i've been visiting a # of houses with my RE representative (i wouldn't call them MY agent since they don't represent anyone but the agency they work for). when sellers are home i've many times encountered this glum, depressing mood as we meander through the property. i've mentioned this to the RE rep and a few RE people i know and they've said sellers are thinking to themselves "oh here comes another looker meaning they won't offer me anywhere near the asking price if an offer comes at all so this is a waste of my time". i say try lowering your price to be more attractive in this marketplace and you'll move your house instead of thinking it's yesteryear. sorry but there won't be a greater fool riding in on a money horse to give you prices that are clearly not supported by today's valuations.
the housing slowdown will ripple through the economy like an earthquake knocking down everything in it's path. i believe the most pessimistic views (with the exception of Roubini) won't be pessimistic enough. late 2007 through 2010 are going to be a tough time for the USA. let's see how we respond.
The great drama now playing out on the stage of the American economy may be turning into a bloodbath of proportions that most here envisioned.
From my readings on the net tonight, some of the most Bullish on Wall street
are making comments like this...
In the aftermath of the Federal Reserve's two-year campaign to raise interest rates by 425 basis points, which just paused (read: ended) earlier this month, the once red-hot housing market has gone cold. And while a slowdown has been a foregone conclusion on Wall Street for some time, the latest dropoff suggests a sharper correction than expected is at hand -- and the worst is yet to come.
"The message from the markets in response to these housing numbers is that we may not be headed towards a soft landing," says Hugh Johnson, chairman of Johnson Illington Advisors. "We may be headed for a hard landing, and if that's the case, then the stock market has further to go on the downside. Does this make me restive, uneasy and uncomfortable? The answer is yes, very much so."
Not good- I have the feeling this is going to be a significant economic contraction- how far and deep none of us truly know.
Great site... regarding the housing bubble, buyers need to wait a while for reluctant sellers to give in. I think that many sellers are choosing not to sell because they think the situation is temporary.
Whatup? A crash is a crash. A crash aint a landing. If you are at 50K feet and your altitude is decreasing at 10K per second you may still hope and pray that you will land. But no matter how hard you pray you will just plain and simple splat.
One of the more interesting books I've read in recent years is "Balance Sheet Recession" by Richard Koo, Chief Economist of Nomura Securities (Japan's largest brokerage house). It disputes the oft-heard claims that Japan's long deflationary recession was due to the Bank of Japan (BOJ) not sufficiently expanding the money supply, holding that the cause was that all the potential borrowers in Japan were so overextended that none wanted to borrow more no matter how low the interest rates, and all were focusing purely on balance sheet repair -- paying down debt.
When no one borrows, the money-supply-expanding function of the fractional reserve banking system ceases to operate, disabling the central banks' normal mechanism for goosing the money supply to stimulate the economy.
Though Bernanke claimed several years ago that the Fed could use other means to grow the money supply, such as buying bonds on the open market, if I remember correctly they dabbled a bit with that and ran into unanticipated side effects on Fannie Mae, Freddie Mac et al by upsetting the market correlations on which their interest rate hedges and bond valuations relied.
Because there are still many disciplined savers in this country, the decline of the overall savings rate into negative territory is clear evidence that there are even more people who are over their heads in debt, and will be forced into balance sheet repair mode (if not bankruptcy and foreclosure) by the end of the housing bubble.
A horrifying possible side effect of US consumers going into balance sheet repair mode is that the circulation of dollars from US consumers to Chinese and Japanese producers and then back to the US as loans (bond purchases) might slow, causing interest rates to rise and thus starting regenerative feedback which shuts down that system. Since the political fallout from a collapse of subsidized export manufacturing in China and Japan and major unconcealable losses in the values of their dollar reserves might lead to the kind of leadership changes and the otherwise-unimaginable policy changes that would halt their unwise accumulation of dollar reserves, there is some possibility of fundamental changes in the world economy.
