"..the really big uncertainty is the political economy. Japan, in essence, has accepted a long period of private sector deleveraging and stagnant growth without much social upheaval. Whether voters in America or Europe will do the same, without either forcing their governments to resort to inflation or default, is crucially unclear."
- Gillian Tett, The Financial Times, 8 October 2010.
"Sir, 'Can the Fed prevent Japanese-style deflation, a period of falling prices associated with economic stagnation, from taking hold ?' is a common refrain nowadays.
"The US Federal Reserve's obsession with Japan is pretty disastrous. First, Alan Greenspan opened the taps wide for too long, fearing Japanese-style deflation, which fuelled the housing bubble that led to the recent financial crisis. Now, fearing the lost decade plus, the Fed is probably going to keep easing until some different but unpleasant outcome is the result. Stagflation perhaps, or hyperinflation ?
"This is so ironic, because for so long people have sneered at the Japanese for their inability to steer their economy to recovery. Perhaps because they have sneered so much, it is no longer possible to admit that after a huge housing bubble bursts, there is nothing to do except suffer many years of economic indignity.
"The fixation with Japan was not helpful during Mr Greenspan's watch, nor I fear will it be of much use this time. The Japanese may be different, but they were not stupid."
- Letter to the editor of The Financial Times from Mr Takashi Ito of Tokyo, Japan, 17 August 2010.
A friend recently recounted a story about a businessman who sold his firm in the late 1990s and was wondering what to do with the proceeds of a few hundred million dollars. Which, he asked, is the asset in the world that is most unloved, most detested, most out-of-favour, most ignored ? Which asset would cause most investors to vomit or hurl themselves from a tall window rather than even consider purchasing it ? With the counsel of my friend, the businessman identified gold as that asset, and invested accordingly. From its low of around $250 per ounce, correctly also identified by our former Chancellor, Gordon Brown, albeit inadvertently as the launching point for his sales of 395 tonnes, gold has risen by roughly 400% since. But given that gold is conventionally denominated in currency or money that could be fairly described as not entirely…
