Wednesday, February 8, 2012

Quote of the Day

Longtime readers know that I am a fan of William Pesek.

February 1, 2012
Krugman take on $12 trillion question rings true

It doesn’t take a Nobel Prize to know that paying off debt gets harder when you’re running out of people.

I would argue that having a Nobel Prize might not even help.

Long-Term Capital Management

LTCM was founded in 1994 by John Meriwether, the former vice-chairman and head of bond trading at Salomon Brothers. Board of directors members included Myron Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives". Initially successful with annualized returns of over 40% (after fees) in its first years, in 1998 it lost $4.6 billion in less than four months following the Russian financial crisis requiring financial intervention by the Federal Reserve Bank, and the fund closed in early 2000.


LTCM's strategies were compared (a contrast with the market efficiency aphorism that there are no $100 bills lying on the street, as someone else has already picked them up) to "picking up nickels in front of a bulldozer" – a likely small gain balanced against a small chance of a large loss, like the payouts from selling an out-of-the-money naked call option.

Wall Street continues to bulldoze at the wheel. What could possibly go wrong?


Troy said...

I've vented on this here and here.

"The key to Japan’s ability to withstand 20 years of stagnation is roughly $15 trillion of household savings. "

This household savings is almost as bad as the SSTF. ~70% of it is in JGBs! They've just been deferring taxes and calling it savings -- mass idiocy.

I'd like to think Japan's psychopolitical balance is more sane than ours, but the history of how Japan got into this mess is less than encouraging (the more you actually know how corrupt everything is the more you don't want to know more).

My main bit in my comments is two-fold -- it doesn't make any sense for Japan to import workers when Chinese can work all day for the Japanese minimum wage, and also if Japan as a society gets serious about its political economy and starts treating it like a challenge on the order of WW2 they could get through this century rather well.

dearieme said...

But he doesn't have a Nobel Prize, does he? He has the economists' pretendy prize that they like to style "Nobel" even though it is no part of the old boy's will.

Mr Slippery said...

I wrote about Japan and possible JGB end games here.

Then a collection of links here.

Japan can "fix" their problem with accounting gimmicks, but however it is solved means a much lower standard of living for people who rely on Yen.

Troy said...

but however it is solved means a much lower standard of living for people who rely on Yen.

From your post:

"Something will be a trigger point where either the Japanese people or Japan's trading partners lose faith in the yen."

That's just it though -- Japanese people have to spend yen -- that's all they got. And AFAIK "Japan's trading partners" don't take yen anyway, they take dollars, and the Japanese these days could use a little less faith in the yen as it were.

Japan's standard of living is indeed at risk due to their large oil imports, but just the interest on their $1T in UST holdings can cover 1/6th of that.

From your link:

"In reality, every cent the government spends must be taken from the private sector and therefore can no longer be spent or invested by it." and "Government spending is a burden, not a boon."

this is just the typical internet libertarian ideology mouthing its catechism.

Now, I am the first to admit that to really screw things up requires a government, and the Japanese have collectively really screwed things up.

But their original sin was that the vaunted & immaculate private sector in all its holiness was allowed to go utterly nuts 1986-1989. (One may or may not be familiar with a similar 4-year reach for greatness in another well-known economy that happened somewhat recently.)

The 1990s in Japan was the government trying to keep the rubber side down as this massive fraud slowly unwound, and the 2000s was dealing with the side-effects of that, plus the increasing hollowing-out of Japan Inc as it decamped itself to the cheap-labor paradises of the SEZs in China and elsewhere.

So let me yell this next bit so it sinks in:


8元 is still solid money in China (especially for millions of peasants), while the corresponding ¥100 can almost buy you 250ml of canned coffee

Japan does not have any natural resource base begging for development. It has its labor, but with the current exchange rates, one hour of wage labor can pay a full day's in Shenzhen (tho as the yuan strengthens and Chinese wages continue to inflate this differential will be attenuated, but this is a rather glacial process!).

And to be honest, they stopped making laborers in Japan in 1995:

I don't know where this is going -- I am just looking for clues at the scene of the crime.

My friend in Japan was buying a house there last year and I couldn't give him any intelligent advice, since deflation and general depression will slaughter land prices while printing will probably add a zero to land prices and rents.

Japan is going where no one has gone before, but I think I'd rather have their problems to solve than ours.

Stagflationary Mark said...


One of your comments has been rescued from the SPAM collector (on the "We're Infected" post).

Sorry about that!

In related news, it is the poor Internet browser on the Sony Playstation 3 that stops me from checking. It isn't until I'm on my computer that I look. That said, they did just improve the browser a bit in the last few days. It is still buggy but not as bad.