Japan's 20 year recession.......

[Free To Canoe]

If that spending does not lead to *sustainable* improvements/growth, it is just another house of cards that will collapse.

So, throw money, maybe see a spike and collapse later, or take a slow crawl back? I think those are probably the options. I'll take the slow crawl - hopefully, it is uphill.

-ERD50

If I am reading your intention correctly, you suggest a bottoming of sorts will lead to a "slow crawl back"?
The other thought is that we are starting a downward depressionary spiral. There is no reason that this trend cannot continue indefinitely if no action is taken to change the trend.

Free

 

[Free To Canoe]

The Marshall plan was the USA giving foreign aid to European counties.
Those countries were not burdened with the debt. The money did not come out of the economy of those countries. Also, those countries were in rubble the money and fact that the people were desperate for work, and literally hungry so the help was able to help get those get countries moving. It cost about 13B or 90B in today's dollars.
A Look Behind The Marshall Plan Mythology

But the Marshall was not the only thing. Those countries were given food and Most Favored Nation Status; more helping hands.

Using the Marshall plan is not a valid input in the context of this discussion - so not a good point.

I agree with you that our current situation and that of Japan's 20 year recession is more economicly complicated than the Marshal plan scenerio. Therefore, it is not an optimum comparison. It is valid input in that both involve cash flow stimulus. (An excellent discussion of why some countries are able to bounce back from disaster and others not is found in Berstein's The Birth of Plenty.)

Free

 

[ERD50]

If I am reading your intention correctly, you suggest a bottoming of sorts will lead to a "slow crawl back"?

The other thought is that we are starting a downward depressionary spiral. There is no reason that this trend cannot continue indefinitely if no action is taken to change the trend.

Free

No, I have no idea what might happen. But I can't see how (quoting myself here) "If that spending does not lead to *sustainable* improvements/growth" can really help long term.

Maybe the trend will continue indefinitely (I doubt it, there is some intrinsic value at some level, and human motivation). But will "some action" help, or hurt? I think it depends on the action.

From what I'm reading, history says that some of the current actions being considered will hurt, not help. In the absence of clear positive actions, maybe the old phrase "Don't just do something, stand there!" would be good advice?

-ERD50

 

[kumquat]

There is no reason that this trend cannot continue indefinitely if no action is taken to change the trend.

Free

While I might agree that an inflationary trend can continue indefinitely , a deflationary trend ends when all prices and wages reach zero.

 

[Leonidas]

There's a good podcast on NPR Planet Money that explains some parallels and claims that Japan would have only been in trouble for about five years until the government made some poor choices.

Online version of the podcast here: NPR: Hear: Japan's Lost Lesson

The guest leaves a few things unclear - read the comments at the bottom of the page.

 

[Rustic23]

From what is quoted, one third of the American economy is consumer spending. Now, put me in the camp that says, that while we are in a recession, we are not in Great Depression II. I think, as it has happened in all recessions since Great Depression I, that the American consumer will start spending again, when the fear of loosing their job subsides. I think things will get better if the government did nothing, and that the stimulus plan is going to lead to strong inflation.

Now, having said that, does anyone know if consumer spending made up 1/3rd of Japan's economy?

 

[OAG]

Mid 2008 data but the percentage of the US Economy that is Consumer driven is a lot closer to 70%: The Percentage of the U.S. Economy Devoted to Consumer Spending Went Up and Up

 

[Rustic23]

If the 70% figure is valid, then I am even more unconcerned about a recovery. The American consumer will spend again. It is what we do! Unless Paris stops making a fashion statement, Japan stops making electronics, and China stops making everything, Americans are going to consume. It is like drugs! And, yes the banks will lend so consumers can spend.

 

[Eagle43]

If the 70% figure is valid, then I am even more unconcerned about a recovery. The American consumer will spend again. It is what we do! Unless Paris stops making a fashion statement, Japan stops making electronics, and China stops making everything, Americans are going to consume. It is like drugs! And, yes the banks will lend so consumers can spend.

I agree with you. Recessions and business cycles are normal. Usually we get out of them when confidence is restored. I've got kids and grandkids who can lead the way.

However, Mr. Volker doesn't like us spending so much. He believes we should take our medicine. I think most on this forum think he's a genius.

