@DB

"Couldn't sleep?"

Yeah. Couldn't get over the guy dying on me last Monday. Ended up watching M*A*S*H until 5 am.

Reply from The Daily Bell

Well, sorry to hear. Wasn't your fault.

DB: Fine, if done so freely and without government coercion. In fact, within a religious context, if people want to accept the idea of "no interest" that's fine too. It is the application of force (government) in this regard that is bothersome.

Ok. However interest/debt kills more people than wars so I think it is a vital principle - to reject interest. It is not just what it is, it's what it leads to.

DB: As far as the IMF goes, you must know, obviously, that we are not pro-IMF.

Of course.

DB: But the IMF is part of a larger power elite mechanism that uses interest as a weapon.

Yes, and if it's a weapon at a macro level (international), it obviously begins by being 'accepted' at a micro level.

DB So we reiterate. In a completely PRIVATE market, absent religious conviction, people ought to be able to freely offer their money to others at a price. And other people are welcome to accept or reject that price.

It's mainly religious people who object to it (usury) anyway, but that may change with international decapitation of nations via debt. And the success of alternative banking systems in some countries may wake people up - if it 'gets out' that is!

Dave, thanks for your reply.

Re: "A large imbalance of trade could not occur without deliberate intervention, aka. exchange rate manipulation"

Like most of the folks who post here, I wholeheartedly believe in the manipulation of data and markets.

However, I'm not sure what you mean in this particular case. Let's simplify it by removing it from the health-or lack thereof-of the Japanese economy--my original post was not meant to have anything to do with the Japanese economy, rather it was that the "evidence" given--trade surpluses in the US during the Great Depression--did not prove the stated point, that trade imbalances were of no concern as expressed in the lead-in paragraph: 'The incessant fretting over the U.S. trade deficit is unwarranted. As I point out (probably too) often, the trade deficit, along with its broader cousin, the current-account deficit, are no cause for concern.'

That having been said, I'm trying to figure out if your post falls on the side of "trade imbalances don't matter". Is your point that the US could not continue to "get away with" trade deficits if other countries like Japan did not continually purchase dollars and dollar-denominated assets (like Treasuries) to manipulate the exchange rate-which of course they do for their own purposes?

I think of the US trade deficit in very simplistic terms, perhaps too much so: If year after year we import more than we export, sooner or later there will be a reckoning. In 1971, there was a reckoning: if we continued to 'balance our budget' by exporting gold, we would reach a point where there was no more gold-much the same as a household consistently spending beyond its means. As a household cannot spend beyond its means consistently, forever-using up savings, then using loans and credit cards-same the US.

In my mind, fiat currencies are nothing more than IOUs that facilitate free trade as long as they are used responsibly. A gambler who routinely uses IOUs to pay gambling debts reaches a point where he is not welcome at any table. In the case of the US, however, it seems that there can be no game unless we are at the table.

Back to your statement regarding manipulation of currency exchanges, no one wants the game to end-at least, not just yet.

But is there a time coming in the near future-or is it already here-when our IOUs are no longer accepted at face value?

I realize that this is off the topic of the Japanese economy, but it directly relates to a post by the esteemed elves themselves.

Dave, thanks for your reply and for any further light you can shed on this very important topic.

"How could this be achieved without war? "

"The only way to win is cheat
And lay it down before I'm beat
and to another give my seat
for that's the only painless feat.

suicide is painless
it brings on many changes
and I can take or leave it if I please.

and you can do the same thing if you choose."

-- Johnny Mandel

Reply from The Daily Bell

Couldn't sleep?

Explain what you mean please Dave?

Dotti,

Trade surplus or deficit is not a phenomena of geography. For example, who tracks the balance of trade in your neighborhood, city or state? The balance of trade concerns currencies. It concerns the volume of currency exchange as a ratio of product value exchanged. A large imbalance of trade could not occur without deliberate intervention, aka. exchange rate manipulation.

Whenever there is a discussion of Keynes, I'm always amazed that nobody ever takes a look at Calvin Coolidge's administration. Coolidge was, perhaps, the only "small government" president we've had since the progressives took over with Teddy Roosevelt.

