Thursday, October 28, 2010
Asian Stocks Mixed Amid Fed Stimulus Uncertainty- "Japan's benchmark Nikkei 225 stock index was down 14.42 points, or 0.1 percent, at 9,375.53 in zigzag trading and barely reacting to the Bank of Japan's widely expected decision to leave its key interest rate unchanged at zero to 0.1 percent. The central bank also gave more details of a $61 billion asset purchase program to help revive the Japanese economy, which is being battered by a strong yen and persistent deflation."- AP (10/28/10)
1) What is 0.1%? It is one hundredth of one percent or 0.001. If a person had a lifetime savings of 10,000 yen or dollars in the bank at an APR of 0.1% and he/she was dependent on the interest to offset rising costs of goods and services, the total yearly interest in simple math would be 10 yen or dollars (83 cents/month US currency). Currently, in US banks, the interest rate is the same as Japan- 0.1%. In 2000, the interest rate on savings in US banks was 5% (this is a normal savings account, not a CD which actually paid out a higher interest). If you had $10,000 in a bank in 2000 at 5% interest, in simple math, you would have accrued $500 or $41.66/mo. That is a loss in saving of $490/yr. between then and now.
If you had $100,000 dollars in a US savings account in 2000, the yearly interest at an APR of 5% would be $5000. Today, the yearly interest at 0.01% APR comes to $100. Understand better?
2) The "$61 billion asset purchase program" is a bank bailout. In the US, we call it Fed stimulus or Quantitative Easing 2. The $61 billion yen will come from the taxes of hardworking Japanese men and women, go directly into the banks coffers and never to be seen again. Just like in the US.
3) The article says the economy is being 'battered' by a strong yen. A 'strong' yen or dollar (or franc, peso, deutche mark,etc) means the people of that particular nation can purchase more goods and services with that money. In other words, the stronger the currency, the greater value it holds and the greater the purchasing power. To Japan's government and finance leaders, just like in the US, this is looked at as 'bad'. Weaker currency expands exports- makes imports more expensive- makes goods and services cost more- means work longer- harder- for less money. To governments of Japan and US, this is 'good'.
Japan and the US have things in common- Both economies are in Very bad shape, both are completely beholden to the banking interests and neither government gives a damn about the financial well being of its everyday citizens.
Posted by Susquehanna at Thursday, October 28, 2010