Japan Really Has Inflation Just Like The US

October 24, 2007

Elaine Meinel Supkis

The world financial systems may be slipping but the effects in Asia are quite different from the effects in the US and England. Time to discuss this. Once again, we have to discuss the stupid, outrageous inflation statistcs created by our rulers. These are designed to cheat savers, retirees and anyone worried about relative value of their finaces. On top of the new FX trade system and monetarist philosphy, this system is rotten to the core and the destruction it is causing will become increasingly clear as things deteriorate.

From the BBC:

The world's wealthiest private investors are planning to put more money into alternative investments over the next three years, a report says.
*snip*
It found that only 48% of respondents planned to buy further investments in stocks over the next three years, down from 64% over the past 36 months.
*snip*
By contrast, 15% of respondents said they planned to invest in private equity funds, up from 11% over the past three years; while 21% said they expected to invest in hedge funds, up from 20%.

This article also noted that many of these 'rich' investors don't have the foggiest notion, what they are doing. They are simply looking to find the easiest place to park their money and then sit passively by while it grows. The hedge funds are not growing at the rate they grew just one quarter ago, they are off by about 30%. But they are still growing. There is always this business in money flows: the people in the know are the ones selling to lower level people and for the last six months, the top hell hounds have been trying very hard to convince people who can't read charts or understand the elements of world trade and money manipulations, to buy.

Just as the top bulls on Wall Street will talk up stocks when they know perfectly well, it is a bear market. They need to shift their funds and to do this, they need other people to be fooled into buying. They knew every bit as I knew, that the Bernanke helicopter drop didn't fix anything. But they also knew that if they sold this as a solution, many people would flood into the market and buy which means they get customers.

So it is here: stocks shot up before the announced rate cuts. Then, the market has gone on to higher highs. But note that there are intersperced huge falls. Up 200 pts, down 350 pts, up 100 pts, down 50 pts, etc. This is a classic see/saw movement we often see at peaks. The smart guys can see we are about to take a classic tumble. They are clearing out their own stocks while staking out some territory elsewhere. This has caused the price of bonds to fall since this is one Safety place people park funds whenever Risky crashes into a brick wall.

Via one of our readers, Thomas, from the Financial Times:

Economists argue that there is more than intuition at play. Toshihiro Nagahama, economist at Daiichi Life, estimates the average household will spend about Y6,800 ($59, €42, £29) more on food a month once an nounced price rises take effect. He calculates that, since rising prices of everyday items affect poorer people disproportionately, families with annual in­comes of less than Y2m a year have been experiencing consumer price inflation since April.

There are also, however, good reasons Japan’s headline consumer price index has continued to show prices in steady fall, albeit by a tiny 0.1 per cent.

Masaaki Kanno, chief economist at JPMorgan in Tokyo, says part of the explanation is that big falls in prices of infrequently purchased items such as tele vision sets, computers and mobile phone contracts do not figure prominently in people’s calculations. People notice that flat-screen TVs are cheaper only when they buy one, whereas increases in rice or vegetable prices are instantly noted, he says.

Under the so-called hedonic method of calculating prices, statisticians take quality into account. Thus a more powerful computer that retails for the same amount counts as a price reduction. “Statistically, the prices of those items are coming down, but people don’t consider that to be deflation,” he says.

Everyone has been using this goofy system whereby they calculate inflation by considering technological advances as deflationary elements. So if computers can compute more but cost the same, then this tiny element is counted as a deflator so they happily announce, inflation is down! If a car has more extras, this is counted as deflation in price! So they can have negative inflation while prices of everything is either static or worse, rising rapidly. To finalize this stupid system, they also exclude many inflationary items like fuel, food, taxes and nearly everything humans use daily!

This infuriating statistical game is cynical and cruel. It is designed to make savers and retirees poorer. It is designed to torture workers demanding wage hikes. It is a FRAUD. The criminals who have devised this demonic system should be arrested. The governments that have imposed this upon us are doing this in the teeth of public demand that real inflation be calculated.

