current and future government policy. Not to mention the trend towards short term gain over long term gain and the fact that the stockmarket is a zero sum game but thats another story.

If it is true that politicians are less intelligent and more reactionary than businessmen, then may I suggest we transition our country from a republic democracy (which isn't serving the people well) to a China-style one-party dictatorship? When a government doesn't have to worry about elections from pesky opposition parties, then they can use their 100 year term to implement good long term policies, instead of promising the citizens tax cuts (election bribes) for no good reason.

Stansfield123 Wrote:

IceCream Wrote:As for Alan Greenspan, given how much he's messed up, on multiple occasions, represented short term business interests over the population's, put all his faith in models that did not represent reality, and believed in the complete rationality of the market fully equipped with the invisible hand, well.

He did what now? Alan Greenspan was the Chairman of the Federal Reserve, not American President or even so much as a legislator. He did not write or approve regulations, the easing of regulations, and did not even formulate economic or fiscal policy.

He just set interest rates. Which he got wrong, no doubt about it. It was an epic fail. Not any more epic than that of any other central bankers, but epic fail nonetheless. However, it was none of the things you listed, because he never had the power to do any of those things. That was all Clinton, Bush and the US Congress. Besides, not being omniscient (which would be the necessary condition of being a good central planner) doesn't mean he's not at least as intelligent or informed as Paul Krugman. In my opinion, he is much more so.

He didn't just set interest rates. He's been an economist with enormous influence over government policy. Yes, he isn't president, he didn't write the policy, but his advice and policy suggestions were key in changing a lot of the regulations. He argued forcefully for market deregulation, which went on to cause the huge bubbles both here and in Asia in the 90's.

The main problem with Greenspan is that he allows his political ideology to influence his economics to a far higher degree than it should. Political ideology always causes blind spots, and i don't think anyone's immune to that. But his love of Randian ideology has repeatedly caused his economic thinking to be extremely skewed, and actual evidence to matter much less than it should.

I don't want to write him off completely, he's also showed he can stand up and say so when he realised the things he argued for weren't working out as he hoped (which plenty of economists can't seem to manage). I'm sure he's done some good work too. But to my mind, he has a pretty poor track record, and i don't see any reason not to treat him as such.

Krugman, on the other hand, seems to like hard evidence, and seems to be deeply attached to trying for intellectual honesty, even if it doesn't align with his political ideals. I'm obviously not going to blindly trust everything he says, but i think it's a good sign to begin with. I need to learn far more before i can really start to assess things for myself though.

Stansfield123 Wrote:

IceCream Wrote:Once a country is growing, tax revenues go up anyway, without having to raise tax rates.

"if", not "once". And a pretty big if, in Japan's case. Especially if you consider by how much they would have to grow, to account for the disparity between spending and revenue.

Well, can you analyse this "if" for me a bit more? Which part of the argument are you disagreeing with? That the problem to start with is a liquidity trap? Or that government spending would lead in turn to growth of the private sector? Or something else?

Stansfield123 Wrote:

IceCream Wrote:Inflation helps to devalue the debt too.

If inflation devalues debt, then lenders are all morons, for not keeping their wealth in gold or other material goods instead. But, in fact, the purpose of interest is precisely to account for inflation, so that lenders don't lose their wealth by lending. The notion that a government can "outsmart" its lenders simply through inflationary tactics is naive.

In theory the purpose of interest is to account for inflation. In practise, interest rates and inflation are only directly linked for certain types of interest (those connected with the rate set by the central bank, since this is directly connected with money supply). Interest rates on market products such as bonds are determined by the supply and demand for the bonds, whereas inflation is determined by the money supply (if people have more money, there is generally higher demand for stuff, which means business can raise their prices). In practise, there are often gaps between inflation and interest.
A lot of the time, investors win in this game because they get to profit over and above inflation. Sometimes the government wins.
(In fact, this is probably the reason for some proportion of economic theory that suggests the bond vigilantes are constantly on their way, precisely because it serves the interests of creditors to keep that myth alive. Until the country goes bankrupt, of course.)

