Exchange with Peter > My comment was not about profits but the adequacy of effective demand.
But it's profits that float loans and keep businesses in business. It's also what keeps 'markets' happy, even to the point of Enron. High > investment leads to high capacity which requires high demand. If it ain't > domestic, it comes from net exports. Yes, in this sense, Japan is over-invested in automobiles and parts while the US is clearly overinvested in agriculture. Most of the developed and much of the devloping world, apparently, has overcapacity in steel products. If free trade actually existed, this shouldn't have been a problem for Japanese automobile manufacturers. > In recent years Japan has run bilateral > trade deficits with several east Asian countries, no? China for sure. Chinese exports to Japan are very diverse. > > > > > Yes, that's my point. With changing sources and patterns (and levels) of > demand, investments that made sense during the planning phase can be revealed as > mistaken ex post. But you seem to be operating under the assumption that Japan's economy has been in some grand, centralized 'planning phase' when it hasn't been at least since the 1960s. There was no grand plan to overinvest in automobiles. That was as much a creation of being able to sell compacts to the US since all the US had for its domestic market during the oil crisis years were Vegas, Pintos and Gremlins. Japanese companies acted like companies everywhere, they sold where they could sell and make money. Quotas made it very profitable for the handful of the 12 auto makers that got to market in the US. > There is debate about this, as I understand. The question I've seen posed is, > how can you accelerate the writeoff of nonperforming loans if doing so would > erase the equity position of much of the banking system? I say don't write them off (that sounds so harmless--but what it really means is forcibly stripping assets from banks and selling off distressed assets to who knows). Reflate the economy first and then see what still stinks. How can you do the 'writeoffs' with out foreclosing on the thousands of small and medium sized businesses, many of them now cut loose from their keiretsu groupings(something many westerners don't understand, thinking that the groupings were combines or something but rather cooperative tie-ups in financing and marketing). These businesses have rational business plans intact, might not be that leveraged (just having trouble paying off relatively small loans in a bad economy). But they are the key to a quick turn around in the economy--if the yen gets to a livable level and stays there. I realize there are > powerful vultures out there, but that doesn't mean that any critical analysis of > Japanese financial practices is purely self-interested. Don't bet on it. Unless of course you work for Lehman Bros of Credit Suisse/First Boston. > > Has the main bank system completely vanished? The postal savings and insurance system is intact and thriving (and the vultures are circling because Koizumi wants to sell them off). The credit unions and coooperatives are a mixed bag. The huge banks have been effectively shut out of the global race to dominate finances and are saddled with huge amounts of 'bad' loans in a deflationary economy. With the current interest spreads, retail banking can be profitable, but banks are reluctant to give up their loan portfolios, since it ruins any picture for future profits. I highly doubt that Ripplewood Holdings and Carlyle Group are going to give Japan a brand new shiny perfect financial system. > The strong yen is a response in part to the overvalued dollar. My reading is > that xrate imbalances reflect longstanding imbalances in global flows on the > current account (more than vice versa), but that's a story for another day. When was the last time the dollar was over-valued against the yen? I think I was still in college. If you had read the mainstream news articles about currency agreements between the US and Japan during the 1980s and 90s, you might think otherwise. I can't see anything in the last decade of US-Japan economics to justify such an overvalued yen except US policy with the dollar. > > I'm hoping you didn't mean what these words seem to say. I'm no expert on > Japan, I meant what I said: over-interpretive, too little real information. The point was Japan is in new territory (chronic deflation, liberalized regimes over finances and capital, a very aggressive, nationalistic US, etc.) and the models and theories I've been hearing from 'western experts' don't fit anything but a big financial takeover coming out of the US. Charles Jannuzi Fukui University, Japan