I'm a bit sceptical about your prediction for rising interest rates. I think what might happen is that long term rates (5Y and up) will be somewhat higher than they might have been without foreign CB buying. But I dont agree with you that they will be higher than they are now. Rates are on the way down -- way down -- the 10Y included.
I used to think that for the housing bubble to collapse you needed high rates. It turns out that it is just collapsing under its own weight of oversupply.
Look at Japanese rates -- how ridiculously low. Yet their house prices have been falling until recently.
Whee and whew my morning wake-up read. Boy you guys really covered some ground - a lot of it deep. If I can chime in:
1. Japan - got trapped in the infamous "Liquidity Trap" where no amount of pumping money into the economy would lift spending because everybody was too scared to buy. This comes about because individuals/companies reduced spending to have a cushion but in the aggregate you see a reduction in total demand which triggers an economic collapse. Or at least sustains it. It's not entirely clear that after 15+ years they've shaken it off.
If you're curious you can access US GDP data all the way back to 1929 and take it to current. In that exercise WW2 is this huge blip in gov't spending w/o much of a counter-vailing decline in Consumption. However prior to that time, despite a few proportionate jumps in gov't spending, the economy wasn't restarting, at all.
In other words it took took a near doubling of the GDP thru gov't spending to get out of the liquidity trap of the Great Depression. WW2 saved us in more ways than one. In passing let me also suggest that it was gov't spending that created all the R&D behind the major new industries that drove our post-war growth (Electronics & Computers, Pharmaceuticals, "Plastics", Transportation). Combined with all the investment in infrastructure and equipment which created a capital base. As part of this perfect storm, btw, notice that no replacement industry is on the near-horizon to jump the possibilities frontiers.
BRICS and Trade - China has followed an export industry led development model learned from Japan, Taiwan, et.al. It's worked very successfully though in the long run they know they must create a self-sustaining domestic economy with a rising middle class. Unlike J&T who're so much smaller they can get away with it. In the l.t. China & India must become as much engines of global growth as the US (cf. two superb books by Greg Chow. "Knowing China" and "China's Econ. Transformation" - more technical.)
In the meantime if you look at the same GDP data net stayed near zero from the 50s to the late 90s, give or take a cycle while trade grew gradually from 4% to 6% of the economy to the 70s and jumped to 10% as Jap/et.al. enterred the world stage. In the very late 90s ('98/'99) imports jumped to 16% while exports stayed around 10% of GDP so that net dropped to a neg. 6% and declining. Fellow citizens that's the beginning indicator of one of the deepest structural changes in world trade in over a 100 years; or longer.
With all those goods flowing here money had to go back which should have caused the currency to appreciate or rates to drop. With currency controls that pressures got displaced into some inflationary pressures, excess capacity, real estate and infrastructure investment and the sloshing around pool. Which has been getting loaned back to us.
Now as our economy cools decreased demand will lower imports or should depending on what China does. But they have a fundamental problem in that export-led growth is the heart of their employment engine. Something like 300 million are in the modern economy while 800 million are still trapped back several centuries in peasant agriculture. Those folks have to be brought into the modern sector;otherwise there's a major social collapse which, as closely as we're all tied these days, hurts us badly as well.
China has a policy problem that makes most(all) of our suggestions dangerous as well as too small of an impact to be useful (talking about Yuan revaluations). But in many ways it's our problem as well.
CR's cycle should be broken by drops in import demand as consumption pulls back dramatically, w/o MEW to sustain it. There is however this 'perverse' possibility of China having to sustain exports even in money-loosing firms to sustain employment in an economy that's already got zero profits and excess capacity.
I don't think they can drive prices low enuff to sustain 6% but I do think that tremendous pressures on US manufacturing will result.
