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  • Profile photo of C2C2
    Participant
    @c2
    Join Date: 2002
    Post Count: 518

    Foundation,

    The difference is that in Oz prices did actually go up and you could sell and make a profit but in Japan prices went up but weren't sold.  A simpler way to explain it is if you bought the same house in Japan and Australia for the same price, in OZ you could sell it for more but in Japan you would sell it for the price you paid but say it was worth more.  This is where the fundamental differences apply.  You buy a house for 100K for example in OZ and after 5 years it is valued at 150K.  You then borrow 50K from the bank because you have 50K equity.  Something goes wrong and you have to sell the house and pay back your debt of 150K.  You then owe nothing but in Japan in the same situation you can only sell the house for 100K and you are left with a debt of 50K. 

    This where the Japanese 'latent profit', 'book value accounting' and 'asset value' gave a distorted view of Japans economy and why the situation is very different here.  When prices or values rise in OZ that is what you can normally get if you sell but in Japan it was totally the opposite.  Banks in Japan allowed companies to borrow against latent profits something that you would not usually see here in OZ.  Japans economy was totally false and so were the values applied. 

    Other ways the values of companies were over valued was by one company A offering shares/stocks to another company B at an inflated price.  Company B then sells these shares to Company C at an even higher price who then sell back to company A ath another inflated price.  This then allowed company A to say they are worth so much money.  No money ever changes hands in all these deals.  Do not think for one moment that these are isolated incidents but common practice amongst Japanese companies.  Japanese companies form groups called 'Keiretsu' and these may comprise of hundred of small companies or businesses who continually lend money to each other or buy each others stock to keep their values up. If one owes money to a member of the same group it is often written off and forgotten about in the books as not to devalue the strength of the group.

    You can look for similarities in what happened in Japan and why and what may happen in OZ but in reality you shouldn't.
    Trying to do so is like trying to compare apples to oranges and finding similarities because they grow on trees or are round.

    An example in the news tonight the prime minister of Japan has said that people should not sell the stocks in the post office (which the previous Japanese prime minister tried to privatize) at the current low price and wait for the shares to go up so the post office doesn't lose value.  It would be a very brave Japanese person to go against what the prime minister has just said although some opposition groups are saying his comments are totally irresponsible.  Then again what can you expect from a prime minister whose home city is notorious for being controlled by the Japanese mafia and nothing gets done without their approval.

    Another way the govt contributed to Japans economic down fall is by bailing out companies and spending money on projects that get no returns.  Japans govt debt stands at an estimated 250% of GDP.  The USA has an estimated 64% debt of GNP.  Australia has a surplus.  An example of how govt departments do things in Japan.  The Housing Public Agency's subsidiary Japan Unified Housing Life (JUH) developed an office tower in Tokyo and then claimed the building was 95% leased.  The tenants were either JUH or related companies which occupied the building at 4 times market rents.

    Deflation in Japan is controlled by MOF in their policies of creating interest rates as close to zero as possible, 0.25%.   Imagine someone who retires on about 200 thousand dollars and uses half to pay their home loan off and has the rest in the bank earning 0.25%.  The equivalent of $250 a year.  Is it worth to keep the money in the bank?

    Although there may have been no mention of the aging population or low birth rate in Japan this definitely has also played a big part in deflation.  Japan has become or is about to become the worlds oldest country with a birth rate that is now below 1.0% with approximately 20% over 65 years of age.  This creates enormous strain on health care, pension plans and working population. Japan has gone from having 11 workers supporting 1 retired person to 3:1 and possibly 2:1 by 2025.  This aging population attributed to 85% of 1,800 health insurance companies being in arrears and forcing them to stop payments to elderly policyholders.  Ministry of Health has raised contributions from 10% to 20% & 30% and lowered benefits.

    All this is further complicated by steep inheritance tax amongst the highest in the world.  People are forced to buy life insurance which accounts for 20% of household savings.  Doesn't sound too bad but MOF requires insurance companies to buy low interest govt bonds and invest in the stock market whenever the exchange begins to drop.  This created years of investing with  no yields or gains and zero or negative returns.  This coupled with trillions of yen in bad loans shows that there isn't any money.  Japanese pensions plans return a declining rate of around minus 3% compared to the United States positive 15%.

    Probably the biggest problem contributed by the aging population is brought on by 2 situations: many companies and govt departments force workers to retire at 55 but the pension doesn't start until 65 leaving a10 year gap of no income and savings in banks getting interest of 0.25%.  where do they get money to live on?

    Overall nearly 70% of companies do not have the money to pay their pension obligations and it is estimated that Japans pension liabilities are in excess of 100% of the GNP.  Major companies like Mitsubishi Electric, Honda Motors, Toyota Motors and Sony owe 238.5 Trillion yen in pension payments to workers.

    If Japan tried to repay the govt debt through taxes it would need the equivalent of 2 years wages from every worker or 20% of wages for 60 years just to cover today's debt.

    The bubble and deflation that occurred in Japan was brought on by govt mismanagement and debt by companies not personal debt which is the main difference between Australia and Japan.  Debt in OZ is mainly personal.  Corporate debt in Japan is around 4:1 compared to 1.5:1 in the US.  There is personal debt in Japan but this is mainly due to Japanese mafia who charge rates of between 40-100% and are sanctioned in a strange way by MOF.  MOF support these rates for personal debtors because they believe it dampens consumer borrowings.  Personal debt in Japan is small compared to the govt and corporate debt.

    Hope this clears up a few things and gives abetter understanding of Japans economic woes and reasons for it.

    Profile photo of ummesterummester
    Member
    @ummester
    Join Date: 2008
    Post Count: 510

    C2, can you say denial?

    Profile photo of C2C2
    Participant
    @c2
    Join Date: 2002
    Post Count: 518

    ummester,

    Anyone can say the word denial or even write it, but why would I need to say it?

    I'm not denying oz is in hard times or that there could be problems for some but just pointing out that when people make references to Japans bubble and deflation they need to understand it was not brought on by economic policy or debt as we understand things to be.  

    Profile photo of harbharb
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    @harb
    Join Date: 2006
    Post Count: 324
    foundation wrote:
    You clearly haven't been keeping your eye on the inflation figures that are coming through.

    How are them inflation figures coming along, still keeping your eye on them ?

    Profile photo of devo76devo76
    Member
    @devo76
    Join Date: 2007
    Post Count: 542
    harb wrote:
    foundation wrote:
    You clearly haven't been keeping your eye on the inflation figures that are coming through.

    How are them inflation figures coming along, still keeping your eye on them ?

    Be careful. You know how they work. They will come back with a highly thought out explanation for the change which still supports there point of view while all the time skipping over the subject.

    Profile photo of ummesterummester
    Member
    @ummester
    Join Date: 2008
    Post Count: 510
    C2 wrote:
    ummester,
    I'm not denying oz is in hard times or that there could be problems for some but just pointing out that when people make references to Japans bubble and deflation they need to understand it was not brought on by economic policy or debt as we understand things to be.  

    Yes and No. There is an uncomplicated way of looking at this, without the smoke and mirrors of politics and economics. If Rudd succeeds, we end up with slow deflation of assets values, very much like Japan. If he fails, we end up with fast deflation, very much like America.

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