Japan leads the way down

The Japanese industrial output figures show a drop of 8%. That should come as no surprise.
Other economies will also produce dreadful figures for manufacturing output in the weeks ahead, as there is now a big shut down underway which will last well into the New Year.

People ask why the lower interest rates and the budget stimuli are not working. The answer is simple. It always takes time for them to work in normal circumstances. Interest rates need to be moved about a year ahead for them to work through. That is why this site was calling for halved interest rates over a year ago, to try to fend off the worst of the downturn.

But nothing will work well unless governments and banks work together on how to fix the banking system. Together they wrecked it, and together they have to fix it. In the UK all the time the Regulators decide to throttle the banks with higher capital ratios, they will be forcing more people out of jobs and more factories onto short time. The choice is theirs. As they have been doing for the last five years they are making the choice which maximises the agony.


  1. adrian Peirson
    December 26, 2008

    John, what will you do when Great Britain is abolished.


  2. Ian Jones
    December 27, 2008

    I happen to live in Japan and can tell you its not nearly as depressed in the shops as the UK (visiting for Christmas)!

    One point that I would like to point out to the likes of Mr King and Mr Bernanke is please take a look at what happens when you cut interest rates to zero! In the years since Japan had deflation it slashed its rates to zero percent. Every man and his dog in the financial world borrowed Yen to invest overseas (known as the Carry trade). In fact, together with the dollar (1% interest rates, thanks Greenspan) this cash was responsible for the recent commodity boom as traders borrowed free money and chased up the market.

    However, now the markets have turned those traders now have to return the Yen to pay off the loans. This means the Yen is now overvalued and killing the Japan export sector. But because they released the wall of money that is now flowing back there is nothing they can do until its finished!

    If we are not careful the same will happen to the US and UK economies in a couple of years time!

  3. mikestallard
    December 27, 2008

    A new year resolution?
    How about letting the Bank of England be in sole charge of the money system and keeping the Treasury/FSA as far as possible out of it? Letting the experts do their job without interference?
    How about the Chancellor and Prime Minister getting on with the real business of cutting their bloated expenditure so that their ramshackle government costs a lot less to run?
    My son came back from the Far East (business and first class, natch) where he has absolutely no financial worries and his job in advertising is going really well. If only we could be the same!

    Reply: That might work better but we will need some different people. the only sensible member of the MPc Mr Blanchflower is I believe resigning!

  4. DBC Reed
    December 27, 2008

    Cannot remember so much political discussion amongst family and friends as this Christmas .Some of the younger ones say the pressure on monthly budgets is easing rapidly because interest rates on mortgages have gone down and more significantly because petrol prices have settled back to an affordable level. (There is a lot of car-commuting round here)

  5. Rob H
    December 27, 2008

    What about leaving the interest rates to the marketplace and preventing the Govt. (whichever one) from prolonging the up cycle for their own political advantage?

    Do you really beleive the MPc is independent?

    Interested in your thoughts.

  6. adrian Peirson
    December 27, 2008

    Abolish the Private bank of England and Have Govt Issue our own currency free of charge into bthe economy rather than borrowing it at interest from the international moneylenders.
    Ron Paul in troduces bill to abolish the Federal reserve and allow the Treasury Issue its own currency free of charge.
    Just like Kennedy's executive order 1110.

    Why borrow money when the crown can simply issue it free of charge.
    Whose Side is her majesty on, ours or the Bankers.

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