Paul Volcker is back, and he warns of tough times ahead - Los Angeles Times

A generation ago, Paul A. Volcker was a household name, the Federal Reserve chief who waged a hard-nosed but successful battle against virulent inflation that clouded the nation’s economic future. He did it by engineering a horrific recession, clamping on the financial brakes and sending the economy into a tailspin in 1981.
His concerns go to the very core of how America lives and how Wall Street operates. A child of the Great Depression and a man of legendary personal thrift, Volcker thinks Americans have been living above their means for too long.
“It is the United States as a whole that became addicted to spending and consuming beyond its capacity to produce,” Volcker lectured the Economic Club of New York in April. “It all seemed so comfortable.”
Bringing consumption back in line with income would not only crimp individuals and families, but also require major readjustments in the global economy, which has relied on the U.S. as consumer of last resort.
...

 

[LOL!]

I think the premise is false: Japan has not been in a 20 year recession. They have not really grown that much, but I believe their population has decreased.

If you like, you may liken them to a country of fiscally conservative LBYM-types. That is, if everyone wants to save money and retire early, then it appears to become a little more difficult to get ahead of the Watanabe's.

 

[LOL!]

And instead of an article from 2002, why not this one from last week about Japan compared to the current situation in US/World? http://www.nytimes.com/2009/02/22/business/worldbusiness/22japan.html

 

[cardude]

And instead of an article from 2002, why not this one from last week about Japan compared to the current situation in US/World? http://www.nytimes.com/2009/02/22/bu...s/22japan.html

Wow, yeah. That article was way more up to date, and depressing, than mine was. Thanks.

Do you see Americans ever using old bath water to wash clothes? I'll eat cabbage every day, but damn, that bath water thing is kind of gross.

 

[REWahoo]

... it appears to become a little more difficult to get ahead of the Watanabe's.

Groan...

 

[harley]

However, Mr. Volker doesn't like us spending so much. He believes we should take our medicine. I think most on this forum think he's a genius.

I don't see how anyone can argue that American's need to be spending as much as they have in the recent past. Obviously, there needs to be spending, but not to the extent of a zero or negative savings rate and significantly leveraged purchasing. We need to spend, while living at or preferrably below our means. Anything else will just push the problems forward a little in time, to re-occur again in the near future.

 

[riskadverse]

I found this to be a good source of what went on in Japan:

http://www.npr.org/blogs/globalpoolofmoney/images/2009/02/podcast02.02.mp3

 

[Rustic23]

Harley, I tried to find out how government determines the Savings Rate. Wikipedia gives this. 'In economics personal saving has been defined as personal Disposable Income minus personal consumption expenditure. If this is correct than the Savings Rate often touted by the news and politicians is not reflective of true savings. It does not reflect IRA, 401K, Education accounts and many other forms of savings. While I searched, I could not find any charts that showed the change in savings rates with the creation of government programs to defer income from Taxes. As these programs seem to change yearly, I find it hard to place any faith in the 'Savings Rate' currently reported.

Now on a month to month basis, it may be a good comparison. A example was an article that showed that Americans were savings the decrease in gas prices rather than paying off debt. Thus measuring an increase in savings accounts i.e. banks.


http://en.wikipedia.org/wiki/Saving#cite_note-1

 

[ziggy29]

I've frequently heard conflicting stories about whether or not money in retirement accounts are included in the savings rate. "Disposable income" is questionable because from the stand point of taxes, for example, money moved into my 401K and HSA is not "income". The $10K moved into our two Roths for 2008, on the other hand, would be.

So what was our savings rate in '08? Depending on whether you are looking at gross pre-tax income or after-tax income, whether you include company matches to tax-deferred accounts and whether you include tax-deferred contributions and retirement accounts, it was anywhere from 11% to 52%!

 

[harley]

Even if savings rates don't reflect 401(k)s et al, there are other numbers that show that American's don't save very much. I was reading Money magazine recently (I know, but I like porn) and they had a little blurb showing from a Vanguard study that of Americans nearing retirement who have 401(k)s, the average value was $50K. That's not much, even added on top of the controversial savings rate. I know a lot of people in my old j*b that didn't max out, and a number that didn't even get the match. I suspect that even if the specific statistics are arguable, the overall concept is valid. Otherwise I'd know more than 2 other ERs personally.