During Coolidge's terms, he consistently cut Federal spending, cut taxes, and paid down the Federal debt. It may be notable that the period was called "the Roaring Twenties."

Sadly, every president following Coolidge was a big government, economic interventionist -- and, with the exception of Reagan, was generally following a Keynesian economic model. (I believe, at heart, Reagan desired small government, but the bigger issues of foreign policy forced more spending than his normal inclination -- plus he was faced with a generally liberal Congress, that declared every one of Reagan's budgets as "dead on arrival".

The biggest problem we have is that politicians generally hold the view that "government can help." This is a seriously deficient viewpoint, as the reality is that government action almost always causes a multitude of unintended consequences, distorts markets, and takes away liberty from the citizens. Unfortunately, running on a platform of "Government is the problem, not the solution" rarely gets taken seriously and does not result in someone being elected -- added to the consistent problem that such candidates, if elected, are often turned to the dark side once they get to Washington. (We'd really be better off if we had a part-time Congress...)

@DB Re: The incessant fretting over the U.S. trade deficit is unwarranted. As I point out (probably too) often, the trade deficit, along with its broader cousin, the current-account deficit, are no cause for concern.

Earlier today I visited the National Bureau of Economic Research's Macrohistory Database. I clicked on Chapter 7 and then looked at the value of U.S. imports and the value of U.S. exports for each of the 120 months during the 1930s.

Turns out that for only 18 of the 120 months of that dreary decade did the United States run a trade deficit (that is, imported more, value-wise, than it exported). For each of the remaining 102 months of the decade of the 1930s the U.S. ran a trade surplus.

On an annual basis, the only year of the decade of the 1930s that the U.S. ran a trade deficit was 1936; in each of the other nine years the U.S. ran a trade surplus.

And for the Depression decade taken as a whole, the U.S. ran a substantial trade surplus. Exports over those economically challenging ten years totaled $26.05 billion while imports totaled only $21.13 billion. In other words, the U.S. trade surplus during the entirety of the 1930s was nearly 19 percent the size of the total value of U.S. exports during that decade ...

I'm having trouble understanding how the Depression Era evidence supports the thesis that the trade deficit does not matter. The fact that the US may have experienced a depression while still having a trade surplus does not prove that a trade deficit is not a bad thing when it is a year in and year out occurence. He may have presented other stronger evidence, but I do not find this particular evidence compelling to say the least.

Reply from The Daily Bell

We simply pointed out that broad-based economic vitality and a trade surplus were not inevitably interlinked. It is not a complicated point.

DB:'Summer, we do not agree with you about interest. In a free market people can charge what they wish for money. Others do not have to patronize them. The problem Western societies face is the inherently flawed paradigm of mercantilist central banking and the monopoly franchise it holds that gives central bankers the ability to print money from nothing without competition'

DB is against mercantilism and colonialism. Why not interest in principle too? Just as DB is against offensive war in principle (even war-mongering, or worker exploitation could be said to be an expression of free market principles, if funded by 'private' hands, and if one divorces morality from the market)

Is interest a price fix? Does a privately instituted 'price fix' not 'distort' the market?

Mercantilism is at the height of its efficiency through loans and 'aid'. Interest is enslaving whole nations and individuals. It should be common knowledge that using interest is a negative exploitative device that filters wealth from the poor upwards to the wealthy. People should shun it morally.

Colonialism/mercantilism , in fact, continues through usury (IMF - debt etc). It's the modern efficient implement for the success of neo- colonialism. Therefore, the use of interest certainly is an exploitative system aiding mercantilism, colonialism and third world debt. African nations, have paid back their loans many times over, people are literally starving but the lenders will have them on a leash for decades (maybe more) through crippling interest repayments.

I re-iterate: why is central banking causing problems, why do they have an incentive to print excess money, why would private printing of money end the excess QUANTITY of paper that is causing inflation, unless there is no money to be made merely from its quantity?

I don't wish to be hoodwinked by IMF types into being a debt slave. I want the choice NOT to have an interest based national/international banking
system/policy; and no regulation inhibiting alternative banking systems (JAK Bank etc). Nor, for anyone to try and make a Muppet out me by saying that interest is acceptable or a minor economic device.

