Could the U.S. Economy End up Like the one in Japan?

[Retire Soon]

Mr. Yen (Eisuke Sakakibara), the former Japanese Deputy Minister of Finance who is now a university professor believes that there are strong parallels between the current crisis in the U.S. economy and what Japan experienced when their chronic financial problems first began in the early 90's. Much like the U.S., Japan's problems began in the mortgage sector and quickly spread to commercial banks and security firms. In the financial markets problems spread very rapidly. The Fed is reacting to these problems by implementing policies piece by piece and unfortunately, much like Japan was, we are behind the curve. Mr. Yen believes that rather than attack the problem piecemeal, that what authorities really need to do is defend the financial system as a whole. We have passed the point of moral hazard in our concerns of bailing out bad performers. Much like Japan, suggestions of a taxpayer bailout will be met with strong public and private resistance, however, it will be eventually become inevitable. Real estate prices in the U.S. could stagnate far into the future. Personally, I believe there is a possibility that Mr. Yen may be right. Why is it different for the U.S.?

'Mr. Yen' sees U.S. policy makers as behind the curve - Los Angeles Times

 

[chinaco]

Yes, some similarity according to a few.

But we responding differently than the Japanese... we are doing the write-downs.

 

[jazz4cash]

Defending the system as a whole is politically awkward...someone will have to admit there's a systemic problem and/or assign responsibility (perish the thought). Much much easier to make a few tweeks and yell "everythings OK, now folks...don't pull that curtain back"

 

[tryan]

Here's an interesting read regarding the direction of the gov. bailout.

The government would then sell the loans back into the credit markets at a lower price, while offering new, more affordable loans to the borrowers. The new loans would reflect the true, current value of the home and give homeowners a chance to begin building equity again.

Basically only primary residences qualify and the gov. would take an equity position in the home which could/would/should be sold on the secondary market. My guess is the second/third position Uncle bought on the upside down mortgage will be WORTHLESS ... thereby making this the tax payer bailout we all feared.

I say let'em rent after being foreclosed.

Mortgage relief proposals advance - Eye on the Economy - MSNBC.com

 

[al_bundy]

i hope so

RE in japan is so expensive people live with parents until they are like 40 and spend all their money on tech toys, which is why all the cool stuff goes there first

 

[bssc]

One of the articles I remembered reading was when the crisis hit in the 90s that the Japanese started saving even more to have a nest egg. This reduced demand for lots of things. I don't see that happening in the US.

 

[nepo]

Japan as an exporter nation with a trade surplus had a severe problem with deflation. The USA is an importer nation and has a huge current account deficit and inflation problem (unless you believe the government stats) and has a currency losing its value. Those are important differences from the macro point of view. There's very little use of trying to predict what is going to happen here based on what happened in Japan. In other words, this is uncharted territory brought about by high risk financial dealings compounded with absurd leverage.

 

[rayvt]

A major difference between the US and Japan hasn't been mentioned. Demographics.

Japan is losing population. They are not having children. Their population replacement rate is only 1.32--far below the 2.1 needed to maintain the population even.

 

[spazz]

A major difference between the US and Japan hasn't been mentioned. Demographics.

Japan is losing population. They are not having children. Their population replacement rate is only 1.32--far below the 2.1 needed to maintain the population even.

Both the U.S and Japan have low dependency ratios (people leaving the labour force- ie retiring), however, the Japanese are still net savers whereas, in the U.S., all we do is spend and get into more debt!

 

[trixs]

The one benefit America has going for it is the influx of immigrants. As long as we can continue to grow and not have the majority of the population collecting SS... Well hopefully we will be alright.

As a precaution you should probably hold some international equities lol

 

[Spanky]

T.. As long as we can continue to grow and not have the majority of the population collecting SS... Well hopefully we will be alright.

or collecting government pensions

 

[Spanky]

i hope so

RE in japan is so expensive people live with parents until they are like 40 and spend all their money on tech toys, which is why all the cool stuff goes there first

so you are hoping this?

 

[Slarty]

I think that the demographics of the US is going through a down cycle for a decade or so and the baby boomers will need to start hyper saving soon since they are so far behind on retirement equity. This puts us on a cliff edge where we could easily fall into a Japan scenario all too easily. It's not happening this way today, but how can baby boomers not switch into saving mode soon? They are making and spending most of the money now so it would have a big effect.

 

[spazz]

This puts us on a cliff edge where we could easily fall into a Japan scenario all too easily. It's not happening this way today, but how can baby boomers not switch into saving mode soon?

Countries with high govt deficits generally lead to higher consumer savings down the road. Unfortunately, this isn't happening now. Perhaps todays consumer aren't as foward thinking as they once where.

 

[bpp3]

RE in japan is so expensive people live with parents until they are like 40

No they don't...

(Certainly in my house that won't happen!)

 

[barbarus]

This puts us on a cliff edge where we could easily fall into a Japan scenario all too easily. It's not happening this way today, but how can baby boomers not switch into saving mode soon?

Countries with high govt deficits generally lead to higher consumer savings down the road. Unfortunately, this isn't happening now. Perhaps todays consumer aren't as foward thinking as they once where.

Makes sense.

Save money in an environment where real rates are negative.
Save and lose money.
Savers have been providing the funding for the economic excesses of the country since AG crashed interest rates in the early part of the decade.

Come on grandma & grandpa, let's make a CEO uber rich!!