what does a 1% drop in rates do for us?

harb wrote:

Where is the latest cut taking us back to, 5 years ago ? Wait another month and it 'll be back to 7 years ago.
How is your landlord doing, could you say hello from me and ask him if he wouldn't mind passing that rate cut to you so your rent go back to what you were paying 5 years ago. I'm sure he'll agree to it.

Quote:

So I'm not excited by the rate reduction.

No , I guess you wouldn't be. Probably even less excited next month after another rate cut if your TD expires soon and goes from 8.5% down to 4%.

Just on that note; we got another rate cut last Tues, and one of our tenants just signed another lease today with an increase in the rent.

Am I laughing like a fat spider or what?

Harb,

You're not covering yourself with glory here

As much as i dont want to hear your comments sometimes. Its very hard to disagree.

I was approved for a additional $580,000 ( No i am not taking it all)on top of my current $400,000 debt. Yeah its getting real hard.

Pfft! Are you saying the primary reason the Japanese have had 15 years of stagnation and mild deflation was because they had too many retirees with too little savings?

To borrow a quote: "umm, I don't think so".

It was the bursting of their share market and housing market bubbles that crippled the banks with bad debts. Because their economy then (just as does ours today) depended upon ever increasing credit for economic 'growth', the crippling of the credit creation machine meant that 'growth' did not occur.

If you have better informed ideas, you might like to contribute to wikipedia here:
http://en.wikipedia.org/wiki/Deflation

The section on Japan fails to mention the causes of deflation you mentioned.

Here's a paper I read recently on the topic:
Japan’s deflation, problems in the financial system and monetary policy – BIS
http://www.bis.org/publ/work188.pdf?noframes=1

I notice that there is not one single mention of the word "superannuation" in their explanation. Nor "retiree", nor "retirement", nor "aging", nor "demographic".

Here's another paper from the US Federal Reserve:
Preventing Deflation: Lessons from Japan’s Experience in the 1990s
http://www.federalreserve.gov/pubs/ifdp/2002/729/ifdp729.pdf

Again, no mention of those words. It seems to be all about bubbles bursting in real estate and share markets, unsustainable debt to gdp, non-performing loans, ZIRP etcetera…

Sure, Japan was and is different to Australia. They have Gojira, and we don't. (But then again we have Kevin Bloody Wilson and they don't!) We could all name a thousand differences if we set our minds to it. But the similarities in terms of bubbles, credit addiction, malinvestment and monetary policy effectiveness are the only important bits in that they are the driving force behind Japan's 'lost decade' (which is stretching now towards a 'lost generation').

Don't forget that things in Japan aren't so bad. Their unemployment rate is lower than ours:

Wages in Japan are pretty much in line with ours. Such stagnation an mild deflation of course would prove disasterous for the leveraged speculator community, and the banks would hate it like hell, but for ordinary people? Not so bad.

I actually have a half-developed, half-arsed thesis that holds this kind of economic stagnation to be the final destination of all fiat-based economies. Far from being an abnormal state, it may just be that this is the mythical 'equilibrium', reached only after the powers of central banks to encourage eternal credit-money creation and inflation has collapsed (all CBs are on the path to ZIRP).

Cheers, F. [cowboy2]

Foundation,

I will only focus on the Japanese part of the discussion.

The Japanese mindset is totally different to how we look at investments, borrowing and paying back debt and why our situation is different.

Below is an example of how and to whom Japanese banks lend money and how they decide to buy and sell stocks.  The worst part of it all is that it is well documented and true but try finding it in official research papers on the collapse of the Japanese economy.

One woman who is know as Madame Nui was a financially advisor to International Bank Japan, Japans J.P. Morgan, Yamaguchi Securities and approximately 30 other Japanese Banks and financial Institutions.  At one stage she had loans totalling 22 Billion USD making her the worlds largest individual bank borrower.  She was considered the single most important player in the Japanese stock market.  Banks and financial institutions would send their deptartment chiefs to get her advice and what to buy and sell.  Now for the ridicoulous but true part of this little story.  She owned a magic ceramic toad that these chief would part on the head after saying some prayers.  Madame Nui would then join them and go into a trance.  After the trance she would then tell them which stocks to buy and sell.  The end results of borrowing like this to Japanese borrowers saw Japanese banks in debt to 120 trillion yen or the equivilent of 23% of GNP.

Part 2 how the govt helped cause the collapse.

