Opinion

The Great Debate

The ugly attraction of fast shrinking Japan

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

Sure, seeing your economy shrink at a 15 percent annual clip is depressing, quite literally, but if you believe in even a tepid global economic recovery in the second half, then Japan is actually attractive.

There is no way to sugar coat the first quarter Japanese gross domestic product figures released on Wednesday: they are breathtakingly bad viewed from virtually any angle.

The economy shrank by a record four percent in the quarter, or an annualized fall of 15.2 percent, leaving the economy no bigger in real terms than it was in 2003. Net exports fell sharply, by themselves pushing GDP 1.4 percent lower and, perhaps even worse, capital spending shrank by more than ten percent and private consumption fell by 1.1 percent.

What’s more, stocks of inventory remain high when compared to sales, so there is plenty left to sell without placing new orders.

Deflation is a dangerous distraction (part 2)

John Kemp Great Debate– John Kemp is a Reuters columnist. The views expressed are his own –
For part one of this column, please click here.

The current downturn and fears about falling prices are prompting a plethora of historical comparisons with previous periods, many with the Great Depression of 1929-1933, some based on a very shaky understanding of the historical record.

HISTORICAL BUSINESS CYCLES

The attached chart provides a long-term overview of developments in both U.S. output and prices for the last century using official data published by the Federal Reserve and the Bureau of Labor Statistics. To remove some of the month-to-month volatility, the chart shows the twelve-month percent change in both series for a rolling three-month period, providing a better indication of the underlying trend (http://customers.reuters.com/d/graphics/us_business_cycle.pdf).

Deflation is a dangerous distraction

– John Kemp is a Reuters columnist. The views expressed are his own –

John Kemp Great DebateLONDON, Nov 24 (Reuters) – For the second time in less than a decade, the spectre of deflation is stalking western economies and filling acres of newsprint. But the focus on deflation is based on a misreading of history and risks diverting attention from more pressing problems.

First time around, the mistaken focus on falling prices caused the Federal Reserve to leave interest rates too low too long in 2002-2004, fuelling the surge in U.S. real estate and subprime loans that now threatens to overwhelm the global banking system.

Fighting deflation globally ain’t easy

James Saft Great Debate – James Saft is a Reuters columnist. The opinions expressed are his own –

With the U.S., Japan and Britain — nearly 40 percent of the global economy — facing the threat of deflation, it’s going to be just too easy for one, two or all three of them to get the policy response horribly wrong.

The global economy is so connected, and our experience with similar situations so limited that the scope for error is huge.

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