Is the US turning Japanese?
Americans may have to get used to a slow-growth economy.
By Kevin Mellyn, guest columnist
U.S. consumers are now living in a world much like the one the Japanese have been living in for the past 20 years: a world with limited access to credit, little or no appreciation in asset values, slow growth, large government deficits, and a rickety banking system.
The headline story about Japan is that the bubble economy of the 1980s was popped by central bank policy, and through bad policy choices the country has remained mired in deflation and low growth ever since.
That sounds like something we Americans may experience. The point is, though, that people are adaptable and can learn to cope with a no-growth or slow-growth economy.
The Japanese were the envy of the world (and bugaboo of American pundits) during the so-called Bubble Economy of the 1980s, when excess savings and low rates drove a huge run-up in asset prices. Then the bubble burst, with the Nikkei falling from a peak close of 38,915 to a low of 7,054. (It now sits at around 9,000 after 20 years.) In addition, prime real estate has fallen to as little as 10% of 1989 prices.
You would think that 22 years of super-low interest rates and no significant asset appreciation would result in a miserable society, but no visitor to Japan can escape the fact that it remains a very rich and harmonious country. The Japanese have gracefully adapted to a world of slow growth and diminished expectations, aided by their aversion to borrowing money and their habits of thrift.
Americans are not at all like Japanese, but whether or not we have it in us to adjust to a new normal of less leverage and low returns on investment, we are not going to escape the consequences of our own bubble. The U.S. economy was driven for more than two decades by an oversize financial sector leading up to the panic of 2008. The financial sector grew by increasing the availability of consumer credit and lowering its quality, especially in mortgage lending.
Now the U.S. financial services industry is being cut down to size by regulation and litigation, with no end in sight -- a process that was probably long overdue. Banks are learning how dangerous it is to lend money to anyone who actually needs it, especially consumers. It is going to get worse, not better, for households seeking credit. The real choice is whether to live within your means with a good heart, as the Japanese do, or hope the credit bubble can be reinflated.
I would not put my hopes on the latter.
Kevin Mellyn is the author of Broken Markets: A User's Guide to the Post-Finance Economy and an international banker and consultant at MasterCard Advisors.
| Tags: | economy |
I love your myopic viewpoint on the illicit profits parked overseas, just waiting to be allowed into the country at zero taxes. How does any of that money help average citizens? Oh, right. The wealthy folks will trickle it down in service jobs to the people who cut their grass and change the linen. Remove the tax breaks for cheaters. Who are cheaters? Pretty simple. If a person corrupts the system to hide profits - I'd say that's cheating. If a person works, "off the books" I'd say that's cheating, too. But, even more so, the employer who works employees, "off the books" - now that is really cheating. How about the company that wants to exist in the good old U.S. of A. so it can take advantage of our markets but exports all its jobs to some third world country, solely to take advantage of a cheap labor market. These are about the biggest cheaters I can sort out. Where is their patriotism? Who or what do they honor? Apparently the almighty dollar takes prescidence over their neighbors. I say if this is truly a government of the people, by the people, and for the people then those corporations need to be expunged. Let them move to their foreign job market and enjoy life their, not cheat and retreat into their tax dodges.
Here's another thought for you: We wouldn't be in this mess if Congress took all votes by role call. If your representative knew his vote was registered and reported back home, you can bet the good-old-boy politics would die a quiet death.
The "Reagan Revolution" worked out so well because it was the beginning of a economic pattern. Taxes were cut {they were very high} at that time. I am sure the Dems would love to go to the rates of the Reagan years.
The economic pattern of Small buisness entrepreneurs can be translated to mean"folks who are will to work longer hours for less pay and benefits". That has culminated to what we see today. Not solely mind you, but really here. Also was set in motion the big part of individual debt spending. That drove the economy til most folks credit was tapped out. Japanese ideas of "just in time inventorying" were adopted. Again, after 30+ years of this, well you get the picture. Look across the pond at Japan for the outcome. We the people created it.
The views in the book are not reflective of my employer or my political leanings but of a long and deep reading of economic history and 40 plus years of experience in and around finance.
Hmmm...
I guess you could distill all this down to one school of thought...
Should the government be in charge of the economy? Should it set up 5 year plans? Should it be in control, with economic decisions made by an elite? The democrats seem to think so. If they were in charge we would have one car company, GM, and choice would not be needed.
This of course will fail, as all socialist economies eventually do. Free markets will have ups and downs. But they represent the only path to prosperity. Thus, this November we reall have a choice, between a free market and a centrally planned one. The choice is really quite stark.
Socialism or Free Market Capitalism. Thos that do not want to workand think they are entitled of course will vote for Obamanomics. The question is what will the people that support these people do?
We need more people that work for a living to vote, than we need those that vote for a living to vote.
Japan's choice was the socialist path. Near zero innovation, zero growth, a demographic that will halve their population over the next 40 years, and more government planning will not improve Japan, or the USA either.
The Japanese people were very nice, industrious; and, I enjoyed myself immensely. One could ski all day (each ride on a lift cost about 10 cents apiece--no all day tickets). It is also a beautiful country.
The USA is very different from Japan in many ways, and will likely always be so, but their cars are still more reliable than almost all of ours. Viva la difference.
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