Ed researched this issue after discussing with Warren August 2011.

Ed Rombach on US vs Japan

31 Responses

  1. Japan won’t even be a developed country after 2050, how long will it take for US to fall into 3rd world status? The last time I was in lantana florida, I thought we were already there, in just a few decades it went from first to third world…


    Inviting economic suicide?
    The International Monetary Fund has just reported that India has overtaken Japan as the world’s third biggest economy in purchasing power parity (PPP) — the measure of the amount of money needed to purchase the same goods and services.

    Now it is at least semi-official: Japan’s economy is on the skids. A report just released by a think tank of the Nippon Keidanren, the country’s most powerful business organization, says that by 2050, Japan will no longer be a developed country, predicting years of negative growth from 2030 onward.

    1. @Save America, I stopped reading after “Japan won’t even be a developed country after 2050” We need idiot protection in addition to spam protection–just add a long division problem. 😉

  2. http://delong.typepad.com/sdj/2012/05/when-are-interest-rates-expected-to-normalize.html

    It’s not just that we are in a liquidity trap, with short-term Treasury rates effectively at zero and short-term Treasury bonds perfect substitutes for or dominated by cash. It’s that we are expected to remain in a liquidity trap for a long time to come.

    A normalization of the 10-year TIPS rate–a return of the 10-Year TIPS yield to 2%/year–would produce an instant 20% loss to holders of TIPS. Yet TIPS holders find options in other asset classes so unattractive that they are willing to run that risk and pay the U.S. Treasury 0.25%/year in real terms for the privilege of running that risk.

    That is a very powerful statement of how low market tolerance for risk and how pessimistic market expectations of continued profits are.

    If the option is simply holding cash–which it appears to be–then the liquidity trap has, if normalization is the alternative, a risk-neutral probability measure expected lifetime of ten years: just one chance in ten that we will see normalization next year, and a 37% chance that we will still be in this liquidity trap a decade hence with the same outlook relative to potential we have now.

    Now continued liquidity trap and full normalization aren’t the only states the economy can be in, and RNPMs aren’t probabilities (they are probabilities multiplied by swing investor relative marginal utilities and scaled to sum to one).

    And we certainly hope that the bond market is irrationally depressed.

    But I must say I never expected to see anything like this in a fiat-money managed-currency world. Yes, I knew that under a gold standard things like this could happen: that by itself was sufficient reason to drop the gold standard. But I never imagined that central bankers claiming to be technocrats would wedge the economy here, and then refuse to take the actions they could take to get us out, and that fiscal authorities would similarly shy at the jump, and that banking and housing regulators would sit on their hands as well…


      1. @WARREN MOSLER,

        “with floating fx there’s no such thing as a liquidity trap. it’s a fixed fx concept at best”

        But as long as policymakers think and act as though we’re in a fixed rate / convertible system, ‘liquidity crunches’ (?) can occur, can’t they? Which people in the prevailing paradigm(s) may refer to as ‘liquidity traps’? In other words, while they should be nonexistent in a floating rate, inconvertible system, that doesn’t mean we won’t impose them on ourselves anyways…right?

      2. @Art Patten, By definition, that’s a policy trap, not a liquidity trap. Unless you count soup-for-brains as the trap.

      3. @Art Patten, I thought delong would receive more enthusiasm, as a former treasury employee seriously criticizing the policy responses, he is in a small group eh? People like krugman can’t even define money and where lines between money and non-money are, how can anyone define effective policy response that are so confused?

    1. @Save America, It’s getting so bad out there you and Brad Delong seem to be on the same page in the same library for once! I read some comments at naked capitalism that instead of a jobs guarantee program like you Advocate Warren, people will instead be PAYING companies to hire them – talk about Bizarro World!:



      bmeisen says:
      Re Jobs few …

      “Unpaid” internships are also used in Germany where employers use the scheme to transfer non-payroll labor costs to the governmemnt. These costs include health insurance premiums and social security tax, both of which are typically paid for by the government while the “student” completes the internship.

      Interesting to note that these are costs in Germany, not liabilities. Their assumption by the government and the exploitation of the arrangement by employers is a negative externality associated with the “common good” approach to higher ed: years devoted to earning professional qualification are part of the calculation of an individual’s public pension (social security) claim. As I understand it, in the US interns have neither health insurance nor social security benefits as a result of their work. Employers and individuals transfer the associated liabilities to the taxpayer.

      Ed says:

      I can see a situation where you have people paying employers to give them jobs before this particular trend plays out.