"Now as our economy cools decreased demand will lower imports or should depending on what China does. But they have a fundamental problem in that export-led growth is the heart of their employment engine. Something like 300 million are in the modern economy while 800 million are still trapped back several centuries in peasant agriculture. Those folks have to be brought into the modern sector;otherwise there's a major social collapse"
I followed the first part, which is that a slowing US economy will result in less people buying consumables manufactured in China. But I don't understand how 800 million people in agriculture will be affected, as this industry is not coupled to factory-manufactured consumables.
So long as the world population grows, people will need to eat grains and greens.
KC - sorry for the confusion. Rushing thru compression again. Think of China as having two economies - modern and primitive agriculture (that's exaggerated but very close). Our trade relationships are with the 300 million folks in the modern economy and everything said applies. MEANWHILE back on the farm the Chinese will be doing everything they can to migrate the 800 million peasants into a modern economy so there's this huge un-tapped pool of labor undergoing a seismic shift. While our import demand may go down China many not be in a good position to let production drop in existing businesses becasue of the need to keep the employment engine accelerating for both the modern and peasant-migration reasons. In other words they'll keep over-producing to provide subsidized jobs in the name of avoiding major instabilities. But that could result in even lower prices for their goods on the world market even though 'normal' analysis would say otherwise.
In other words the modernization adjustments could swamp the normal trade adjustments.
Is that any better ? Jim Jubak on money central btw has a very good set of articles on China - highly recommended.
I don't get it - the Japanese were stuck in the liquidity trap because they didn't spend enough (i.e., they saved). The Chinese save supposedly 30-50% yet their economy is growing rapidly. Why aren't the Chinese in a super liquidity trap.
Also, we don't save enough (anything actually) which is bad but if we stop spending the economy is supposed to tank. Seems like economists want it both ways: save because it's prudent and spend to keep the economy humming.
Final question - if we save, aren't these savings still available to the economy in that the banks have more $ to lend. Maybe economic health is independent of the savings rate (altho having some saving would seem prudent in all cases).
I think most people these days only want to read things that confirm their own biases.
Economists who write seemingly contradictory advice are just trying to maximize their audience and income...just like economics tells them they should.
He does mention that metal, auto, and textile industries will be forced by the CN govt. to run into the red during the next down turn to save jobs - which I agree will put cost pressure on equivalent producers in the US and elsewhere.
I do think the link to farming will be less dramatic for a couple reasons:
1. the individual chinese farmer is already a low-cost producer (earning $250 - $500USD/yr) forcing most 1st world goverments to heavily subsidize their own farmers.
Chinese farmers are not dependent on a steady flow of cheap loans from the CN goverment-controlled banks to stay afloat (unlike the metal, textiles, and auto industries) - instead the vast majority of chinese farmers are individuals: unleveraged and mostly unmechanized. The government will have little ability to "goose" the farming industry into unprofitable over-production.
But I do agree that this industry may start to fall under the same influence when big-agra businesses start buying out the individual chinese farmer (similar to what is happening in the US and Canada), simply because these large-scale, lower margin operations rely on and lots of expensive machines bought using big loans and govt. subsidized dollars.
I don't get it - the Japanese were stuck in the liquidity trap because they didn't spend enough (i.e., they saved). The Chinese save supposedly 30-50% yet their economy is growing rapidly. Why aren't the Chinese in a super liquidity trap.
The initiation of 'deflation' in Japan had TWO things going on simultaneously:
(1) major yen-dollar revaluation where dollar fell relative to yen - late 80s.
(2) not enough domestic demand - regardless of BOJ primming all through the 90s - to offset previous currency adjustments (exports didn't completely collapse but slowed in volume & especially in profitability at least from a yen perspective - effected employment prospects and retirement security among Japanese - caused further increased savings & cuts in personal spending).
And people wonder why the Chinese are so reluctant to revalue the RMB. They're scared that there won't be close to enough domestic demand to make up for the reduced export demand. And they have a lot less societal cushion than the Japanese.
