Saturday, July 30, 2011

Japan versus USA

Graph #1, some numbers for Japan, from mine of 29 July:

Graph #1: Money, Debt, and Output in Japan

Graph #2 for today, showing comparable numbers from FRED for the USA:

Graph #2: Money, Debt, and Output in the USA

In both countries, debt is the big number. But look how small the U.S. M1 number is, compared to Japan!

Also, not to make predictions here, but on Graph #2, toward the right end, the blue line looks an awful lot like the red line from Graph #1 from 1980 to 1992: a consistent uptrend and then a sudden flattening. One hopes that the flatness of our GDP does not last as long as Japan's.

Come to think of it, U.S. debt (Graph #2, red line) from 2000 to 2010 looks very much like Japan's debt (Graph #1, yellow line) from 1980 to 1990. And I should point out that after 1990, Japan's debt continued to increase.

That's the problem right there, I think.If you want to fix the economic problem by inflating the money supply rather than by crashing the debt, it is a long slow process. The inflation has to work its way through the system, bringing all prices up with it, and nobody likes inflation. Moreover, the money and the prices have to go up faster than the debt is going up, or it is all for naught. As you can see, in Japan the debt continued to increase. Not fast enough to create a vigorous economy, but fast enough that debt remains a growing problem.

If you just crash the debt, you don't have to have inflation. You can maybe bring debt back down in line with everything else.


Jazzbumpa said...

Beckworth pointed out to me that M1 is not the best measure for money supply. He prefers MZM, and that is pretty sensible, I think.


The Arthurian said...

"He prefers MZM, and that is pretty sensible, I think."