What's your prediction on the Australian Dollar?

[JohnK]

Another thing re debt.No one has ever gone bankrupt with no debt.

Being in debt has a much better ring to it. "What's your credit limit?"

Dropping interest rates is essentially a sign of a weak economy is it not? Therefore less confidence in the economy of the nation.

I like the dollar staying around the .75c mark as I'm in the game of importing these days not manufacturing.

FWIW I'm in that ~70k zone and life could be a lot worse...

Yes it is a weak economy. Dropping interest rates isn't going to get people to spend more. If it is then people are sillier than I think. Time to save. Prepare for the worst. Fat salaries need to go. It's the biggest issue today.

I agree regarding your comment of $70,000 salary. I was earning a lot less and saving for my future. Not many people have that insight. No holidays. No eating out. No need to wear designer clothes. No splurging on new toys.

Another thing people don't consider is how long they are going to work. I definitely don't want to work until I am 68. Make the sacrifices early and it pays off.

 

[Awesom Andy]

Being in debt has a much better ring to it. "What's your credit limit?"

Yes it is a weak economy. Dropping interest rates isn't going to get people to spend more. If it is then people are sillier than I think. Time to save. Prepare for the worst. Fat salaries need to go. It's the biggest issue today.

I agree regarding your comment of $70,000 salary. I was earning a lot less and saving for my future. Not many people have that insight. No holidays. No eating out. No need to wear designer clothes. No splurging on new toys.

Another thing people don't consider is how long they are going to work. I definitely don't want to work until I am 68. Make the sacrifices early and it pays off.

If I fully use up my available credit limit, I'll most likely go bankrupt very shortly...

One of the intended effect of lowering interest rate is indeed trying to get people to spend more, but the broader intention would be to encourage additional investment/projects where a lower borrowing cost could make them profitable, e.g. putting up a block of building in more marginal areas, or allowing businesses to make expansion initiatives.

 

[drsmithy]

Which proves Paul Krugman doesn't understand debt.
Japan had their GFC 26 years ago.They have continually increased there debt,lowered interest rates and had many stimulus packages AKA spending spress and what have they got?

One of the highest standards of living in the world ? Massive trade surpluses ?

 

[drron]

Drsmithy you need to visit Japan more often.The reality does not show up in mere figures.
One example of the highest living standards in the world-
Japanese pensioners' shoplifting hits record high - BBC News

And massive trade surpluses.Well not so much.A leap in the trade surplus in March this year but because imports fell more than exports.In fact in the last 12 months it is a trade deficit not surplus.
Japan Balance of Trade | 1963-2016 | Data | Chart | Calendar | Forecast

 

[Boca68]

Drsmithy you need to visit Japan more often.The reality does not show up in mere figures.
One example of the highest living standards in the world-
Japanese pensioners' shoplifting hits record high - BBC News

<snip>

I think you'll find the same kind theme expressed on A Current Affair or the like here as well, drron.

Not really an example against the thought that Japan has a high standard of living. Which it does! Not perfect, for sure, same as here. But on a per capita basis its still very high. Even with recent negative growth.

GDP per capita (current US$) | Data | Graph

Yep, Japan 20 years ago was king. Its crown has slipped , but its still very high (in the top 10) in most economic markers.

 

[drron]

With all due respect when ACA does an article on pensioners shoplifting it is not in the same league as this one on Japan.Read the article and you can see how in Japan the numbers are increasing rapidly and the excuse often given is so they can go to jail.I have not heard of that excuse given in Australia.
GDP is not the same as standard of living.We first went to Japan in 1984 and this last visit was our 30th.The standard of living has obviously slipped.
It is no longer top 10 in GDP per capita.Now number 37 and falling-
GDP - per capita (PPP) - Country Comparison

No longer in the top 10 best re percentage of population living below the poverty line-
Population below poverty line - Country Comparison

People outside Japan don't realise exactly how far Japan has fallen in the last few years.GDP per capita down nearly 30% from 2012-2015.
GDP per Capita by Country 1980-2014 - knoema.com

Note the GDP per capita was higher in 1993 than in 2015.