      As it is, right now people go into debt to pay large amounts of money to schools, in order for the schools to give them work. They do this in the hopes that they will get a degree from the school and get a higher paying job later.

      Reduce the number of jobs a bit, and for awhile it may become accepted that after you pay the school to give you work, in the hopes of using the credential to get a higher income later, after you graduate from the school you will pay the employer to give you work. This could be as a part of an internship program set up by the employer, or an internship program that is set up by the school and part of the curriculum. After all, if you do this, you have an inside track to a real job at that company, and given the shortage of jobs there is really no way to get hired.

      And in pre-industrial times, people would borrow to bid large amounts of money to get jobs (like tax collector) that were considered to be particularly renumerative.

      Now if this trend continues, at some point an intelligent person will drop out of the game. Either the changes of finally winding up with paid work drop to the point that this process amounts to buying a really expensive lottery ticket. Or the net present value of the returns from the eventual salary, minus all the investment, becomes negative. But the trend will likely continue sometime past that point.

      LeonovaBalletRusse says:
      May 6, 2012 at 1:01 pm

      Ed, this has been happening. I heard on NPR an interview with a young woman who had just graduated from college. During college, she worked for a “tech” company for free, while taking courses in formal education so as to become qualified to hold a position at the company after graduation. She has graduated with a diploma in the “tech” field, and is about to embark on her “career” with the company for whom she “interned” while a student, with a beginning salary the College and employer find satisfactory: @ $35,000-40,000/year.

      This scheme is set to work at every level: from the boonies to NYC and beyond. “It’s a Wonderful World.”

      propertius says:
      It’s not “involuntary servitude” if the slaves “volunteer”.

      This reminds me very much of the process by which the descendants of the free Roman citizens of late antiquity became the serfs of medieval Europe.

      “Forward” – into the past! (pace Firesign Theater).

      Literary Critic says:
      May 6, 2012 at 3:59 pm

      Reminds me of S. Cal in the 90s. There was such a glut of rock “garage bands” that the night clubs were able to get away with “pay to play” – bands payed for the privilege of putting in a 4 hour set a night to get “exposure”.

      Some of the musicians were already accomplished studio musicians and had done work on “name band” albums.

      I saw Larry Carlton this way, but for some reason I still had to pay a $10 cover. Damn trickle down never works!

  3. Ed starts right out saying: “Both countries can issue debt in unlimited quantities …”

    That kills it right there.

    1) issuing T-securities after the fact – to drain banking reserves – is NOT, I repeat NOT issuing debt.
    [you cannot win an argument by agreeing to use broken semantics]

    2) with with floating fx, non-convertible currency, there is no such thing as a national debt; it’s broken semantics at best;

    3) the real battle is between currency-holders & labor/asset holders, over freezing the purchasing power of fiat currency, or letting it too float;
    (We’re mostly letting labor & innovation value float, in a stupid attempt to freeze the value of floating-value fiat! That’s even more fundamentally inane than fixed-fx rates.)

    Face it. Constantly devaluing (by some metrics) fiat currency is the negligible price we pay, for letting the value of fiat float freely enough to denominate any & all innovations & sheer output scale that we come up with. We’re constraining our national output for the most base of reasons. It’s sheer ignorance & stupidity.

    It’s entirely akin to a math teacher trying to limit use of numerals by a whole town, ‘cuz he likes the prestige & personal value of having most use to himself. Vote with your feet, ‘cuz our fate is in our fiat. 🙂 Politely ignore the Deficit Terrorists. The deficit is in their intellect, not in our fiat.

      1. @Ed Rombach,

        no ill will, and I do appreciate your considerable efforts;
        My apologies for any perceived insult.

        After much consideration, though, it seems necessary to adjust tactics & ramp up both strategy & effort.
        Please contact me through Warren. I would very much like to discuss some things with you offline.

    1. while issuing debt is not an ‘imperative’ for Congress, it has imposed that self imposed constraint by establishing a ‘treasury’ and a ‘fed’ as separate entities, and they requiring the treasury to either get its account credited by the fed in conjunction with tax payments or the sale of its treasury securities. So Ed is not wrong. And the point is also being made that even with these self imposed Congressional restrictions markets recognize them as such and behave accordingly.

      1. @WARREN MOSLER, Yes, but the bulk of the electorate does not know the semantic intricacies, which leaves free rein for loose & even nonsensical talk to dominate policy.
        Policy by subterfuge causes more problems than it’s worth.