Will all those Chinese savers miraculously gain faith in their personal futures so they can start spending a bit more liberally and take the heat off the Chinese export engine?
kc - you're welcome. that war me but wasn't signed in for some reason.
dryfly - domestic demand is the key issue indeed. An earlier point I was struggling for was that yuan re-valuation is really dangerous for the Chinese economy and, given how little impact it'd make on prices, wouldn't do us much good.
The ag issue is not so much viewing ag as a sector of the modern economy as it's the medievel sector with a labor surplus requiring the CN to keep the growth engine running very fast; which adds to the pressures discussed.
Just in case you're serious - it's a good question and one I had to think about - a liquidity trap exists when no amount of increasing the money supply and/or other liquidity raises demand because consumers have lost all confidence. As Keynes said "Animal Spirts". Not sure of the exact stats but consumers are approx. 65% of Jap. economy and about 30-40% of CN. Something like 40-45% of CN's GDP has been investment spending ! Unbelievable ! But that means they're structurally very different so CN consumers can save as much as they want and not put significant downward pressure on total demand. Japan is the opposite. At least that's my excuse today.
Unfortunately savings is necessary in the long-run to provide investment capital to growth the economy as well as develop the next big thing. But in the shorter run it shows up as a drop in demand. Economists aren't generally clever enuff or articulate enuff, outside the Finance community, to manage what they say. When they talk about these problems they're depicting the complexities of reality as best they grasp them.
Fred said: I don't get it - the Japanese were stuck in the liquidity trap because they didn't spend enough (i.e., they saved). The Chinese save supposedly 30-50% yet their economy is growing rapidly. Why aren't the Chinese in a super liquidity trap.
Eventually, the US bought less from the Japanese because of the aforementioned adjustments, and the Japanese were unwilling to pick up the consumption demand gaunlet. As for why aren't the Chinese in a super liquidity trap, I think you need to add "yet"....the US is still consuming at a good clip, so far.
All three of my local TV weathermen forecast a high for last Saturday of 85 degrees...the high turned out to be 69 degrees.
Nobody commented on the 15 degree goof, much less the weathermen themselves...and they were still employed as of today.
i've been visiting a # of houses with my RE representative (i wouldn't call them MY agent since they don't represent anyone but the agency they work for). when sellers are home i've many times encountered this glum, depressing mood as we meander through the property. i've mentioned this to the RE rep and a few RE people i know and they've said sellers are thinking to themselves "oh here comes another looker meaning they won't offer me anywhere near the asking price if an offer comes at all so this is a waste of my time". i say try lowering your price to be more attractive in this marketplace and you'll move your house instead of thinking it's yesteryear. sorry but there won't be a greater fool riding in on a money horse to give you prices that are clearly not supported by today's valuations.
the housing slowdown will ripple through the economy like an earthquake knocking down everything in it's path. i believe the most pessimistic views (with the exception of Roubini) won't be pessimistic enough. late 2007 through 2010 are going to be a tough time for the USA. let's see how we respond.
The great drama now playing out on the stage of the American economy may be turning into a bloodbath of proportions that most here envisioned.
From my readings on the net tonight, some of the most Bullish on Wall street
are making comments like this...
In the aftermath of the Federal Reserve's two-year campaign to raise interest rates by 425 basis points, which just paused (read: ended) earlier this month, the once red-hot housing market has gone cold. And while a slowdown has been a foregone conclusion on Wall Street for some time, the latest dropoff suggests a sharper correction than expected is at hand -- and the worst is yet to come.
"The message from the markets in response to these housing numbers is that we may not be headed towards a soft landing," says Hugh Johnson, chairman of Johnson Illington Advisors. "We may be headed for a hard landing, and if that's the case, then the stock market has further to go on the downside. Does this make me restive, uneasy and uncomfortable? The answer is yes, very much so."
Not good- I have the feeling this is going to be a significant economic contraction- how far and deep none of us truly know.
I just hope to survive it all.
Great site... regarding the housing bubble, buyers need to wait a while for reluctant sellers to give in. I think that many sellers are choosing not to sell because they think the situation is temporary.