Stansfield123 Wrote:

IceCream Wrote:And anyway, the key for investors is usually whether they can make a profit. Nobody's going to make a loss just by investing in a country with high tax rates, since tax is on profit.

Can you guarantee that? The government of any democracy does in fact have unlimited power. There is nothing to guarantee that the government will only appropriate profits.

In fact, they don't now: the US for instance has a 40% or 50% exit tax (on property). They also have similar estate taxes. Then there's the ever looming possibility of nationalizations and corruption in the legal system that amounts to a de facto appropriation of private property.

Sales taxes, property taxes, VAT, payroll taxes, mandated insurance, duties and permit costs are also not taxes on profits.

Oh, hahah. Oops...

Yeah, that's true. (apart from VAT, it's a tax only on consumers, businesses reclaim the difference for that)

But again, this is only one factor to think about. You have to weigh that risk against how much you're going to make in sales, and you're probably going to be making a lot more sales if you're not trying to sell in a depressed economy. You also have to weigh in the other factors i talked about, like the higher income from tax in a strong economy, and inflation. To make a business decision based on fears of what a government might do in the worst case scenario, unless you have solid reason to believe that they are going to take that course, just doesn't seem like a great business decision.

Stansfield123 Wrote:

IceCream Wrote:Finally, there's just not a lot of hard evidence, apparently, that investors do in fact base their decisions on what a government may or may not do 10 years down the line. In fact, the market is famously reactionary. They'll make a profit while they can and then withdraw later if they have to (as long as their assets are liquid). But even then, if the economy is doing well, it's likely they are making more money anyway than they would be in times of depression and austerity, so even if the government did have to raise tax then, it might not affect them as much as you think.

I've seen no evidence to suggest that businessmen are less intelligent or more reactionary than politicians. Quite the opposite.

This isn't a discussion about whether politicians are better or worse than businessmen though. I haven't mentioned what i think about politicians.

I'm not trying to make a slur on business people's intelligence either. In fact, i think it is more intelligent to be reactionary in certain situations. Basing a market decision on what you think might happen 10 years into the future is only worth doing if your assets are highly illiquid. If they're not, you should simply invest and then withdraw if you need to once you have a more solid idea of what's going to happen. That's rational, no?

RE: http://www.bbc.co.uk/news/business-21137148

Assuming the proposed plans are successful and the value of the Yen weakens would it be wise to move any savings out of Japan now before the effect is felt?

Maybe, but it's already weakened.

Shinzo Abe appears to be insane with his "Abenomics."

Hopefully his participation in TPP talks actually result in some non-negligable reforms (though this will not be politically popular).

I don't see anything wrong with stimulus, but it doesn't seem like they've done anything to fix current problems to make stimulus a worthwhile venture.

Abe's plan of action doesn't make sense to me. I saw an article the other day that stated that they wanted to start raising prices of goods which is retarded, especially when businesses aren't going to raise wages.
Its like they looked at economic growth and decided that when economies grow more people get hired and wages start to rise, and inflation happens and when inflation happens prices go up. So its like they've decided that if they work backwards from the result that magically people will get hired and wages will go up. But businesses aren't going to be hiring because there's no demand in the market.

vix86 Wrote:Abe's plan of action doesn't make sense to me. I saw an article the other day that stated that they wanted to start raising prices of goods which is retarded, especially when businesses aren't going to raise wages.

That's what happen's when you devalue the currency. Prices go up. The devaluation of the yen is just a dishonest and round about way of cutting worker's wages and help Japan's export industries compete. Sure a worker's minimum wage may not change but if the value of each yen is halved, it's the same as a 50% pay cut.

And much of the spent money will be frivolously spent (as government is apt to do) on projects that do nothing to improve the productive capacity of the country though they may boost GDP (yay!). Basically Japan's government can buy GDP growth with money printing and debt until the yen is worthless or creditors say enough is enough.