        I was just at an “Assymetric Warfare” conf in DC today, where various Sr. Pentagon & Agency staff talked about being aware of both strategy, operational realities, and freeing up distributed tacticians to innovate when & as needed – and even paying attention to any/all mavericks. They have the system concepts down cold, …. but each speaker & panelist STARTED off by acknowledging our “$1Trillion DEBT” and how that “reality” was constraining all options.

        I’m telling you, the lack of situational awareness is bad even among situational awareness professionals!

        And the Dutch Knots they’re tying themselves in are all entirely semantic.

        Plus, they think a “maverick,” is someone from Harvard Economics. I was in near despair.

      2. @roger erickson, I continue to not understand why warren is not living in DC meeting these people in person and talking to them, fishing for 6 months in the USVI may be very relaxing and lotsa fun, but if he was personally in DC showing up all over maybe he could make a much larger impact. I guess those 3% tax rates are very important to him, enough so that perhaps seriously advancing his memes by moving to DC are just not worth it. At least you are there Roger, how many did you engage in mosler’s memes after the speaches were over?

      3. @Save America

        @roger erickson,

        Warren’s been in DC far more often than you suspect.

        And it’s a long, hard process to make an impact here:

        1) hard enough to figure out who is worth reaching;
        2) hard to learn how much they know about currency, and how to engage them (have to be careful not to close doors faster than they open;)
        3) hard to know how LONG it will take for them to even catch on;
        4) hard to judge whether they’ll simply run for personal cover if & when they ever do realize the truth (fact: a growing majority in both gov & DoD are in it for personal advancement; that’s a byproduct of both education and military officer training; if you haven’t been “promoted” somewhere with ribbons/titles/office/extraordinary-income, then your’re either not worth talking or even toxic for someone’s next review).

        Here’s the consensus repeatedly heard, even for those few in Congress/DoD/other-agencies who do care: … “don’t even bother with top-down; go make a difference somewhere in the provinces where it’s possible, and then tilt for DC via bottom-up”.

        The real use of spending time in DC with agency/Congress staff is that you can at least define what success would be. With that definition in hand, it’s best to start elsewhere & know what you’re shooting for.

      4. @roger erickson, Aussie Surplus?


        While we are talking about surpluses, the USA hit one in April, with over 300 billion in tax receipts!

        But Jeff Gundlach says “deficits don’t matter”


        But Rick Santelli says to the youth of the USA, deficits are all that matters:


        There are a lot of people out there, in important positions, that are very very confused about our market system, leadership comes from the top eh?

      5. @roger erickson, Roger, warren isn’t a 6 figure a year joe 6 pack, but according to his own promotion, one of the most winning hedge fund managers ever, 15 years straight of wins, and preventing lawsuits on the high risk russia fund with his clever title, could he not break into the right circles with his money and lobbying and such to “influence” the right people. I heard on Cspan this morning it takes lobbyists in DC to get through to the politcal people, where is warren in DC pushing his MMT lobbying efforts right at the source?

        anyways, from what I understand, he must reside in the USVI 6 months out of the year to get those tax rates, that is 6 months he can’t be in DC, where he could have more effect.

        I went to DC myself last year for a few months, and directly meeting with people there was infinitely more productive than doing things from where I sit now, but I don’t have the financial resources warren has to sit up there income free. At least I didn’t last year. It’s hard for me to imagine an officer sitting up with the 7th legion in scotland during the roman empire can influence the senate as much as one living directly in rome, I don’t agree with your thesis.

  4. Ed / Warren,
    How do you look at the often heard explanation for low JGB yields, namely that most of them are held domestically and this sector is less likely to turn its back on its own currency?

    This compared to the US where a larger part is held by the foreign sector.
    We know Japan has (used to have) trade surpluses and the US trade deficits. Obviously Japan’s domestic sector has a huge savings desire. As far as I understand it’s their corporates, for their population (private households) is aging and already saving negatively.
    We also know that any exporter that may change his perception to the usd risks losing market share in the US. But as we saw, last year China, angry after QE2, all of a sudden stopped buying short term US treasuries.

  5. @Colin, Its all good, I don’t mind laughter when in the company of ideas like that of professor delong, at that community college you say is a joke, who knew the budget cuts at berkeley would sink us so low 😉 But he worked with the treasury department in the clinton administration, what are your references colin? I know warrens, yours I do not, neways delong says more:


    But then only idiots would listen to a former treasury person now at berkely eh? You have totally blocked them out with all the other idiots, your truth is supreme 😉 lol @ colin

  6. Warren, does japan have a similiar constraint as the usa in that the treasury can’t run a deficit with the central bank?

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