In the US, we have many people wanting tax cuts for years and years but they are being ripped off much worse by false government inflation statistics than by taxes! And now, the taxes are rising, too! Understanding what is going on is vital and near impossible since the media tends to support government schemes like this fake inflation calculation scheme. Yesterday, I was very enraged to read the Economist article about how the central banks kept down inflation.

This was due to ignoring the tool they used: cheating on statistics. The need for good statistical understanding is constantly defeated by political desires for certain outcomes. Since the G7 dwarves all have social systems requiring raises in income due to inflation, they all conspired to create this idiotic and evil system. Instead of demanding tax cuts, I would suggest we demand a change in this system.

From the Nikkei:

Winter Bonuses At Major Firms Up For 5th Year In Row: Keidanren

TOKYO (Nikkei)--Bonuses are set to increase for the fifth year running at major companies this winter, the Japan Business Federation, the influential business lobby that is better known as Nippon Keidanren, reported Wednesday.

The peculiar depression in Japan rolls onwards. As we see a mirror image of the US system: fake interest calculations used to keep interest rates well below the rate of real inflation and huge bonuses for the upper tiers of the industrial/financial systems. For 5 years, the Japanese who keep the LDP in power have rewarded themselve increasingly while the workers get less and less and less. This corkscrew system also keeps Japan's imports down so they can run this surplus. I will note that the other G7 nations won't talk about this in public. We used to hear about it all the time since 1974!

From Bloomberg:

Merrill Lynch & Co. reported the biggest quarterly loss in its 93-year history after $8.4 billion of writedowns, the most by any securities firm.

The third-quarter loss of $2.24 billion, or $2.82 a share, was about six times higher than the New York-based firm estimated on Oct. 5. Merrill wrote down the value of subprime mortgages, asset-backed bonds and loans to finance leveraged buyouts, and Chief Executive Officer Stanley O'Neal said in a statement today that he is ``working to resolve the remaining impact from our positions.''

No wonder rich people want hedge fund hell hounds to save them! Their money is vanishing! The old war horses are stumbling and falling. Note this loss: bigger than the Great Depression. This isn't good news. One of the mysteries of magic money is how they can create lots of fun when this stuff is conjured but when it vanishes, all sorts of things come to a screeching halt. There is no way we can have a booming economy if a trillion dollars goes up in smoke.

The fires in California are going to hammer our economy for a while: insurance rates for everyone will go up. Many of these houses had fire insurance since banks insist on this if there is a mortgage and since these houses are hugely expensive, this means many more millions in losses compared to New Orleans which saw mostly cheaper housing destroyed and of them, few had any insurance. This loss also will goose California's economy briefly as everyone rebuilds where these fires raged but it will depress other parts of the country. Just as the hurricanes didn't make us richer, so it is here: the last thing the US needs to spend money on is building suburban houses in death traps.

From Bloomberg:

Ambac Financial Group Inc., the world's second-largest bond insurer, reported its first quarterly loss after reducing the value of subprime mortgage-linked securities the company guarantees by $743 million.

The third-quarter net loss of $360.6 million, or $3.51 a share, compared with net income of $213 million, or $1.98, a year earlier, New York-based Ambac said today in a statement.

California was already seeing a huge rise in very expensive homes in the above $500,000 level going into receivership. How many of the burned or damaged homes this week will do likewise? The bank gets the insurance payment and the house is gone and can't be resold or rebuilt? All the systems set up to hedge the pain of downshifts are now in trouble due to the risky loans handed out like Halloween candy this last 4 years.

From Bloomberg:

Sales of previously owned U.S. homes fell more than forecast in September, signaling no letup in the real-estate slump that threatens to hobble economic growth.

Purchases declined 8 percent to an annual rate of 5.04 million, the fewest since record keeping began in 1999, from a 5.48 million August pace, the National Association of Realtors said in Washington. Sales were down 19 percent from September 2006 and the median home price dropped.

This is obviously a problem for magic money making: this machine needs debts to grow. It is a negative machine. The more people go into debt, the better it is for making money out of thin air. This is the entire process. We are obviously no longer making money this way in the quantity we did in the past.