More interesting news here:
Real Estate Information and Research News -- Will The Bubble Pop?
Whatup? A crash is a crash. A crash aint a landing. If you are at 50K feet and your altitude is decreasing at 10K per second you may still hope and pray that you will land. But no matter how hard you pray you will just plain and simple splat.
One other comment -- not like you wanted to hear it -- so here you go:
Deflation is defined as purchasers delaying their purchase decissions in hopes of getting a lower price in the future.
This is exactly what we are seeing in the RE market today. Deflation is known to be very hard to reverse.
One of the more interesting books I've read in recent years is "Balance Sheet Recession" by Richard Koo, Chief Economist of Nomura Securities (Japan's largest brokerage house). It disputes the oft-heard claims that Japan's long deflationary recession was due to the Bank of Japan (BOJ) not sufficiently expanding the money supply, holding that the cause was that all the potential borrowers in Japan were so overextended that none wanted to borrow more no matter how low the interest rates, and all were focusing purely on balance sheet repair -- paying down debt.
When no one borrows, the money-supply-expanding function of the fractional reserve banking system ceases to operate, disabling the central banks' normal mechanism for goosing the money supply to stimulate the economy.
Though Bernanke claimed several years ago that the Fed could use other means to grow the money supply, such as buying bonds on the open market, if I remember correctly they dabbled a bit with that and ran into unanticipated side effects on Fannie Mae, Freddie Mac et al by upsetting the market correlations on which their interest rate hedges and bond valuations relied.
Because there are still many disciplined savers in this country, the decline of the overall savings rate into negative territory is clear evidence that there are even more people who are over their heads in debt, and will be forced into balance sheet repair mode (if not bankruptcy and foreclosure) by the end of the housing bubble.
A horrifying possible side effect of US consumers going into balance sheet repair mode is that the circulation of dollars from US consumers to Chinese and Japanese producers and then back to the US as loans (bond purchases) might slow, causing interest rates to rise and thus starting regenerative feedback which shuts down that system. Since the political fallout from a collapse of subsidized export manufacturing in China and Japan and major unconcealable losses in the values of their dollar reserves might lead to the kind of leadership changes and the otherwise-unimaginable policy changes that would halt their unwise accumulation of dollar reserves, there is some possibility of fundamental changes in the world economy.
jm, I've been worried about that impact. From last year: Housing and Trade: Virtuous Cycle about to Become Vicious?
Best Wishes.
I'm a bit sceptical about your prediction for rising interest rates. I think what might happen is that long term rates (5Y and up) will be somewhat higher than they might have been without foreign CB buying. But I dont agree with you that they will be higher than they are now. Rates are on the way down -- way down -- the 10Y included.
I used to think that for the housing bubble to collapse you needed high rates. It turns out that it is just collapsing under its own weight of oversupply.
Look at Japanese rates -- how ridiculously low. Yet their house prices have been falling until recently.
Whee and whew my morning wake-up read. Boy you guys really covered some ground - a lot of it deep. If I can chime in:
1. Japan - got trapped in the infamous "Liquidity Trap" where no amount of pumping money into the economy would lift spending because everybody was too scared to buy. This comes about because individuals/companies reduced spending to have a cushion but in the aggregate you see a reduction in total demand which triggers an economic collapse. Or at least sustains it. It's not entirely clear that after 15+ years they've shaken it off.
If you're curious you can access US GDP data all the way back to 1929 and take it to current. In that exercise WW2 is this huge blip in gov't spending w/o much of a counter-vailing decline in Consumption. However prior to that time, despite a few proportionate jumps in gov't spending, the economy wasn't restarting, at all.
