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Friday, March 10, 2006

US Trade Deficit

The US trade deficit rose to a record $68.5bn in January. Perhaps equally importantly trade deficit with China climbed to $17.9bn in January from $16.3bn in December:

Overall the deficit deteriorated by $3.4bn, but only $700m of this was due to the rising bill for petroleum imports. The deterioration was spread across a range of sectors, from capital goods to consumer goods and industrial supplies. The deficit was around 17 per cent higher than January last year and almost double the deficit for the month period in 2001.

Brad Setser has the details, and most of the arguments.

Thursday, March 09, 2006

D Day is Here

Well, not quite, since they aren't actually thinking of raising interest rates anytime soon, but...... ultra loose monetary policy is over (for the time being). Now we get to see what happens next:

The Bank of Japan on Thursday asserted its independence by ending an unorthodox ultra-loose monetary policy and shifting to a policy of targeting the overnight call rate.

The bank said it would take “a few months” to bring massive levels of liquidity back down to levels consistent with keeping overnight rates at zero.

The shift ends five years of quantitative easing brought in to save the economy from falling into a deflationary spiral and to help prop up the bad debt-burdened financial system.

Ending the framework is a declaration that the economy has returned to normal and that, in the bank’s opinion, there is virtually no danger of slipping back into deflation

Wednesday, March 08, 2006

Japan: D Day Approaching?

Well there is a lot of attention being focused on the 2 day meeting of the Bank of japan which started today. Will tomorrow be Decision Day? Certainly the equity markets are nervous. Dave Altig at MacroBlog had a timely post yesterday about some of the possible pitfalls ahead, and Martin Wolfe has a piece on Japan in today's FT:

Japan is back. After almost one and a half decades of disappointment, growth is strong, deflation is vanishing and confidence is returning. Is this then the reward for Junichiro Koizumi's reforms? "Exactly the opposite" is the answer. If the prime minister had done what he initially proposed – pursue structural reform and cut fiscal deficits – the result would have been a catastrophe. Fortunately, wiser counsels prevailed.

In what way then is this an unreformed Japanese economy? It is still a Japan whose growth depends heavily on exports and investment, whose private sector saves far more than it can profitably invest at home and whose corporations waste capital. Japan is not recovering because it has a brand new economy: what has been achieved is a partial clean-up of the legacy of the bubble years.

As Martin Wolfe also points out:

Between the fourth quarter of 2001 (the last deep trough in gross domestic product) and the fourth quarter of last year, the economy expanded by 9.9 per cent, in real terms. Net exports generated an astonishing 30 per cent of the increase in demand, investment 18 per cent and government consumption a further 14 per cent. Private consumption generated a mere 39 per cent of the increase in demand.

The sharp improvement in net exports had two principal explanations: the depreciation of the real exchange rate; and China’s demand for Japanese technology. Between December 1999 and February of this year, Japan’s real broad exchange rate depreciated by almost 30 per cent, according to JP Morgan. This was not an accident: Japan’s foreign currency reserves rose by $547bn between December 1999 and the end of last year. Meanwhile, exports to China accounted for 30 per cent of the increase in Japan’s total exports between 2001 and 2005.

Japan has, in short, continued to derive much of its dynamism from external demand. It also continues to rely heavily on corporate investment. That may not seem surprising until one realises how overcapitalised the economy is by global standards.

The share of Japanese corporate investment in GDP is far higher than in other high-income countries (see chart). Most recently, it has been 40 per cent higher than in Germany or the US.

Overall, investment ran at 24 per cent of GDP in 2004. That such high investment has generated little growth in the recent past (and is expected to generate little growth in future) is evident. But what would have happened without it? Without some other offset, the result would have been not stagnation, but a depression.

Today’s new Japan is essentially the old Japan. It continues to rely on competitive exports, a sizeable current account surplus and wasteful use of its people’s savings to keep demand expanding in line with its disappointing potential rate of growth.


Now this looks very interesting (and here):

Store 100% of User DataWith infinite storage, we can house all user files, including: emails, web history, pictures, bookmarks, etc and make it accessible from anywhere (any device, any platform, etc).

We already have efforts in this direction in terms of GDrive, GDS, Lighthouse, but all of them face bandwidth and storage constraints today. (...) This theme will help us make the client less important (thin client, thick server model) which suits our strength vis-a-vis Microsoft and is also of great value to the user.
As we move toward the “Store 100%” reality, the online copy of your data will become your Golden Copy and your local-machine copy serves more like a cache.

John Batelle says:

"The more I think about this, the more I'm not comfortable with the idea of having all my data in one place. Any place. Google or otherwise. It simply makes abuse too easy."

I disagree John. The more I think about this the more i like the idea of storing all the data *I want* stored in one place to be stored there. Especially if it is for free. There is obviously no obligation to put things you aren't comfortable with. I wonder if this will solve the podcast storage problem?

I am already using google pages for our new Demography Matters project. Personally I am very happy. Google is a firts mover. Good luck to them. Will the day come when Google will be more of an obstacle than an aid. Of course. Everything that lives was born to die. But lets cross that one when we get to it. This is what the New Economy is all about. But for now, let the good time roll!

Tuesday, March 07, 2006

Conflicting Opinions

Two Frenchmen seem to have different opinions about short term interest rate policy for the ECB. Jean-Philippe Cotis, chief economist of the Organisation for Economic Cooperation and Development seems to feel that "the European Central Bank must avoid rushing to raise interest rates as eurozone growth picks up", while Jean-Claude Trichet, the ECB president, who is more worried about inflationary pressures, continued yesterday to voice concerns over historically low interest rates and upside risks to price stability.

The FT notes, vis-a-vis Cotis's comments that:

The criticism of the ECB, which came amid an optimistic interim assessment of the world economy, is bound to create irritation in Frankfurt. The bank has been at odds with the OECD since it called for a half-point cut in rates last spring.

Many economists and the OECD are sceptical about the need for further rates rises, although recent improvements in eurozone business and consumer sentiment have muted criticism of the latest ECB rate increases.

Personally I am inclined much more towards the Cotis view (although I do not entertain an especially high regard for either of them when it comes to economic analysis). I do tend to worry, however, about the extent to which Cotis himself may be subject to local political influences, a charge which, btw, and against all expectation, it is hard to lay at Trichet's door, at least to date it is.

New Economist has more coverage of the OECD view here, as does Claus Vistesen here.