MOF or Ministry of Finance control and set the levels for stocks, bond and interests rates in Japan that everyone must follow.  They controlled interest rates so that companies could borrow at rates of 0.5% where other countries were charging anywhere between 5-20%.  Investors in other countries expect returns and dividends but in Japan this is not expected.  Companies didn't pay dividends but miracously stocks kept climbing through the 70' & 80's and thus the myth that stocks in Japan always rose.  To understand the consequences of this further you need to look at how stock is valued through the P/E or price to earnings ratio.  This tells you what you can expect the company to make in earnings from your investment.  Japan had P/E ratios of over 100 whereas companies on the Dow Jones were lucky to have 30 at the height of the 2000 era.  This situation was compounded further by the fact that little stock was available to the public but companies got around this by buying each others stock, and this stock was never sold.  This enabled the MOF to control mergers or takeovers and most of all the TSE Tokyo Stock Exchange.  After driving stocks upwards year after year the MOF created a thinking called 'magic of assets' through 'book value accounting' which is where owners of property, stock, or bonds do not need to assess their holdings at market value but at the priced purchased.  Items that may have been bought at 50 which now have a value of 100 still appear as 50 creating what is called latent profit, the difference between purchase value and current value and this means latent loss doesn't exist.  Investors have ignored dividends and looked at 'asset value' and 'latent profits'.  

The 'magic of assets' gave a distorted view of Japans strength and economy.  At one stage Japan had the top ten banks in the world by assets with 29 banks in the top 100 but only 5 of these had assets in excess of debts. 

The MOF overall created the share prices must go up thinking by (1) stocks that yielded no dividends, (2) debts that companies never needed to repay, (3) balance sheets that hid losses and liabilities.  In this market Japanese companies could never lose or go wrong.  Japan economy continued to grow at 4-6% and couldnt be maintained and eventually went down to 1%.  Japanese people believed that no bank could ever go bankrupt and investors always won on the stock market. 

The factors above are main contributors to why the Japanese economy eventually collapsed as it couldn't be sustained.  The result of all this plus a few other reasons is why Japan has had 10 years of deflation and is a totally different scenario to the current world situation let alone here in OZ.  Even all through the 90's Japanese banks continued to lend money for assets that would return either none or little return not only in Japan but to other countries like Korea, Malaysia, Indonesia and 50% of foreign money lent to Thailand.  When these countries suffered in the 1997 crash Japans banks had losses 4 times that of US banks and had to write off tens of billions of dollars.  Japans crash didn't occur overnight like people think but was about 7 years in the making.  Japanese deflation has been controlled by MOF and some sources even think created and orchestrated by MOF as away to control the economy. 

In regards to the realestate market and stock markets.   Japanese banks have continued to lend money to realestate companies that own land now at a 5th or 10th of the price paid a decade or two ago and when theses companies go under the banks put on the books the value at the original purchase price so it appears as if the money lent is less than the value of the property.  The problem is that no one will buy the properties at the price the banks are asking so little gets actually sold or bought creating a paralysis.  The same situation 'paralysis' occured on the stock market.  89 saw approximately 5.8 trillion yen raised by new stock offerrings but this had dropped to 4 billion or only 0.07% by 92 and only up to 284 billion in 98.  New companies being listed on the stock exchange during the 90's was non existent compared to NYSE which went up 45%.  The TSE controlls the stock market whichs purpose is to allow companies to sell equity to the public but this was virtually shut down for 10 years and can be seen when you compare the differences raised between NYSE $92 billion in the first 3 months of 2000 compared to less than 50 billion for 10 years by Tokyo and Osaka Exchanges. 

The Japanese should have worked out that their practices of borrowing and lending where totally out the window but the last 10 years shows they still haven't learnt and continue to make the same mistakes today.

When you buy a property in OZ you expect over time the value will go up but in Japan the mindset now is that as properties get older the value decreases although the land stays about the same.  The Japanese have convinced themselves that anything old is worthless and if you have something old then you must be poor.  No one wants to appear poor so they buy the latest of anything that comes out and second hand items are ridiculously cheap.  This particularly applies to cars and houses.   House reforms/renovations are a big market in Japan.  Houses will be completely reformed after 10, 20 or 30 years or totally destroyed and a new house built.  Home owners do not expect to make money on their properties when they sell and banks if they get a house through defaulted loan will value the house and try to sell it at the original purchase price and not the current value.  This is why some houses sit for sale for 10 or more years.  The same thinking applies to rental places and it is very common to see residential or commercial properties vacant for 10 years or more.  The reason is that properties are leased at a certain price per m2 and this price would most likely have been determined when the place was first built or before the bubble and is the price still expected today.  When it comes to real estate, Japan defies all logic and reasoning and thus a big reason for why so many foreign investors lose money in Japan and why Japan has deflation and can't be used as an example of what could happen in OZ.

Unemployment figures in Japan are falsely exaggerated and included jobs that aren't jobs and workers that are paid to do nothing and also include age demographics not taken into account in other countries.  Wages go from ridiculously cheap to extravagant.  A girl working in a club can easily make in excess of 10K a month for just pouring drinks and smiling.  All paid for by business expenditure accounts and tax deductible.

Japan does have pension plans but superannuation is virtually not heard of.  The pension fund is continually used to pop up banks and govt departments and has probably been all used.