In other words it took took a near doubling of the GDP thru gov't spending to get out of the liquidity trap of the Great Depression. WW2 saved us in more ways than one. In passing let me also suggest that it was gov't spending that created all the R&D behind the major new industries that drove our post-war growth (Electronics & Computers, Pharmaceuticals, "Plastics", Transportation). Combined with all the investment in infrastructure and equipment which created a capital base. As part of this perfect storm, btw, notice that no replacement industry is on the near-horizon to jump the possibilities frontiers.
...to be cont'd
In the meantime if you look at the same GDP data net stayed near zero from the 50s to the late 90s, give or take a cycle while trade grew gradually from 4% to 6% of the economy to the 70s and jumped to 10% as Jap/et.al. enterred the world stage. In the very late 90s ('98/'99) imports jumped to 16% while exports stayed around 10% of GDP so that net dropped to a neg. 6% and declining. Fellow citizens that's the beginning indicator of one of the deepest structural changes in world trade in over a 100 years; or longer.
With all those goods flowing here money had to go back which should have caused the currency to appreciate or rates to drop. With currency controls that pressures got displaced into some inflationary pressures, excess capacity, real estate and infrastructure investment and the sloshing around pool. Which has been getting loaned back to us.
Now as our economy cools decreased demand will lower imports or should depending on what China does. But they have a fundamental problem in that export-led growth is the heart of their employment engine. Something like 300 million are in the modern economy while 800 million are still trapped back several centuries in peasant agriculture. Those folks have to be brought into the modern sector;otherwise there's a major social collapse which, as closely as we're all tied these days, hurts us badly as well.
China has a policy problem that makes most(all) of our suggestions dangerous as well as too small of an impact to be useful (talking about Yuan revaluations). But in many ways it's our problem as well.
CR's cycle should be broken by drops in import demand as consumption pulls back dramatically, w/o MEW to sustain it. There is however this 'perverse' possibility of China having to sustain exports even in money-loosing firms to sustain employment in an economy that's already got zero profits and excess capacity.
I don't think they can drive prices low enuff to sustain 6% but I do think that tremendous pressures on US manufacturing will result.
"Now as our economy cools decreased demand will lower imports or should depending on what China does. But they have a fundamental problem in that export-led growth is the heart of their employment engine. Something like 300 million are in the modern economy while 800 million are still trapped back several centuries in peasant agriculture. Those folks have to be brought into the modern sector;otherwise there's a major social collapse"
I followed the first part, which is that a slowing US economy will result in less people buying consumables manufactured in China. But I don't understand how 800 million people in agriculture will be affected, as this industry is not coupled to factory-manufactured consumables.
So long as the world population grows, people will need to eat grains and greens.
KC - sorry for the confusion. Rushing thru compression again. Think of China as having two economies - modern and primitive agriculture (that's exaggerated but very close). Our trade relationships are with the 300 million folks in the modern economy and everything said applies. MEANWHILE back on the farm the Chinese will be doing everything they can to migrate the 800 million peasants into a modern economy so there's this huge un-tapped pool of labor undergoing a seismic shift. While our import demand may go down China many not be in a good position to let production drop in existing businesses becasue of the need to keep the employment engine accelerating for both the modern and peasant-migration reasons. In other words they'll keep over-producing to provide subsidized jobs in the name of avoiding major instabilities. But that could result in even lower prices for their goods on the world market even though 'normal' analysis would say otherwise.
In other words the modernization adjustments could swamp the normal trade adjustments.
Is that any better ? Jim Jubak on money central btw has a very good set of articles on China - highly recommended.
I don't get it - the Japanese were stuck in the liquidity trap because they didn't spend enough (i.e., they saved). The Chinese save supposedly 30-50% yet their economy is growing rapidly. Why aren't the Chinese in a super liquidity trap.
Also, we don't save enough (anything actually) which is bad but if we stop spending the economy is supposed to tank. Seems like economists want it both ways: save because it's prudent and spend to keep the economy humming.
Final question - if we save, aren't these savings still available to the economy in that the banks have more $ to lend. Maybe economic health is independent of the savings rate (altho having some saving would seem prudent in all cases).
