Comments on: Credit deflation and the Japanese problem http://www.creditwritedowns.com/2008/06/credit-deflation-and-japanese-problem.html Finance, Economics and Markets Fri, 10 Feb 2012 00:37:00 +0000 hourly 1 By: Edward Harrison http://www.creditwritedowns.com/2008/06/credit-deflation-and-japanese-problem.html#comment-43 Edward Harrison Tue, 17 Jun 2008 10:07:00 +0000 http://www.creditwritedowns.com/2008/06/credit-deflation-and-the-japanese-problem.html#comment-43 Mark,<br/><br/>I do think 1990 Japan is the most similar comparison. 1929 can't be ruled out if the central banks screw it up or we go protectionist. But I don't see 1973 as the same because inflation was more ingrained, unions had all sorts of cost of living adjustments tied in to contracts so you had a wage price spiral. I am a lot less worried about inflation than most people.<br/><br/>As far as the least-worst way, I think mildly elevated inflation, which is what we've got will be the way forward. The only danger here is that commodity prices continue up so much tha inflation becomes ingrained in a wage price spiral. But, its harder to get high inflation numbers going forward because we have already gone so high. For example, if oil goes from $80 to $120 then to match that rise it has to go to $180 still. I could be wrong but I think commodity price inflation will go down or even reverse course before the recession is done.<br/><br/>Oh and your third question is the best of all. I'm sure you and I would agree that its not easy money. I'll take that one up in a separate entry! As you said in the post on Alice's site, its time to reward savers over debtors. I'm all for that as the way to prevent this sort of thing.<br/><br/>Ed Mark,

I do think 1990 Japan is the most similar comparison. 1929 can’t be ruled out if the central banks screw it up or we go protectionist. But I don’t see 1973 as the same because inflation was more ingrained, unions had all sorts of cost of living adjustments tied in to contracts so you had a wage price spiral. I am a lot less worried about inflation than most people.

As far as the least-worst way, I think mildly elevated inflation, which is what we’ve got will be the way forward. The only danger here is that commodity prices continue up so much tha inflation becomes ingrained in a wage price spiral. But, its harder to get high inflation numbers going forward because we have already gone so high. For example, if oil goes from $80 to $120 then to match that rise it has to go to $180 still. I could be wrong but I think commodity price inflation will go down or even reverse course before the recession is done.

Oh and your third question is the best of all. I’m sure you and I would agree that its not easy money. I’ll take that one up in a separate entry! As you said in the post on Alice’s site, its time to reward savers over debtors. I’m all for that as the way to prevent this sort of thing.

Ed

]]> By: Mark Wadsworth http://www.creditwritedowns.com/2008/06/credit-deflation-and-japanese-problem.html#comment-42 Mark Wadsworth Tue, 17 Jun 2008 09:03:00 +0000 http://www.creditwritedowns.com/2008/06/credit-deflation-and-the-japanese-problem.html#comment-42 Ed, excellent summary. But I'm not sure you have answered the questions:<br/>1. Which bubble is most similar to the one we have now (I guess Japan 1990).<br/>2. What is the least-worst way out of it (I think you answered this), and<br/>3. What should we do (if anything) about preventing asset-price bubbles (the flipside of the 1929 and 1990 credit bubbles) in future? Ed, excellent summary. But I’m not sure you have answered the questions:
1. Which bubble is most similar to the one we have now (I guess Japan 1990).
2. What is the least-worst way out of it (I think you answered this), and
3. What should we do (if anything) about preventing asset-price bubbles (the flipside of the 1929 and 1990 credit bubbles) in future?

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