Comments on: Lessons from Japan Versus Wishful US Prescriptions (Summers/De Long Edition) http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html Sun, 22 Nov 2009 11:45:14 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: john c. halasz http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6167 john c. halasz Tue, 01 Apr 2008 05:23:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6167 Well, the rough point is/was that the total debt to GDP ratio for the U.S. economy, however that is captured and figured, has been increasing steadily, at a graphically slightly up-curving slope. Sometime during the 1970's the ratio was 150%, but has been rising, ever more significantly since. The upshot in the "naughties" is that the increase in the ratio of debt to GDP has been accompanied by a declining ratio of growth of GDP to growth of aggregate debt: 17 trillion in increased indebtedness of all kinds to 3.4 trillion in recorded GDP growth. A "debt efficiency" of 20%. The trend is not new. The excess of the trend over its sustainability is perhaps new, but not sustainable. Well, the rough point is/was that the total debt to GDP ratio for the U.S. economy, however that is captured and figured, has been increasing steadily, at a graphically slightly up-curving slope. Sometime during the 1970’s the ratio was 150%, but has been rising, ever more significantly since. The upshot in the “naughties” is that the increase in the ratio of debt to GDP has been accompanied by a declining ratio of growth of GDP to growth of aggregate debt: 17 trillion in increased indebtedness of all kinds to 3.4 trillion in recorded GDP growth. A “debt efficiency” of 20%. The trend is not new. The excess of the trend over its sustainability is perhaps new, but not sustainable.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6162 Anonymous Tue, 01 Apr 2008 02:50:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6162 I'm not sure the demand curve, or price has actually shifted. The correvt commodity value is the cost of the house which is a function of the interest rate and the price. <br/><br/>The Fed created the price bubble with obscenely low interest rates (and new exactly what they were doing). Although prices were rising, the monthly cost was actually declining or staying the same.<br/><br/>The reversal in credit conditions is forcing a reversal in price to maintain the equilibrium cost. The organized criminal activities of the financial industry is their natural tendency which was facilitated or set free by the anarchy and criminal intent of the republican congress and administration.<br/><br/>After watching it unfold for the last eight years, it seems clear to me. I’m not sure the demand curve, or price has actually shifted. The correvt commodity value is the cost of the house which is a function of the interest rate and the price.

The Fed created the price bubble with obscenely low interest rates (and new exactly what they were doing). Although prices were rising, the monthly cost was actually declining or staying the same.

The reversal in credit conditions is forcing a reversal in price to maintain the equilibrium cost. The organized criminal activities of the financial industry is their natural tendency which was facilitated or set free by the anarchy and criminal intent of the republican congress and administration.

After watching it unfold for the last eight years, it seems clear to me.

]]> By: Yves Smith http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6160 Yves Smith Tue, 01 Apr 2008 02:44:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6160 Anon of 7:21 AM,<br/><br/>Real estate and mortgages are two different things. You may be thinking of how Goldman was trying to assert that its Level 3 assets really weren't that vaporous, since they included a lot of real estate and private equity principal investments. I am at a loss to understand why kind of real estate Goldman would be buying (presumably office buildings and the like) couldn't be valued as Level 2.<br/><br/>In general, I agree the Level 2 prohibition may be too strict (corporate bonds would be Level 2), but some banking experts (Lowell Bryan) in the wake of the S&L crisis, said that depositaries should be restricted to holding only super-safe securities like Treasuries. If they wanted to do riskier business, it would have to be via a separately-capitalized entity.<br/><br/>john c. halasz,<br/><br/>Eeek. I saw it in the 24 hours before writing the post, I believe the data came from Morgan Stanley, and I recall seeing chart of same earlier. If I have time I will try to track it down. Anon of 7:21 AM,

Real estate and mortgages are two different things. You may be thinking of how Goldman was trying to assert that its Level 3 assets really weren’t that vaporous, since they included a lot of real estate and private equity principal investments. I am at a loss to understand why kind of real estate Goldman would be buying (presumably office buildings and the like) couldn’t be valued as Level 2.