From Finance Week, UK:

[In England] As consumers’ housing costs start to bite, they’re running down other forms of debt, according to new Alliance & Leicester research. Unsecured debt taken out by mortgage holders was down 3% year-on-year in Q2, as people spent less on credit and store cards to make way for bigger monthly home loan payments. In contrast, those without mortgages were still running up new personal debt, by 3% y-o-y.

At the time of this survey (of 2,245 people) many mortgagees were still enjoying fixed-rate offers, and some will since then have had to refinance at higher rates. The survey found those with mortgages 50% more likely to than consumers generally to cut their credit card and other personal borrowing over the next six months.
*snip*
While households are generally saving more as a result of the past year’s interest rates rises – as the Bank of England hoped – those with mortgages are now running down savings elsewhere. The A&L survey shows that mortgage holders’ rate of saving was two-thirds that of those without mortgages at the start of the year, but by mid-year it had dropped to less than half the rate the rate. This was despite a drop in some of the other bills that go with home ownership, especially the price of gas. For many, paying off a mortgage is now a substitute for conventional forms of saving, including pension contributions.

Higher interest rates means fewer loans and more savings. This brings money into banks but it is a lot less than the money that flows when the banks give out mortages. One might save $10,000 but get a loan for $500,000. See which one the bankers want! They would far rather hand out loans which is why governments have to force them to hold reserves which means, attract savers or else. The higher the reserves, the more the banks hate this.

England, accustomed to living in the shadow of the US empire, wants to pretend they are an empire. They have spent more recklessly than most anyone on earth, their debts dwarf their ability to pay and the entire nation is double deep in the same debt pit we are in. In the old days, one paid off the mortgage and also saved. Now we see the reverse. People are eating their retirement funds to pay the mortgage. This is yet another indication that our system will be much slower in the next few years just like in the 1970's. A lot of world trade has flowed to England just as it has flowed to the US. England had a brief period of wealth due to the North Sea oil fields. But not only are they depleting, they are going much faster than geologists and oil companies figured.

England, accustomed to the bounty from all this, has refused to change gears and prepare for harder times. Their only way out is to learn to do value-added manufacturing. Ha. Right. They invented this and now have utterly lost it.

From Bloomberg:

The dollar fell versus the yen after an industry report showed sales of existing homes dropped in September, increasing speculation the Federal Reserve will cut interest rates this month.

As I said, the yen was going to rise because the Japanese openly boasted they could make the yuan rise in value while the Chinese couldn't make the yen rise in value. In the news, they will pull all sorts of reasons for the yen's rise out of their hats but of course, up until now, all these things were obvious and the yen went down. We keep forgetting, China and Japan are trade rivals and they aren't just fighting over US market shares but also Asia and Europe. For a while, China raised the value of the yuan to please us but has been rather ill tempered about this as they saw the yen drop. So they have been moving since July, to raise the value of the yen. Back then, the Japanese boasted the yen would be 130 to the dollar. Hahaha.

So we will see this battle continue. The Chinese don't mind the yuan rising against the dollar so long as the yen rises against the dollar even more.

From Market Watch:

Japan's trade surplus climbed a higher-than-expected 62.7% in September from a year earlier, as continuing strong export growth to Asia and Europe offset weaker U.S. demand.

Exports rose 6.5% in September from a year earlier, easing from 14.5% growth in August, the Ministry of Finance said Wednesday in Tokyo. Imports declined 3.2%, marking the first contraction since February 2004.

September's trade surplus hit a record 1.638 trillion yen ($14.28 billion), the ministry said. Shipments to the U.S. declined while those to Europe and China expanded at a slower pace.

