Ka-Poom Theory is a Rhyme not a Repeat of History

[EJ]

Re: Ka-Poom Theory: backhanded confirmation methods

Mr. Janszen, other readers of this thread,

I was wondering how instructive would be the yen denominated gold behavior was during the Japan bubble era as well as the immediate aftermath.

I ask because while the interest rate policy in Japan would seem to be an attempt to 'mildly' inflate out of their predicament and would thus not hold exact parallels to our present US situation, but a behavior similarity could be useful given the likely inflationary scenario out of the present credit vicious cycle.

As such, I created a table based on the 'average' price of gold (also max/min) during a given year vs. the 'average' yen/$ price. For the heck of it I also inserted high/low gold vs. high/low yen but this is not so useful as the relative dates are likely different.

Source data was http://www.finfacts.ie/Private/curen...arketprice.htm for gold/$ and http://www.boj.or.jp/en/type/stat/dl...e/cdab0780.csv for yen/$

http://www2.snapfish.com/slideshow/A...89/t_=86568889

The graph does not show a major gold spike - but it does show a very consistent trend of yen strengthening vs. gold.

I would like to hear opinions of this.

(Sorry for the junk around the picture - I don't have a personal web site for posting photos so I chose this one as the first to pop up on Google!)

Your graph is hard to see, but I think I get the idea. Japan is not an appropriate comparison for two reasons:
1) The Bank of Japan made the mistake of allowing inflation to fall below 0%, as the Fed did in 1930. The Fed did not make the same error in 2001 and won't again; the Fed has explicitly stated its intention to monetize everything in sight, if necessary, to prevent that from occurring. There is some debate on whether buying mortgages, stocks, and so on, will effectively stop deflation. My position is that it is as likely to work too well as not work at all, resulting in a loss of confidence in the currency and a hyperinflation.
2) Japan was running a current account surplus before their stock and real estate bubbles collapsed, much as the US did in the 1920s. When the domestic debt market contracts, countries that run a current account surplus encounter deflationary currency appreciation versus countries like the UK in the 1930s and the US since the 1980s which have been running current account deficits and are instead vulnerable to inflationary currency depreciation.

[FRED]

Re: Ka-Poom Theory is a Rhyme not a Repeat of History

This just in...

Gov. auditor says fiscal outlook is 'spiraling out of control'
Feb. 26, 2007

Congress's auditor warned in a monthly update released last Friday that the latest data on America's fiscal outlook shows "a federal debt burden that ultimately spirals out of control."

The January update was based on new data supplied to the Government Accountability Office by the Congressional Budget Office, and identified spiraling national health care costs as the main culprit for the country's budgetary woes. The report also challenged a key assumption about the nation's fiscal future made by President George W. Bush in his release of the 2008 budget.

Using a pair of different simulations of government outlays, the GAO bluntly states that "the Nation's long-term fiscal future is 'at risk.'" It considers different futures in which discretionary spending grows more quickly or slowly, and in which tax cuts are renewed or allowed to expire.