 

[Boca68]

With all due respect when ACA does an article on pensioners shoplifting it is not in the same league as this one on Japan.Read the article and you can see how in Japan the numbers are increasing rapidly and the excuse often given is so they can go to jail.I have not heard of that excuse given in Australia.
GDP is not the same as standard of living.We first went to Japan in 1984 and this last visit was our 30th.The standard of living has obviously slipped.
It is no longer top 10 in GDP per capita.Now number 37 and falling-
GDP - per capita (PPP) - Country Comparison

No longer in the top 10 best re percentage of population living below the poverty line-
Population below poverty line - Country Comparison

People outside Japan don't realise exactly how far Japan has fallen in the last few years.GDP per capita down nearly 30% from 2012-2015.
GDP per Capita by Country 1980-2014 - knoema.com

Note the GDP per capita was higher in 1993 than in 2015.

I did read the article and its straight out the ACA handbook, sorry. The BBC isn't what it used to be.

Statistics can be skewed anyway you like. (guilty of the same) But the doom and gloom approach has to be taken in perspective. That's all I'm saying.
It was pointed out up the thread, Japans' biggest problem, declining population (combined with a zero immigration policy). It manufacturing base contracted during the 2000's, but has grown again in the last 5 years. Even still, its one of the worlds biggest exporters.

 

[drron]

So look at Tokyo land prices-


Dropped 80% from their highs and still not back to 1984 levels.
Or look at interest rates-

https://housingjapan.com/2011/11/10/a-history-of-tokyo-real-estate-prices/

What about the stock market-

Easy to work out where the stimulus packages were.The last seems to be following the same path as previous stimuli.
So Nikkei still down 50% from it's peak 25 years ago.Was down 75% at times.
Japan had it's GFC ~ 1989/90.Before it's population started dropping.Have tried interest rate cuts and stimulus packages with pretty poor results.
They have done what Paul Krugman advocates for the US-massive increases in debt and infrastructure.Here is their public debt to GDP graph-

One economic statistic where they are indeed number 1 in the world.

 

[RAM]

Japan is an extreme example to use in any argument about debt and even Keynesians like Krugman agree it's a problem. But even in the case of Japan, it's demography not debt that's been the biggest challenge. Japan's working-age population has been shrinking since the late 1990s and when you correct for that, Japan’s performance doesn’t look nearly as bad as a raw growth-rate comparison suggests. Japan is currently at full employment.

Meanwhile, Krugman and other Keynesians have been right about pretty much everything since the financial crisis started - but sadly, for many people, ideology is more important than evidence in these debates.

A bit of reality...Japan is effectively bankrupt.

• The conventional wisdom in the late 1980s and early 90s was that Japan could spend its way to growth - that sure failed.
• The BoJ now has purchased nearly 20% of every listed Japanese company (and look at its stock market performance!).
• The Japanese Govt cannot afford for interest rates to EVER rise as they would then account for 50 to 150% of the current Govt spending alone. If they went back to half of what they were in the early 2000's you would have another Brazil.
• In the late 1980s the total market value of greater Tokyo property was calculated to be greater than that of the entire Continental US (kudos to Paul Keating selling the Tokyo Embassy when he did! 1.5 hectares for AUD 640m. 12 March 1988 as well as getting a new 4 storey embassy and unit built for FREE) 12 Mar 1988 - Embassy sale nets $640m - Trove
• Residential property prices fell over 85% from their peaks. But it gets worse...
• The Japanese property market IS NOT like Australia. There effectively was not a secondary market for residential houses as they historically were built out of bamboo walls that were glued together. If lucky the houses would last 30 years, maybe 35 at a pinch.
• Add in a 65% capital gains tax on ANY property sale and you can see the problem.
• A 2ndry market of sorts existed with the 4 major unit builders offering to buy your house so you could buy one of their units. After tax you were lucky to be able to buy a unit in the same neighbourhood. These units were primarily being built over the tops of railway stations, lines or worker accommodation initially.
• This saw railway companies and companies with big land holdings with worker dormitories fuel the last surge in 1989/90.

.

• After the first 30% of so fall (early 1990s) - these huge property developers (all donors to the Ruling Party - google "Money Politics" if interested) launched a joint advertising campaign with the Jap Govt encouraging families to 'take this one in a lifetime opportunity to own a property while it lasts' and the Govt introduced the grandparent mortgages;
  • "A recent innovation in the Japanese real estate industry to promote home ownership is the creation of a 100-year mortgage term. The home, encumbered by the mortgage, becomes an ancestral property and is passed on from grandparent to grandchild in a multigenerational fashion."
• Property prices collapsed once more and effectively wiped out 60% of the Japanese consumer's combined savings.
• As the bank's capital positions were already dire as they lent extensively to ALL property developers as well as financed USD 100s billions in overseas Japanese company property developments (Qld and Hawaii 2 stand outs) - the Govt amended the definitions of what required writing off as bad debts.

