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Monday, July 15, 2002


Remembering Gene Kan is something difficult for me to do. Difficult because I never met him, and he surely knew nothing of my existence. But I do remember rushing to download and try out Gnutella, and evangelising it as much as possible in the first week after it appeared. And I remember looking up his home page with Google, and noting that he had something like 'me and my friends don't want to be ripped off' near the top of the page. Then I remember seeing some references to controversy in the Gnutella 'camp' and his name somehow being associated with this.

Perhaps it is symptomatic of the intimacy of the internet, an intimacy that those outside aren't aware of, that I can even contemplate writing this. Perhaps its the sheer scale of the tragedy of this young life pointlessly lost, of the feelings of hopelessness and despair he must have felt when he posted 'Sad example of a human being' and 'Specialising in failure' on his web page shortly before his death. Perhaps it's the fact that I have a son who is almost the same age. Or perhaps it's the fact that the downside of the eye-of-the-storm we've just passed through is the loss of such talented and valuable examples of our species as Gene Kan.

Whatever it is, the man who cut his teeth on Camus' Outsider, who thought he'd grown so tough he'd lost the ability to feel, just shed a tear for you Gene Kan. Wherever you are, we're thinking of you.

If you want to know more about Gene Kan you can try:



Japan still remains something of a mystery to most economists. Of course in some sense they are their own worst enemies, because they seem to stubbornly refuse to accept that Japan's population dynamics could have anything to do with what's happening. However this makes the danger of a mysterious Japan type slide seem even more ever-present. If you don't understand the problem, then of course the risk can seem even greater. My personal feeling is that the US economy, having benefited from the low wage dynamics offered by a steady stream of immigration during the 1990's, and with a fertility rate around 1.8 or 1.9 shouldn't be too preoccupied about a Japan style malaise. However the dangers of importing deflation via the twin pincers of outsourcing from China and falling unit costs of information are real enough, and it's a good sign that papers like this one are appearing.

Abstract: This paper examines Japan’s experience in the first half of the 1990s to shed some light on several issues that arise as inflation declines toward zero. Is it possible to recognize when an economy is moving intoa phase of sustained deflation? How quickly should monetary policy respond to sharp declines in inflation? Are there factors that inhibit the monetary transmission mechanism as interest rates approach zero? What is the role for fiscal policy in warding off a deflationary episode? We conclude that Japan’s sustained deflationary slump was very much unanticipated by Japanese policymakers and observers alike, and that this was a key factor in the authorities’ failure to provide sufficient stimulus to maintain growth and positive inflation. Once inflation turned negative and short-term interest rates approached the zero lower-bound, it became much more difficult for monetary policy to reactivate the economy. We found little compelling evidence that in the lead up to deflation in the first half of the 1990s, the ability of either monetary or fiscal policy to help support the economy fell off significantly. Based on all these considerations, we draw the
general lesson from Japan’s experience that when inflation and interest rates have fallen close to zero, and the risk of deflation is high, stimulus–both monetary and fiscal–should go beyond the levels conventionally implied by baseline forecasts of future inflation and economic activity.
Source: Federal Reserve Board International Finance Discussion Papers


With the dollar sliding and the Japanese authorities unable to do anything meaningful to stop the yen from rising - this morning it was near to 115 to the dollar - the opening of trading on Wall Street doesn't augur for the best of weeks:

Stocks skidded at the open on Monday, pushing the blue-chip Dow down more than 1 percent, as a proposed $60 billion acquisition by drug giant Pfizer Inc. failed to inspire investors still reeling from last week's brutal selloff. The blue-chip Dow Jones industrial average fell 148 points, or 1.72 percent, to 8,535. The broader Standard & Poor's 500 index lost 13.60 points, or 1.48 percent, to 907. The Nasdaq Composite dropped 19 points, or 1.35 percent, to 1,355.

Doubts over corporate credibility, fears of another attack on the United States and apprehension over the earnings season are roiling Wall Street. The S&P 500 lost 6.85 percent and the Dow sank 7.4 percent last week -- suffering their largest weekly drops since the market reopened following the September attacks. The Nasdaq sank 5.2 percent, its largest weekly decline since April.
Source: Reuters Yahoo News

And doubts over the sincerity and effectiveness of Bush's corporate clean up too, no doubt. Of course the week's just opening so it's early days yet, but it isn't shaping up too hot. Meanwhile the Japanese authorities seem all but powerless in the face of a rising yen.

JGB futures reached an eight-month high last week, as Japanese equities were eroded by a strong yen and weak sentiment. That pattern resumed on Monday, as the technology-weighted Nikkei 225 average fell 2.1 per cent to a three-week low after weak US consumer confidence data on Friday surprised market watchers. The yen rose to Y115.52 versus the dollar, the currency's strongest showing since last September, also driving buying of JGBs as a relatively safe yen-denominated instrument.
Source: Financial Times

And the Euro achieves parity with the Euro:

The dollar's weakness on Monday helped the euro breach parity with the US currency for the first time in more than two years, and analysts forecast further gains for the single currency.The euro reached $1.0 for the first time in 28 months as investors' wariness towards US assets depressed the dollar. The single currency hit a high of $1.0049 in European afternoon trade, rising from $0.9941 in late Asian trade."The euro struggled on a number of previous occasions to break parity, but investors have figured there is little Alan Greenspan can do to calm nerves in his speech on Tuesday, they decided to make the breakthrough," said Will Rugg, senior currencies analyst at Standard and Poor's in London.The chairman of the US Federal Reserve will on Tuesday begin his semi-annual testimony to Congress.The euro has gained nearly 11 per cent in the year to date and risen nearly 22 per cent from its record low of $0.8225 in October 2000.
Source: Financial Times

As one of the quoted commentators said "The Japanese government is powerless to stop the yen's rise against the dollar, because it's not a yen problem, but a dollar problem." And to top it all US inventories go for a mysterious stroll downwards.

U.S. business inventories unexpectedly increased in May, posting their first rise in 16 months as sales fell, the government said on Monday.
The surprise increase came as sales slid 0.4 percent after a strong 1.7 percent gain in April. With sales off and stocks up, the inventories-to-sales ratio -- a measure of how many months it would take to sell off inventories at the current sales pace -- ticked up to 1.36 in May from 1.35 in April.

With this stocks-to-sales ratio hovering near historic lows, many economists expect businesses to try to refill their depleted shelves. However, a drop in sales is not the businessman's preferred method of boosting inventories. But economists noted that sales have picked up since May.
Source: Reuters Yahoo News

Whatever the final story on this, it's clear it's not good news. So that leaves us sitting, peering into our screens, waiting to see what's going to turn up next, or how long Japan can take the strain? Maybe now the American consumer is tiring of all the weightlifting the Japanese pensioners are ready to take over. One thing is pretty clear, all of this is unsustainable for any length of time.