In a free market DB says anyone can charge interest if anyone wishes. Then if some fool wants to take a loan on interest instead of one without he can do so. But why can't 'no interest' be a 'rule of the game' accepted by all parties? Just as in a free market, contracts would be binding, goods delivered must be as described etc otherwise penalties via adjudication etc would apply, for breaking 'rules'. Or even why not encourage anti-interest principles as in the Worgl experiment - giving incredible economic prosperity to ALL.

'From roots steeped in ferocious concepts of usury, and by alliances which would peddle mercenary armies to the subversive cause of plutocracy, untold blood would be spilled, untold potential prosperity would be denied, untold injustice would be imposed, untold truth would be covered, and by perpetual deception, usury would succeed in perpetual contradictions, authored by a seeming untouchable, inexhaustible evil force.

Institutions would be founded, subverted, or purchased without potent competition. These would conspire, disinform, and proliferate a network of usury inconceivable to normal producers of real commerce, for usury is the antithesis of just reward, fair trade, and free enterprise.'

Click to view link

Reply from The Daily Bell

"But why can't 'no interest' be a 'rule of the game' accepted by all parties?"

Fine, if done so freely and without government coercion. In fact, within a religious context, if people want to accept the idea of "no interest" that's fine too. It is the application of force (government) in this regard that is bothersome.

---

As far as the IMF goes, you must know, obviously, that we are not pro-IMF. But the IMF is part of a larger power elite mechanism that uses interest as a weapon.

So we reiterate. In a completely PRIVATE market, absent religious conviction, people ought to be able to freely offer their money to others at a price. And other people are welcome to accept or reject that price.

Why do you want to enslave everybody?

s the economy flat-lining? Are debts out of control? Is government spending unfathomably irresponsible? As a result are jobs virtually non-existent? Don't worry. Just print more money! "Create jobs." This is what the Obama administration just got through doing. It admits each job cost well over US$200,000 to create. Whether they still exist is an open question.

Hello
What does this mean. "As a result are jobs virtually non-existent?" To any Sane seeing person this statement is a anathema to Life. There are so many jobs that can be done. The problem is everybody wants tangible reward. Why not work for nothing, no payment but for the Love of it. Everything is Free. Is this not what true Freedom is.

I have nothing to add about the economic discussion (not my area...), but I don't think that the perspective on Japan brought by DB is the only valid one.

I have been to Japan and was completely taken by its culture. The cleanliness, the attention to details, the culinary traditions, the absence of crime (people leave their bicycles on the streets without locking them and nobody steals them), the politeness...

Upon my return, I decided to learn Japanese and took two years of lessons (admittedly my level is still very basic, but it gave me a chance to get exposed to the Japanese culture for a longer period).

In my opinion, the Japanese culture is infinitely more healthy and based on sound moral values than the contemporary American culture. It's true that the traditional values may stifle creativity and openness somewhat but, high suicide rates or not, I predict that, were it not for disasters such as Fukushima, the Japanese culture would survive much longer than the current American one. And I may still turn out to be right...

Reply from The Daily Bell

The Japanese culture may be 10,000 years old or more. It is one of the most brilliant and beautiful cultures ever created. That has nothing to do with whether or not in its modern, post World War II incarnation, the Japanese are suffering through some sort of collective (economic) nervous breakdown characterized by chronic underperformance.

At the very least we would argue that economy does not do justice to such a hard-working and creative people. They are saddled with a central banking system printing money-from-nothing, overlaid by regulatory democracy and the economy is a textbook example of a boom/bust business cycle. The streets may be clean and the people may be polite, but that does not change the underlying reality ...

"Why on earth do you take Keynes at face value."

Once again I am mystified as to why you imagine I have taken Keynes at face value i.e. uncritically. The article you linked to and quoted from is an excellent example of the kind of polemic I had mentioned in my first post and to which I had hoped to bring some semblance of balance.

John Keynes was indeed a man of his times and, along with many Oxbridge intellectuals, a socialist. My own grandfather was an ardent socialist and at the same time a self employed craftsman. Socialism is not a character defect it is a delusion and it is one that I believe Keynes may have realised was a delusion when faced with the ultimate test of his beliefs, death.

Other men have taken up his theories and have interpreted them in ways that he may not have approved since he was always to my knowledge intensely interested in the practical manifestation of his theories and how they affected the lives of ordinary people. He would I believe have changed them had he lived longer.

