Krugman: The Third Depression

[zboy2854A]

Quote from Martinghoul:

See my response here:
http://www.elitetrader.com/vb/showthread.php?s=&postid=2868620&highlight=Japan#post2868620
Moreover, the debt as 200% of GDP is a very misleading figure, as it's 200% gross. If you take into account the various holdings of bonds by branches of the Japanese govt, the figure is smth like 120% (if memory serves). It's just one of the quirks of the Japanese govt accounts.

Nonetheless, at some point Japan will need to either rely more on foreign creditors or monetize debt to continue their debt spending. Whether they're at 120% or 200% or whatever statistic you wish to hold up when that occurs is beside the point. The point is that they will reach a tipping point, when deflation has finally run its course that all of their inflationary actions will finally take hold in a dramatic way.

Here we go with the manipulation story again... I don't subscribe to it, so we're gonna have to disagree here.

What exactly is it you don't subscribe to? The fact that governments and central banks manipulate interest rates, debt issuance and money supply in vain attempts to change inevitable natural forces that are work? You don't believe governments do all of the above??

Nobody is projecting anything. In fact, it's the people who look at Japan superficially and scream that it's destined for a disaster that are guilty of excessively simplistic thinking. Japan has issues, no doubt, but one should always do one's own legwork and avoid listening to the panic-mongers.

I agree. And I have done my own legwork, and the only reasonable conclusion one can draw is that when the deflation and deleveraging has finally run its course in Japan, it will be followed by massive inflation. And it appears we are on track to follow their footsteps here in the U.S.

If you wish to still disagree fine, I guess we'll both just have to sit back and wait and see who is right.

 

[Kassz007]

Quote from achilles28:

Please enlighten us. How does the G20 save itself ?

The G20 does not need to be saved, only certain countries within the G20.

If you cannot see how the USA, in massive debt, will certainly default should deflation take hold, then nothing I say anyways will convince you that deflation is the real problem.

Given the current state of soverign debt in the world, deflation is NOT an option. Unless, of course, you don't mind anarchy when so many countries default.

 

[bearice]

Quote from Scataphagos:

INFLATION... DESTROYER OF WORLDS!!

High population is the root cause of high inflation.

 

[shortie]

early by 10 years is wrong for most practical purposes.

 

[zboy2854A]

Quote from Martinghoul:

I sense a bit of a contradiction here. You know what will happen and that's why you've made out like a bandit on your gold and silver. Well done! Seems like timelines don't matter to a savvy investor like yourself. So why not go short JGBs today? Or go short JPY (on a trade-weighted basis or whatever)?

Because all things being equal, I prefer to do most of my investing in US based assets (just a personal preference). I also take tax considerations into account when taking positions. So starting in March I progressively established a massive short position on the S&P via long dated SPY puts, which I intend to hold for up to 2 years, which will allow me to qualify for long term capital gains treatment.

Conversely, if I short JPY or JGB's, I can never qualify for long term capital gains treatment, so all other things being equal, I'll go with the investment that I'll only have to pay 20% CG taxes on instead of higher respective short term rates.

 

[zboy2854A]

Quote from shortie:

early by 10 years is wrong for most practical purposes.

Again, only depending on the nature of your position and outlook.

 

[achilles28]

Quote from Kassz007:

The G20 does not need to be saved, only certain countries within the G20.

If you cannot see how the USA, in massive debt, will certainly default should deflation take hold, then nothing I say anyways will convince you that deflation is the real problem.

Given the current state of soverign debt in the world, deflation is NOT an option. Unless, of course, you don't mind anarchy when so many countries default.

I'm quite well versed with the impacts of both outcomes, thanks.

What you don't get is inflation is even worse than a deflationary scenerio. A currency crisis destroys incomes and GDP even more so than deflation. Deflation always sets-in after inflation. So with inflation, you fuck the currency, then get the dreaded deflation after, in spite of all that. Very bad move. And it's exactly where the G20 eggheads appear to be driving us. Why? For political expediency. Career politicians know their half-life gets decimated if they let a depression take hold. So, they'll just print and print until the market finally gives up, and commodities go berzerk. Enter your salvation - 500$ oil, 10$ bread, 15$ ground beef, and wage controls!! mmmmmmmmm We'll still get the riots, btw. They might do price controls. But then, we'll get shortages. Just like some shitty-ass third world country with no food on the shelves or gas in the station. Profit-motivated owners have no incentive to stock shelves with products they take a big loss on. What of your inflationary utopia then?

 

[ASusilovic]

Quote from zboy2854A:

Nonetheless, at some point Japan will need to either rely more on foreign creditors or monetize debt to continue their debt spending. Whether they're at 120% or 200% or whatever statistic you wish to hold up when that occurs is beside the point. The point is that they will reach a tipping point, when deflation has finally run its course that all of their inflationary actions will finally take hold in a dramatic way.

Continue debt spending ?

As I understand the new Japanese prime minister he´s not a fan of a strong YEN, yet he emphasized lately the urgency of Japan to cut it´s public debt. How shall this work in a global "austerity competition" framework - means lower GDP expectations ? Japanese intentions are very confusing...

 

[Scataphagos]

Quote from bearice:

High population is the root cause of high inflation.

How so? Overpopulation has its set of problems, but inflation is a monetary phenomenon.... created by government to steal wealth from the citizenry.

 

[Martinghoul]

Quote from zboy2854A:
Nonetheless, at some point Japan will need to either rely more on foreign creditors or monetize debt to continue their debt spending. Whether they're at 120% or 200% or whatever statistic you wish to hold up when that occurs is beside the point. The point is that they will reach a tipping point, when deflation has finally run its course that all of their inflationary actions will finally take hold in a dramatic way.

Why? Japan has been and still is running a reasonably large trade surplus. IMHO, US, in a fundamental sense and based on numbers alone, should be much more of a concern to you.

What exactly is it you don't subscribe to? The fact that governments and central banks manipulate interest rates, debt issuance and money supply in vain attempts to change inevitable natural forces that are work? You don't believe governments do all of the above??

As soon as I start classifying a participant of any mkt I trade as a manipulator, I go on holiday. I just don't feel that labeling things is constructive, so to me all the forces in the mkt are natural. I believe it's a much healthier way of looking at things, especially given that I can place bets on the actions of the so-called "manipulators".

I agree. And I have done my own legwork, and the only reasonable conclusion one can draw is that when the deflation and deleveraging has finally run its course in Japan, it will be followed by massive inflation. And it appears we are on track to follow their footsteps here in the U.S.

If you wish to still disagree fine, I guess we'll both just have to sit back and wait and see who is right.

Sure thing... If I were you, I would question who's gonna be doing the leading and who the following.