We repeat: the US is not Japan... or is it?

I still remember those days that Greenspan assured us that never ever the US would be submitted to a Japan-like slump. No way would a deflation à la Japan hit the States. Moreover, the United States couldn’t afford to wait deflation out the way the Japanese did/do: too many people who owe too much money to too many creditors. But hey, there we are: falling prices, big output gap, rising unemployment and credit losses that surpass the monetary and fiscal stimulus in a huge way.

And the government is trying to prop up the creditors. Just like they did in Japan. The banks have gotten trillions in loans and guarantees. Is this stimulating the economy?

Hehe...

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Big in Japan

The Japanese government launched a record stimulus package totaling 56.8 trillion Yen. Or 56.000.000.000.000. This amount represents 11.2% of the Japanese GDP. The three centerpieces of the direct stimulus part are:
- measures to boost consumer electronics/automobile replacement

- a gift tax cut aimed at stimulating housing investment
- public works projects
Now, we wonder: this money is coming out of nowhere and is injected in the economy. As long as there is no velocity of money in Japan (gone since the early nineties) this kind of action will not cause inflation. But at the same time you have to put it somewhere on your balance.
When will this liability be gone?
2509?

This world is experimenting with paper currencies on a scale never seen before.

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Big in Japan

What’s happening in Japan?
We have an interesting chart from Goldman Sachs showing the Japanese Trade Balance overlaid with the USD/JPY. The trade balance is reversed and is lagging with 18 months to illustrate the correlation between both. It seems that the yen may weaken in the coming months to restore this correlation.

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