As the readers of this blog would know, I have been advocating more symmetric tax treatment of equity and debt, both in terms of public and private bonds and lending taxation. Here's a recent IMF paper on the topic that provides evidence that asymmetric taxation of debt and equity, with preferential treatment of debt over equity, generated internal instability in the system, making it more prone to crises.
Tim Iacono submits: In this New York Times commentary, Paul Krugman leads what will soon be a veritable gaggle of economists in lamenting the coming lost decade, one that could have been avoided if the government and central bank had only borrowed and pri
By Brian Rezny: It was Christmas Day, 1989, when the Bank of Japan raised the benchmark interest rate to 4.25%. The move was supposed to prevent an asset bubble and curb inflation. The result: the market crashed, the economy stagnated, and a debt crisis ensued. And in the more than 20 years since then, little has changed. Japan has struggled through over two decades of weak growth and deflation. And the Nikkei index is still down something like 80% from its peak in 1989.
"The extent of unproductive investment in China today is much greater than was the case for Japan at a comparable phase of development," warns Deutsche's EM strategist John-Paul Smith, and one glance at the chart below suggests China is tracing an ominous path towards the same "lost-decade" that un-inspired Japan since the mid-80s. While the PBOC is less interested in goosing its own stock market (since ownership is so low), Chinese stocks (down 60% from 2007 highs) "seem to be saying that there is a significant risk of a major slowdown."
MANY commentators, including this newspaper, like to compare China’s economy with America’s, the world’s biggest, which it is on course to rival in size if not in sophistication. Recently, however, parallels between the two economies have started to look more ominous. China suddenly seems to be exactly five years behind America. After several years of excessive credit, much of it in the shadows of the banking system, China’s financial institutions stopped lending to each other this month; on June 20th interbank interest rates briefly soared to 25%.
By Investment U:
By Ryan Fitzwater
According to the International Monetary Fund Managing Director Christine Lagarde, unless nations work together to encourage growth, we risk another “lost decade” for the global economy.
Kevin Parker submits: We've locked in a "lost decade" in the first decade of this century - essentially a decade with flat or negative returns in the broad market. I'm of the opinion that we will have yet another lost decade (note that Japan has consecutive "lost decades"). Without going into detail, I believe a number of factors will force us into a lost decade including a de-leveraging economy, high government debt levels and a shift in American attitudes towards saving and spending.