One other thought, his theories seemed to work best during war time which is understandable since war is used by the enemies of the people to put their plans on fast forward and establish state controls which are not unwound at war's end. This is why I indicated that they may have best served the "special case" rather than the "general case" which he believed they were designed for.

Reply from The Daily Bell

" John Keynes was indeed a man of his times and, along with many Oxbridge intellectuals, a socialist."

As we pointed out he was a member of the exclusive Bloomsbury Group and of the secretive and powerful Fabian Society. that is a far cry from being simply an "ardent socialist." It is something far more devious and manipulative. To think Keynes somehow recanted on his death bed is naive in our view. Sorry.

I am not entirely sure what it is you take exception to but here is a further quote from the article you linked to:

"The Austrian School favors slowly falling prices in response to zero monetary inflation. The Chicago School favors stable prices and a slowly but steadily rising money supply. Japan is more Chicago School than Austrian, but it has been closer to Austrianism than any other nation for two decades with respect to money and prices.

Here is my fundamental point. Japan's central bank has systematically adopted monetary policies that have produced a Chicago School outcome: nearly stable prices. This indicates that Japan's central bank has had a goal, and it has achieved this goal. It has not been fighting systemic price deflation. It has produced deliberate price deflation on a minute scale."

Some of the contributing factors to the two points the the Bug made about low unemployment and stable to falling prices I believe were the strong yen as the Bug said, the continuing positive trade surplus, the demographic in Japan of an aging population meaning a falling pool of workers and very low immigration.

The stock market in Japan is still trading at more than 75% below its 1989 high and their real estate market to my knowledge is still way below the highs of that year. These are not reflected in the CPI but they have a very real effect on the cost of living nonetheless.

Reply from The Daily Bell

We have already rebutted these points.

Japan is a kind of basket case. It has suffered one, long ongoing "lost decade"
from our view since the late 1980s.

1. Unemployment is very high if one counts part time workers.

2. Its economy seems to be mildly to moderately inflationary, which puts yet more strain on its struggling middle classes.

3. The so-called surplus of trade tells us little about the actual conditions of the economy. What does shed light is the increasingly high suicide rate, declining birth rate and a paucity of real opportunities for talented young businesspeople and entrepreneurs.

DB: "James Fallows of all people is keeping you company. We prefer Dr. North."

I also prefer Dr. North. As I thought I made clear in my post, I found Fallows ONLY because Dr. North linked to him. To be clear, Dr. North is using Fallows and Fingleton to make the case that Dr. North makes. How can I be more clear?

Dr. North is clear - The US should be so lucky to have lost decades like Japan supposedly had. He has written this repeatedly.

Can I be more clear - I am using Dr. North!!!!!

There, now that I have that off my chest.

DB, we seem to be doing a good job of talking past each other on this subject....

I am not saying Japan has been doing great. You are missing my point, clearly due to my poor communication skills. I am saying the West will be fortunate if what it experiences in the next 20 years is only as bad as what Japan has experienced in the last 20 years. I believe it will be far worse for the West.

I will comment only on one further item in your latest response (as to the rest we are talking in circles):

"2 Inflation ... Dr. Gary North seems to show pretty conclusively that Japan NEVER HAD deflation but inflation, perhaps significant inflation."

North has not said any such thing that I am aware of, and certainly not in this link you provide. In this link, he cites a similar AMB when comparing Japan's and the US AMB through 2008. That's it.

In other articles and posts, he has repeatedly said Japan has seen neither significant price deflation or price inflation. Repeatedly.

As I said, the West should be so lucky if this is true in the West in the next 20 years.

I will leave it at that, and thank you for the dialogue.

Reply from The Daily Bell

1. OK, apparently we misunderstood you about Dr. Gary North. But here is his conclusion regarding Japan's so called deflation: "Conclusion: there has been no systemic price deflation in Japan." He also mentions several years when Japan has apparently had significant INFLATION. See a fuller reference to this statement below in this thread.