Fred,
I think most people these days only want to read things that confirm their own biases.
Economists who write seemingly contradictory advice are just trying to maximize their audience and income...just like economics tells them they should.
Anonymous, thanks for the extra info.
I found Jubak's post here- Why China's train wreck will hit us, too - MSN Money
He does mention that metal, auto, and textile industries will be forced by the CN govt. to run into the red during the next down turn to save jobs - which I agree will put cost pressure on equivalent producers in the US and elsewhere.
I do think the link to farming will be less dramatic for a couple reasons:
1. the individual chinese farmer is already a low-cost producer (earning $250 - $500USD/yr) forcing most 1st world goverments to heavily subsidize their own farmers.
But I do agree that this industry may start to fall under the same influence when big-agra businesses start buying out the individual chinese farmer (similar to what is happening in the US and Canada), simply because these large-scale, lower margin operations rely on and lots of expensive machines bought using big loans and govt. subsidized dollars.
I don't get it - the Japanese were stuck in the liquidity trap because they didn't spend enough (i.e., they saved). The Chinese save supposedly 30-50% yet their economy is growing rapidly. Why aren't the Chinese in a super liquidity trap.
The initiation of 'deflation' in Japan had TWO things going on simultaneously:
(1) major yen-dollar revaluation where dollar fell relative to yen - late 80s.
(2) not enough domestic demand - regardless of BOJ primming all through the 90s - to offset previous currency adjustments (exports didn't completely collapse but slowed in volume & especially in profitability at least from a yen perspective - effected employment prospects and retirement security among Japanese - caused further increased savings & cuts in personal spending).
And people wonder why the Chinese are so reluctant to revalue the RMB. They're scared that there won't be close to enough domestic demand to make up for the reduced export demand. And they have a lot less societal cushion than the Japanese.
Will all those Chinese savers miraculously gain faith in their personal futures so they can start spending a bit more liberally and take the heat off the Chinese export engine?
The Party isn't in any mood to find out.
kc - you're welcome. that war me but wasn't signed in for some reason.
dryfly - domestic demand is the key issue indeed. An earlier point I was struggling for was that yuan re-valuation is really dangerous for the Chinese economy and, given how little impact it'd make on prices, wouldn't do us much good.
The ag issue is not so much viewing ag as a sector of the modern economy as it's the medievel sector with a labor surplus requiring the CN to keep the growth engine running very fast; which adds to the pressures discussed.
Just in case you're serious - it's a good question and one I had to think about - a liquidity trap exists when no amount of increasing the money supply and/or other liquidity raises demand because consumers have lost all confidence. As Keynes said "Animal Spirts". Not sure of the exact stats but consumers are approx. 65% of Jap. economy and about 30-40% of CN. Something like 40-45% of CN's GDP has been investment spending ! Unbelievable ! But that means they're structurally very different so CN consumers can save as much as they want and not put significant downward pressure on total demand. Japan is the opposite. At least that's my excuse today.
Unfortunately savings is necessary in the long-run to provide investment capital to growth the economy as well as develop the next big thing. But in the shorter run it shows up as a drop in demand. Economists aren't generally clever enuff or articulate enuff, outside the Finance community, to manage what they say. When they talk about these problems they're depicting the complexities of reality as best they grasp them.
Enough with the attacks...nothing dc1000 has posted is implausible. The attacks reflect poorly on the site,the attacker and strangle the discussion.
Fred said: I don't get it - the Japanese were stuck in the liquidity trap because they didn't spend enough (i.e., they saved). The Chinese save supposedly 30-50% yet their economy is growing rapidly. Why aren't the Chinese in a super liquidity trap.
Eventually, the US bought less from the Japanese because of the aforementioned adjustments, and the Japanese were unwilling to pick up the consumption demand gaunlet. As for why aren't the Chinese in a super liquidity trap, I think you need to add "yet"....the US is still consuming at a good clip, so far.
Expired