Wednesday, October 24, 2012

Nicloe Foss — Japan Is Not A Good Example Of How Deflation Typically Plays Out

Japan is not a good example of how deflation typically plays out. As Ilargi points out, they were an exporting powerhouse exporting into the biggest consumption boom the world has ever seen. They also had a very large pile of money to burn through building their four lane highways from nowhere to nowhere, since they were the world's largest creditor when their bubble burst in 1989. This is clearly not our situation.
No one will be exporting their way out of a global economic depression. In contrast, exporters are going to feel the pain big time as their markets dry up. We can expect trade wars and protectionism to abound. Take note Germany, Scandinavia, Australia, New Zealand etc etc.
We have had the inflation, only instead of a currency hyperinflation, we experienced a 30 year credit hyper-expansion. Either one amounts to an expansion of money plus credit compared to available goods and services, and is therefore inflation. Credit is equivalent to money on the way up, but not on the way down. Credit loses 'moneyness' and credit instruments are massively devalued in a great deleveraging. This is deflation by definition and it is already underway. Debt monetization is nothing in comparison with the scale of the excess claims to underlying real wealth that stand to be eliminated.
The Automatic earth
Japan Is Not A Good Example Of How Deflation Typically Plays Out
Nicloe Foss (Stoneleigh)
(h/t Naked Capitalism)


TofuNFiatRGood4U said...

I heard this person speak in Australia last year. Several times I wanted to come out of my chair and cry out, "You lie!!" :-)

Her talk about Japan in particular, and having no 'money' to do anything in general, is right off Mish's site ("inflation is an expansion of money and credit, while deflation is a contraction", "I don't know when Japanese bonds will fall, but they will, one day", etc).

It meshed well with her other topics: how conventional oil supplies will crash (graph off the oil drum) with no discussion about the (albeit more expensive) oil liquids that will replace it; how Liquid Fluoride Thorium Reactors (LFTRs) are "even more complex" than conventional reactors (just the opposite appears to be true; never mind they appear to be 100x more efficient than conventional solid fuel reactors); no real mention of the way photovoltaics are leaping ahead ...

Foss promotes a view most beneficial to the the 1% - certainly not the man/woman in the street. And the audience eats it up.

googleheim said...


This is interesting.

Usually one of the Norman Mosler invariants makes me question any puritanical export drive when imports are more an indicator of our economic health and our standard of living.

That Japan was an "exporting powerhouse exporting into the biggest consumption boom the world has ever seen."

What if we say out loud a variation of this :

"That Japan was an 'importing powerhouse importing into the biggest consumption boom the world has ever seen'..."

What gives here ?

How does the Norman Mosler acceptance of imports and reduction of export eagerness pan out against deflation ?