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.
Many Americans are not like the Japanese but there is a large group of us that are when it comes to as little debt as possible and high savings.
There are only three types of debts that i consider OK: Mortgage, Car and Education. And while its possible to avoid all three (esp car loans), it is important to stay as low as you can in debt and seek to get out of it as quickly as possible if you do go into debt.
If you cant pay it off right away, don't buy it
If you cant save up for it, don't buy it
I am not a 1% but definitely in the top 10% right now (as per take home income) yet i still go to thrift stores, yard sales, antique store (lots of quality stuff cheap if you look past the high ticket items) and the like. Why pay more when you can still get nice for less (i do draw the line sometimes, like shoes and underware)? Its that much more in my pocket for other uses
Why should we continue to prop up the TBTF banks when they are interlending globally and only care about their own profits? We need banks that are allies of their home - not enemies.
This story sounds like an Obama/Democrat propaganda piece. They have said that the best days of this country are behind us..... 8% + unemployment is the new norm..... our housing prices diving is just going to happen.... Obama and the Democrats have no control over the economy.... We need tax the rich more and give the unproductive much more.....and of course it is all Bush's fault!!!!!
This is the longest we have stayed in a major down-turn since the Great Depression (which was made worse by Roosevelt and his socialist agendas). In most recessions there is a strong upturn in employment, income, and corporate profits. Now, we have stagnant employment with fewer jobs being created than the increase of population! We, in all reality, have a true unemployment rate of about 10.9% because millions of potential workers have been axed from the work force by political slight of hand! If we had a Republican president in the White House do you really think that they would let this garbage go unchallenged?
Romney 2012, for our future, and our children's future!
The process is so slow that many people don't realize that they are becoming marginalized both economically and politically within their own country. The metaphor of a frog in boiling water was a correct example to explain the complacency of the majority of people not to realize that the heat is being turned up on them slowly as the middle class are becoming slowly disenfranchised within their own country.
Seeker 13xxxxx.......You are not all that bright are you ?....6th grade or 8th.?
I gotta get off of this and live my life..........Geezus, sweet geezus.
Kanrai.....I have to agree, BUT I think Volcker was referring to what you described as a problem....
And not TARP....IMO that more or less was a REVITALIZATION of Banks or the Financial Systems.
Although I disagreed with Financial Trading Organizations turning themselves into Banks to get a ride on the Gravy Train, more of them should have been left to failure; Unfortunately millions of Americans and other Foreign Investors would have went down the tubes with them....Much worst than what has happend. And I believe we would have fallen into a deeper depression then what we witnessed in our first one; Along with dragging the rest of the World deeper also, they would be in total failure along with anarchy rule.
We should have learned something from the Great Depression and I believe we did, but what we do with that history and that lesson of the ages is up to us and the rest of the World.
We can or could not take that chance, because it could have been 3 times worst..IMO.
Will the people who now have great jobs that pay a lot (good for them), make the same mistakes as (we) the US people did the 10-15yrs before the bust? Spending too much, buying or building big houses, and using credit cards thinking that because I now have this great job, I'll have no problem making these payments? Never seriously thinking in the front of their minds that if the jobs dry up they will be in debt with no way to pay the bills?
From what I've read there is not enough housing, (which makes complete sense), so people are living in whatever and wherever they can. So houses are being built, and subdivisions are popping up. What I found surprising or (shocking?) is that the houses are costing $200,000.
I realize land values and prices will inflate in a boom town, but I think if I was working there and planned to stay, I'd build a smaller house and pay it off as fast as I could. It would also be smart to pay cash for everything, buy a used car, and save as much money as I could. I'm not saying there are not people doing this, but every time any part of the US has prospered, nationally or regionally, people fall back into bad habits.
We should be like the Japanese in these times. Spending does help the economy, but if you don't have a job, or a low paying job as opposed to the high paying jobs people had before, we just can't consume like we used to.
I lived in TX in the early '80s when the oil boom ended there. Suddenly people were laid off, and those who had been receiving dividends from the oil being taken out of their land were either receiving smaller checks or none at all. They had thought it would be a never ending income. I knew some people who's families had been getting money for 3 generations, so it was a huge shock to be suddenly poor or poorer.
As I said, I'm really curious as to how these towns will develop and what their economies will look like in the long run.
News just keeps getting worse...
And liberals still want me to vote for the failure in the white house...
If the rich wanted to create more jobs, they have had the whole of Obama's term to prove up. They have had the Bush tax cuts for how many presidential terms? Seems like about three full terms and still none of the tightwads want to get off the nickel and do a single thing to help the average middle class folks. Don't try to sell that old Republican saw about the rich will create jobs. The truth is this bunch of tightwads will only continue hoarding the wealth of the country.
I certainly hope none of my comments were considered only praise for the Japanese, and the want to follow in their footsteps.....WE NEED TO MAKE OUR OWN PATH AGAIN....
But I do find the Japanese an interesting and resilient people.
And I also found the Mayans an interesting group......Resilience NOT so much.
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