2. "I am saying the West will be fortunate if what it experiences in the next 20 years is only as bad as what Japan has experienced in the last 20 years". We never suggested that the West would do as "well" as Japan; in fact our article does not lay out any detailed brief for Japan's lost decades, but as we believe we have established in this thread there is more than enough evidence to make this claim, or to assume it anyway. In this case the conventional wisdom is likely correct. Japan's economy has been trouble for decades. Given its reliance on central banking, behemoth government and energetic central planning and corporatism, we don't see how it can be otherwise.

3. "I will leave it at that, and thank you for the dialogue." We thank you too for an interesting discussion.

"The Telegraph article (excerpted at the beginning of this article) explains that Western governments have hurled everything but the kitchen sink"

That's the problem. States believe they hold a monopoly on problem solving whose "solutions" are bounded by the constaint of a:doing something, b:something must involve ongoing state "hands on" and state revenue streams for their dubious services, imposed by barrels of OUR GUNS, pointed at US.

The one "kitchen sink" that states will NEVER willingly throw at the problems is"get the f*ck OUT OF THE WAY", so, they are being removed ny the "unseen hand" of collective human choice, pulling the eternal trump card of slaves: "If you pretend to pay us, we will pretend to work", as in the late, not so great FORMER USSR.

To the extent that members of Congress represent an elite, they might accept a buyout package making themselves rich while substantially unburdening us of government. What if all those in Congress voting for a cut in government spending were allowed to keep 1% of the spending cuts? They could legally enrich themselves while freeing us. The apparatus of regulatory democracy will creak to a halt without money.

"The Telegraph article (excerpted at the beginning of this article) explains that Western governments have hurled everything but the kitchen sink at the West's sinking economies with little success. This is a surprise of course because the prescriptions of the patron saint of lost decades - John Maynard Keynes - were supposed to work with speed and efficiency. Government, having saved for a rainy day, would be able to use its surplus to "stimulate" investment.

In the 21st century it is hard to fathom that these palliatives would be taken seriously and yet they are. Governments and the elites that stand behind them are always desperate for public solutions to private problems. Keynes, a social Fabian and member of the upper crust Bloomsbury Group, came along at the right time. He didn't criticize central banks as FA Hayek did; instead he apparently recommended ways that governments could compensate for the ruin they produced by overprinting money for nothing.

It was Hayek, along with his mentor Ludwig von Mises, who came up with an explanation of how central banks triggered the destruction of the Western business cycle. Keynes, a central banker, came up with a number of other things, but we defy anybody to explain them. His prose was as tortured as his logic. Nonetheless, that hasn't stopped generations of politicians and central banks from using Keynesian nostrums ..."

The Zero Hedge has a supporting article on the above Keynesian folly and where it has led and what is waiting for all, just around the next corner ...... Click to view link

DB:

One more tidbit for you

Click to view link

Reply from The Daily Bell

You are getting most of your information from this fellow Fingleton. It is fun to be a debunker, but one needs to be careful about what one is debunking ...

James Fallows of all people is keeping you company. We prefer Dr. North.

(From Wikipedia: "James Fallows is an American print and radio journalist. He has been a national correspondent for The Atlantic Monthly for many years ... He is a former editor of U.S. News & World Report, and was President Jimmy Carter's chief speechwriter for two years, the youngest person ever to hold that job.)

Anyway, we have read all this in the past. That some Japanese drive fancy cars is taken as evidence that the Japanese slump is phantasmagorical. Fingleton in fact is very pleased with himself because he thinks he has found an argument against the prevailing wisdom. That counts, of itself, for him, apparently. But sometimes the prevailing wisdom prevails for a reason.

Despite Japan's raging bureaucracy, misguided central banking monetary policies and top-level corporatism, Fingleton believes Japan's economy is healthy. YOU seem to believe, is not only expanding, but positively vibrant.

Yet from 1987 until now, Japan has experienced a real-estate deflation unparalleled in the world. The wealth effect is huge. The stock market has collapsed from 40,000 to 7,000. Many corporate workers are part time and must cope with inflation (despite all the talk about deflation), which further worsens the plight of its citizens in a stagnant economy with no-growth wages (if you can find a job) and many apparently cannot.

So let us rehearse your points once again. You believe that Japan has low unemployment, gentle deflation and a vibrant account surplus.

