Jim Sinclair’s Commentary

Here is what will happen on June 30th. Stand strong in your gold position.

Japanese Monetary Policy:  A Case of Self-Induced Paralysis?* 
Ben S. Bernanke
Princeton University
December 1999

* For presentation at the ASSA meetings, Boston MA, January 9, 2000.  I wish to thank Refet Gurkaynak for expert research assistance.

The Japanese economy continues in a deep recession.  The short-range IMF forecast is that, as of the last quarter of 1999, Japanese real GDP will be 4.6% below its potential.  This number is itself a mild improvement over a year earlier, when the IMF estimated Japanese GDP at 5.6% below potential.  A case can be made, however, that these figures significantly underestimate the output losses created by the protracted slump.  From the beginning of the 1980s through 1991Q4, a period during which Japanese real economic growth had already declined markedly from the heady days of the 1960s and 1970s, real GDP in Japan grew by nearly 3.8% per year.  In contrast, from 1991Q4 through 1999Q4 the rate of growth of real GDP was less than 0.9% per year.  If growth during the 1991-1999 period had been even 2.5% per year, Japanese real GDP in 1999 would have been 13.6% higher than the value actually attained.

Some perspective is in order.  Although, as we will see, there are some analogies between the policy mistakes made by Japanese officials in recent years and the mistakes made by policymakers around the world during the 1930s, Japan’s current economic situation is not.

A major source of the difference in my calculation and the IMF calculation is that the IMF bases its potential output estimate on the actual current value of the capital stock.  Relatively low investment rates throughout the 1990s have resulted in a lower Japanese capital stock than would have been the case if growth and investment had followed more normal patterns.  I thank Paula DeMasi of the IMF for providing their data.

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Jim Sinclair’s Commentary

States are showing no gains that can in any manner overcome their main problem, which is debt. MOPE is running out of steam, and gold is getting ready to take out $1650.

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