As I said before, the international trade game is now all about monetary manipulations allowing one way trade. Right now, the target nations are the EU. The Asian traders know that England and the US are nearly tapped out or over-developed now and they are fighting over Europe's markets. Both China and Japan are now holding EUROS more than dollars. Because the dollar overhang is so gigantic, it was the vast majority of the money they are holding, the percentage is still relatively small. But we can sense the shifting of the gears here. Even as the yen and yuan rise against the dollar, they have fallen greatly against the euro. And Europe is feeling this quite strongly. This is why their inflation rate is much lower than Japan, China and the US. If we use real statistics like the price of oil.

From Xinhua;

China's Renminbi (RMB) broke the 7.5 mark to reach a new central parity rate of 7.4938 yuan to one U.S. dollar on Wednesday, according to the Chinese Foreign Exchange Trading System.

The yuan, climbing 72 basis points to one dollar from Tuesday, rose a total 3,149 basis points from 7.8087 yuan on the last trading day of 2006.

Tan Yaling, an expert with the Bank Of China, said a weakening dollar and calls from the United States and the Europe that China should allow the currency to appreciate more quickly were "short-term reasons" contributing to the recent rise in value.
*snip*
The accumulative appreciation since July 21, 2005, when China abolished yuan's peg to the dollar, has exceeded eight percent.

China published this today in response to the G7 attacks. They are quite angry about this but will continue to smile at us as we poke them in the eye.

From Xinhua:

The European Union leads the United States as a destination for Chinese students, a senior EU official said Tuesday in Beijing.

Last year 120,000 Chinese students studied in EU countries, a record number; and more Chinese students study in Europe than any other destination in the world, said Jan Figel, the European Commissioner for Education, Training and Youth.

And this is interesting since Europe is more expensive than the US. Obviously, China has begun to focus on Europe while they let us slide a bit. We should fear this. For we are still buying like mad from them. They can let go before we do and we won't notice it at first, a classic slippery slope. A stronger yuan means they lose interest slowly as they refocus elsewhere.

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Comments

[Canuck]

Detroit big three put the muscle to Japan Inc.

http://www.detnews.com/apps/pbcs.dll/
article?AID=/20071024/AUTO01/710240358/1148

http://www.mlive.com/newsflash/michigan/
index.ssf?/base/business-13/1193167923211910.xml
&storylist=newsmichigan

http://www.forbes.com/home/
businessinthebeltway/2007/10/23/
japan-detroit-trade-biz-
beltway-cx_bw_1023autos.html?partner=moreover?partner=moreover

[Canuck]

http://www.autoextremist.com

"Japan, Inc. The Detroit Three are on the muscle again over the Japanese government's relentless manipulation of the yen. Calling the yen "the most misaligned currency in the developed world today," the Chief Economists from the three major U.S. automakers yesterday urged the U.S. government to work with other countries to take immediate action to address serious problems caused by Japan's misaligned currency. In joint remarks, they called on the new Japanese government to dramatically change direction and allow the yen to strengthen to reflect its true value (by their estimates the yen is undervalued by 30 percent). The Chief Economists warned that the lack of action by the U.S. government and international monetary agencies has not only created a competitive imbalance to U.S. automakers, but has also created huge distortions and dangers to global financial markets. The Detroit Three are making this point because even in this era of a weakening dollar, the yen is still being kept from appreciating by the Japanese government. Detroit is pressing the issue through its Automotive Trade Policy Council lobbying group, asking that the U.S. government and other concerned nations urge the International Monetary Fund to enforce its new rules designed to identify and sanction, if necessary, countries engaging in improper currency manipulation. Why is this such a big deal? The Detroit auto companies insist that the artificially undervalued yen is giving the Japanese automakers anywhere from a $4,000 to $12,000 bonus for each vehicle imported from Japan (Japanese car companies import two million vehicles a year to the U.S. market, on top of the vehicles they manufacture here), which presents an insurmountable disadvantage for the Detroit Three. What degree does the Japanese government "step in" to ensure that the yen doesn't appreciate against the dollar? Detroit automakers estimate that "Japan, Inc." has spent $400 billion since 2002 in currency markets to keep the yen in check. "

[Elaine Meinel Supkis]

Thanks for that news, Canuck! I was thinking it was about time they began to hammer on Japan again.