Here they are in order with our comments:

1. Unemployment ... You are are likely on the wrong side of the argument on this one. We have already shown (see previous comments in this thread) that Japan's vaunted 4 percent employment is probably only achieved by ignoring millions of part time workers.

2 Inflation ... Dr. Gary North seems to show pretty conclusively that Japan NEVER HAD deflation but inflation, perhaps significant inflation.

3. Account surplus ... So what? Did you know that the US RAN AN ACCOUNT SURPLUS versus other countries for almost ALL of the 1930's Depression.

So, to sum it up ... Japan has been in a slump since the late 1980s. Its peculiar culture and social cohesiveness masks what is going on. But to believe that Japan is doing well, one must believe in the efficacy of powerful central banks, massive industrial planning, and put one's understanding of Austrian business cycles into abeyance. Japan is an example of how authoritarian central planning at all levels of society an propel a country forward ... at a snail's pace. Without Japan's incredible social cohesion that country would have fallen to pieces long ago.

In conclusion, Japan probably never had deflation and post 1987 developed a terrible unemployment problem that has manifested itself in a part-time worker system and an energetically falling birthrate and rising suicide rate. That it has an account surplus is a testimony to clever trade strategy but does not tell us anything about the internals of Japanese life in an ongoing, low growth economy.

Sounds like a couple of lost decades to us.

----

Here is the information on America's raging account surpluses during the 1930's Depression:

If Trade Surpluses are So Great, the 1930s Should Have Been a Booming Decade

by DON BOUDREAUX on DECEMBER 21, 2006

in MYTHS AND FALLACIES,TRADE at CAFE HAYEK

Click to view link

The incessant fretting over the U.S. trade deficit is unwarranted. As I point out (probably too) often, the trade deficit, along with its broader cousin, the current-account deficit, are no cause for concern.

Earlier today I visited the National Bureau of Economic Research’s Macrohistory Database. I clicked on Chapter 7 and then looked at the value of U.S. imports and the value of U.S. exports for each of the 120 months during the 1930s.

Turns out that for only 18 of the 120 months of that dreary decade did the United States run a trade deficit (that is, imported more, value-wise, than it exported). For each of the remaining 102 months of the decade of the 1930s the U.S. ran a trade surplus.

On an annual basis, the only year of the decade of the 1930s that the U.S. ran a trade deficit was 1936; in each of the other nine years the U.S. ran a trade surplus.

And for the Depression decade taken as a whole, the U.S. ran a substantial trade surplus. Exports over those economically challenging ten years totaled $26.05 billion while imports totaled only $21.13 billion. In other words, the U.S. trade surplus during the entirety of the 1930s was nearly 19 percent the size of the total value of U.S. exports during that decade ...

DB: "Here is Dr. Gary North on the subject"

Yes, thank you for reminding me.

See here: Click to view link

(members only, perhaps one of the elves can access)

In this article, Gary links to the following:

Click to view link


From the article: They concern the Japanese economy, that erstwhile juggernaut of world trade of the late 1980s, which, we are told, has been mired in stagnation ever since.

Question 1: Given that Japan's current account surplus (the widest and most meaningful measure of its trade) totaled $36 billion in 1990, what was it in 2010: (a) $18 billion; (b) $41 billion; or (c) $194 billion?

Question 2: How has the yen fared on balance against the dollar in the 20 years up to 2010: (a) fallen 11 percent; (b) risen 24 percent; (c) risen 65 percent?

The answer in each case is (c). Yes, all talk about "stagnation" and "malaise" to the contrary, Japan's surplus is up more than five-fold since 1990. And, yes, far from falling against the dollar, the Japanese yen has actually boasted the strongest rise of any major currency in the last two decades.

How can such facts be reconciled with the "two lost decades" story? I don't think they can. There is clearly a contradiction here, and after studying the facts on the ground in Tokyo for decades I find it hard to avoid the conclusion that the story of Japan's stagnation is a media myth.

----------snip----------

In many ways, it IS a media myth as the author suggests, one perpetrated to denigrate the idea of low inflation and a strong currency; perpetrated to hide the fact that a strong currency does not destroy exports. These myths serve the manipulators well. For DB and most of this audience, I do not have to explain how and why.

But analyzing these myths is not my expertise, it is yours!