In general, I agree the Level 2 prohibition may be too strict (corporate bonds would be Level 2), but some banking experts (Lowell Bryan) in the wake of the S&L crisis, said that depositaries should be restricted to holding only super-safe securities like Treasuries. If they wanted to do riskier business, it would have to be via a separately-capitalized entity.

john c. halasz,

Eeek. I saw it in the 24 hours before writing the post, I believe the data came from Morgan Stanley, and I recall seeing chart of same earlier. If I have time I will try to track it down.

]]> By: minka http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6148 minka Mon, 31 Mar 2008 19:47:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6148 Our economy will shrink 10% in the coming recession, in my view. The collapse of the debt bubble, at the same time as the collapse of the consumer, means that the current account deficit will be wiped out, through consumer recession, dollar collapse followed by import substitution, and the vicious contraction of the financial sector. This is a shrinkage of about 7%. The remaining 3% will be overshoot. Our economy will shrink 10% in the coming recession, in my view. The collapse of the debt bubble, at the same time as the collapse of the consumer, means that the current account deficit will be wiped out, through consumer recession, dollar collapse followed by import substitution, and the vicious contraction of the financial sector. This is a shrinkage of about 7%. The remaining 3% will be overshoot.

]]> By: john c. halasz http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6146 john c. halasz Mon, 31 Mar 2008 16:40:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6146 Where do you get the total debt to GDP ratio for the U.S. economy of 270%? My recollection is that's more like where it was in 2000. In 2006, it was more like 330%, 13.2 trillion GDP, 43.5 trillion total debt outstanding. Where do you get the total debt to GDP ratio for the U.S. economy of 270%? My recollection is that’s more like where it was in 2000. In 2006, it was more like 330%, 13.2 trillion GDP, 43.5 trillion total debt outstanding.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6145 Anonymous Mon, 31 Mar 2008 15:06:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6145 All of this fancy talk is just that. The only real question is will greed be subject to regulation or not. I think not. "Privatize gains, socialize losses" pretty much sums up the mantra going on in the minds of the current administration. If you just have a gaggle of talking heads on TV selling it, put a fancy enough wrapper on it or have a big enough smokescreen you just might be able to sell it to the public. Make sure that the financial sector lobbyists line the pockets of congress and voila! Financial problem? What Problem? Everything is just fine, business is handled. No there is no real science here. The real objective is keeping the pigs at the trough. You can call it by different names and have different vehicles for delivery but that doesn't change what is going on. All of this fancy talk is just that. The only real question is will greed be subject to regulation or not. I think not. “Privatize gains, socialize losses” pretty much sums up the mantra going on in the minds of the current administration. If you just have a gaggle of talking heads on TV selling it, put a fancy enough wrapper on it or have a big enough smokescreen you just might be able to sell it to the public. Make sure that the financial sector lobbyists line the pockets of congress and voila! Financial problem? What Problem? Everything is just fine, business is handled. No there is no real science here. The real objective is keeping the pigs at the trough. You can call it by different names and have different vehicles for delivery but that doesn’t change what is going on.

]]> By: jm http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6144 jm Mon, 31 Mar 2008 14:52:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6144 We live in a courtiers' society. DeLong and Summers are courtiers, not farmers or engineers or builders or businessmen who produce anything that could be sold to the public at large to earn a living.<br/><br/>The more senior courtiers -- those who select the less senior couriers such as university presidents and professors -- will be quite upset if any more junior courtiers start pointing out that the emperor has no clothes -- that massive amounts of resources have been malinvested, and that the nation as a whole must face that it is far less wealthy than it would like to think, and that it needs to rebuild its capacity to produce itself the things its people want to consume.<br/><br/>As courtiers, they are highly constrained in what they can say without being cast out from the court, doomed to wander in essential obscurity like, e.g., Dean Baker. We live in a courtiers’ society. DeLong and Summers are courtiers, not farmers or engineers or builders or businessmen who produce anything that could be sold to the public at large to earn a living.

The more senior courtiers — those who select the less senior couriers such as university presidents and professors — will be quite upset if any more junior courtiers start pointing out that the emperor has no clothes — that massive amounts of resources have been malinvested, and that the nation as a whole must face that it is far less wealthy than it would like to think, and that it needs to rebuild its capacity to produce itself the things its people want to consume.