So remaining Japanese with savings got hit in the neck with the Zero interest Rate Policy.
Families that had now lost their entire family savings over multiple generations couldn't spend.
Banks were hamstrung and through a "gentleman's agreement" with certain international authorities gradually cut their operations in the OECD (remember the fire sales in Qld?).
The Govt tried further spending but so much was lost to inept and corrupt programs (Money Politics gain). For example a 6 lane bridge to a village of 150 people previously connected by a one lane causeway - cost USD220mn.
So many rivers concreted...

Pushing on a piece of string is hard to progress.

Zombie companies must be let to die and not kept going on the public purse....

And despite this living lesson for all world central bankers to see - the same approach has been rolled out globally since 2006.

Perhaps the political party donors are the real drivers of world monetary policy... and land rezoning...

 

[PLANT]

I would have just said a nuke reactor or 5 might have contributed to Japan decline in living.... No?

 

[drron]

No.But the lack of enough operating nuclear reactors sure is.

 

[drsmithy]

Meanwhile, Krugman and other Keynesians have been right about pretty much everything since the financial crisis started - but sadly, for many people, ideology is more important than evidence in these debates.

Krugman's not really a Keynesian (then again, nobody really has been since the early 70s). He's a neoclassical in drag.

 

[moa999]

Re Japan. If it were not for our massive immigration over the last 50 years, we would be facing a similar ageing population issue

 

[whatmeworry]

I would have just said a nuke reactor or 5 might have contributed to Japan decline in living.... No?

I thought it was because of Godzilla?

 

[drsmithy]

Drsmithy you need to visit Japan more often.The reality does not show up in mere figures.

LOL. And then you go on to quote a bunch of figures...

I was in Japan a year ago. Didn't look quite like the hellhole being painted here.

Well not so much.A leap in the trade surplus in March this year but because imports fell more than exports.In fact in the last 12 months it is a trade deficit not surplus.

I'm not interested in trying to engage with this level of dishonesty. But here's what that graph taken back for thirty years looks like:

 

[drron]

Dishonesty.To me your graph shows a pretty dramatic drop off in the balance of trade in the last 10 years.And as the quote of mine says the recent uptick is due to exports falling more than imports.Hardly a sign of rosy health.
When we were there in 1984 the picture was of much rosier health than now.
The point isn't that the Japanese economy is a hellhole but that it is not all that healthy.

 

[drsmithy]

Dishonesty.To me your graph shows a pretty dramatic drop off in the balance of trade in the last 10 years.

FFS. It's consistent for ~20 years. Then there's the GFC. Then it starts to return back to "normal". Then Fukushima.

Now it's returning to "normal" again.

 

[drron]

So why has the employment rate been dropping from 1990-

 

[drsmithy]

So why has the employment rate been dropping from 1990-

Probably demographics, as the other poster said. Employment is dropping as people get old and leave the workforce (plus, as is happening in the entire developed world, have nothing to do because there aren't enough jobs and people are weighed down with their debt payments).

But this whole "we must have more workers to support the ageing population" meme is ridiculous on its face. The Industrial Revolution was centuries ago and the computing revolution decades ago. We're in the robotics revolution right now and the energy revolution is going to be starting Any Day Now. You don't need more people to produce more stuff. Japan is a world leader in robotics and automation and has been for years, that's their solution to the "demographic crisis".

Within two generations, three at the most, literally 1/2 to 3/4 of the population will be unemployed and unemployable because there's nothing they can do a robot can't do quicker, cheaper and faster. The machines will take over what offshoring and hordes of immigrants have been doing for the last couple of decades. What remains to be seen is whether we end up as Star Trek or Elysium.

 

[JohnM]

So why has the employment rate been dropping from 1990-

Interesting intra-year seasonality to the cycle there. It is consistent in frequency throughout but declines in amplitude over time, and with a strange but quite consistent little bi-modality to the peak.

As this shows the participation rate, it will be highly influenced by demographics - notably an increase in the proportion of the population aged beyond work capability, especially if recruitment (births, immigration [a no-no in Japan, I believe]) is slower than in the past.

It needs to be looked at in the context of the age distribution of the population.

The more rapid decline in the late 1990s would coincide with people born just before WW2 turning 65. That may be a coincidence with a fall in economic activity/demand for labour or it may also reflect something about the birth rate back then.