As courtiers, they are highly constrained in what they can say without being cast out from the court, doomed to wander in essential obscurity like, e.g., Dean Baker.

]]> By: S http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6143 S Mon, 31 Mar 2008 14:46:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6143 Intereting letter by two med school residents in this weekend FT (to editor). They gripe that their tax dollars should not go to fund speculators in real estate. Instead the argue government should write off of student debt as it is more productive capital. Welcome to the slippery slope. <br/><br/>Also interesting article that Kohn is probing the nordic banks handling of the 90s crisis (nationalization) as crisis worsens. [Telegraph - via Drudge]<br/><br/>Fascinating quote from Secretary Mellon regarding stock market crash. He advocated letting equities liquidate, real estate liquidate and farmers liquidate so asset price could clear and a health rebuilding could begin. he also advocated letting wages fall (not a problem these days - actually maybe the heart of the problem). [from Devil Take the Hindmost - Edward Chancellor.] Instead we got repreated government action that obfuscated the process. Sounds familiar. <br/><br/>If a comparison is to be made via 29 it might be a China Shanghai collapse as stocks fall and govn't clamps down on money supply. They at least have industialization ahead. The US on the other hand, well be afraid be very afraid. Especailly with paulsen at the posium talking about how our system is built on innovation - and exactly what has been the net economic benefit of that "innovation" in our financial services stronghold. FYI went negative last Q. Intereting letter by two med school residents in this weekend FT (to editor). They gripe that their tax dollars should not go to fund speculators in real estate. Instead the argue government should write off of student debt as it is more productive capital. Welcome to the slippery slope.

Also interesting article that Kohn is probing the nordic banks handling of the 90s crisis (nationalization) as crisis worsens. [Telegraph - via Drudge]

Fascinating quote from Secretary Mellon regarding stock market crash. He advocated letting equities liquidate, real estate liquidate and farmers liquidate so asset price could clear and a health rebuilding could begin. he also advocated letting wages fall (not a problem these days – actually maybe the heart of the problem). [from Devil Take the Hindmost - Edward Chancellor.] Instead we got repreated government action that obfuscated the process. Sounds familiar.

If a comparison is to be made via 29 it might be a China Shanghai collapse as stocks fall and govn’t clamps down on money supply. They at least have industialization ahead. The US on the other hand, well be afraid be very afraid. Especailly with paulsen at the posium talking about how our system is built on innovation – and exactly what has been the net economic benefit of that “innovation” in our financial services stronghold. FYI went negative last Q.

]]> By: dearieme http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6141 dearieme Mon, 31 Mar 2008 14:28:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6141 "We need more concrete ideas": on the contrary, too much concrete has been poured already. Long term, surely some rather sweeping changes to company law are required, to get rid of the perverse incentives for executives to gamble and regamble the shareholders' capital until it's all gone. “We need more concrete ideas”: on the contrary, too much concrete has been poured already. Long term, surely some rather sweeping changes to company law are required, to get rid of the perverse incentives for executives to gamble and regamble the shareholders’ capital until it’s all gone.

]]> By: Anonymous http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us.html#comment-6140 Anonymous Mon, 31 Mar 2008 14:27:00 +0000 http://www.nakedcapitalism.com/2008/03/lessons-from-japan-versus-wishful-us-prescriptions-summersde-long-edition/#comment-6140 The fundamental problem is psychology not just economic. Japan is a modern financial world power so its a good indication of the many problems the USA will experience in unwinding years and layers of worthless debt. <br/>People at all levels of society will not accept the fact that their wealth is a fraud, shallow and based mostly on leverage and specualation that will unwind and leave them with a fraction of their current paper wealth. The fundamental problem is psychology not just economic. Japan is a modern financial world power so its a good indication of the many problems the USA will experience in unwinding years and layers of worthless debt.
People at all levels of society will not accept the fact that their wealth is a fraud, shallow and based mostly on leverage and specualation that will unwind and leave them with a fraction of their current paper wealth.

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