Is the U.S. Headed Down the Same Path as Japan?

After dealing with European banks during my work with GGP, I have come to the conclusion that most regional, community and even global banks have no where near the capacity and/or expertise to properly evaluate and value the projects/assets that they have invested.

Well, if that is the case, this is their chance to rectify that problem - on the cheap, at least on a relative basis. Here is the broader macro argument for lenders pulling bad debt from under the REIT and CRE industry, thus supporting a bearish thesis for said players.

First: A picture is worth a thousand words:

Instance asset gains and market value stemming from just a small tweak of truth. Financial stocks fly, moving farther and farther from their fundamental values.

Second: We have the obvious manipulation that is occurring in the REIT space (see Here's a Big Company Bailout by the Taxpayer That Even the Taxpayer's Missed!). Zerohedge speculates "Is Goldman Preparing To Upgrade The REIT Sector?"

Third: We have government complicity in the purposeful opacity of the values of the mortgage assets (see the FDIC "Prudent Commercial Real Estate Loan Workouts" guidance issued Oct. 30th, as reported by the WSJ: Banks Hasten to Adopt New Loan Rules and the new FDIC guidance that states performing loans "made to creditworthy borrowers" will not require write downs "solely because the value of the underlying collateral declined").

Fouth: We have a false sense of security that nearly everybody believes should make us insecure, yet somehow we have those long in the markets feelng warm and fuzzy. See You've Been Bamboozled, Hoodwinked and Lied To! Here's the Proof. What Are You Going to Do About It?.

Now, for those who believe that the government's "pretend and extend" policy has any chance in hell of working, or better yet, that we are not following in the footsteps of Japan, let's take a pictorial trip through recent history. There are nearly no Japanese banks in the top 20 bank category on a global basis by 2003 - none (save potentially Nomura (NMR), which arguably survived in name, alone). As you can see, they literally dominated 90% of the space in 1990. (Click to enlarge)

Source: Cap Gemini Banking M&A

Well, are we following the Japanese "Lost Path"? Notwithstanding the damning evidence of hide the truth and hide amongst lies linked to above, ponder the following rather dated, but still quite poignant data:

Source: Nomura on Balance Sheet Recessions

Futures have corrected even farther since this graph was made. As excerpted from a previous guest post on "Animal Spirits."

First consider this chart of Japanese home prices:

Their prices peaked in the middle of 1991 and have declined ever since. We have now seen 18 years of decline. One may then counter that Japan is a one off case due to their poor monetary policy. Well, then what about Los Angeles?

Consider the following chart:

Note, our bubble was bigger, stronger and longer than theirs. Ours has also has considerably more stimulation than theirs. Yet periodically throughout that bubble we saw seasonal upticks, and they were also during the March-June/August time frame.

Our housing prices peaked in December 2005. Through June 2009, that's 3.5 years. Even relative to this smaller bust, we are still in the crash phase, which is then followed by a long tail of lower prices at a diminished rate of decline. Given that our bubble was much bigger and longer in the making, I contend this will be longer if anything, not shorter.

Notice, in some ways, as of 2008 US and Japanese bank losses have been similar. I posit the US losses will end up being much worse. Notice how the chart below references the subprime crisis. I have always alleged, and apparently have been proven correct, in that this is an Asset Securitization Crisis. and by definition is much broader, deeper and more intense than any subprime crisis could ever be.

Source: IMF, Global Financial Stability Report (October 2008), p.16

Japanese asset prices literally collapsed after 1990, but several banks remained in the Global top 20 for some years (reference the second chart from the top of this blog post). Don't be fooled, though. If the value of your assets plunged significantly, your equity and enterprise value are soon to follow.

Here are a few quotes from others who have studied the situation:

• Japan financial minister Watanabe: "Unlike Japan's 1990s crisis, financial risk in the U.S. spread beyond the bank sector to the rest of the financial system, i.e. hedge funds."
• In the May/April 2009 issue of Foreign Affairs, Robert Madsen, a senior fellow at MIT, pointed out that, "Japan’s illness occurred in a relatively benign international environment," with overseas markets hungry for Japanese exports, the yen holding strong, and the government posting a modest surplus. The U.S. is in a very different place, Madsen writes. The U.S. deficit is skyrocketing, and appetite for its exports is weak.
• Economist David Rosenberg at Merrill Lynch: "Japanese consumers had a higher saving rate (13%) going into the 1990s crisis than Americans had going into the present crisis. In the USA, there is no high savings rate to wind down in support of consumption. It's been more than 25 years since the U.S. savings rate was anywhere close to where it was in Japan at the onset of its multi-year real estate deflation and credit contraction."
• Analyst Koyo Ozeki of PIMCO: "One factor that probably helped stem the default rate on home mortgages in 1990s Japan despite the sluggishness in the economy was the relative employment stability, thanks to the system of lifetime employment." [as opposed to 10%+ employment here in the states]
• Analyst Masamichi Adachi of JPMorgan: "Reliable valuation is key to solving financial instability. A key underlying issue through Japan's lost decade was a distrust of valuations of land prices and NPLs. This issue applies to the current global credit situation too, i.e. valuations of structured finance products and of likely losses at financial institutions." [reference the first graph at the top of this post, and then wonder why no one trusts the banks, even the banks themselves!]
• Analyst Takehiro Sato of Morgan Stanley: "During a liquidity crunch, market players retain cash regardless of the level of interest rates and do not supply funds to external parties during a sharp rise in credit risk. Monetary easing alone won't expand credit or stop collateral values from falling...However, unconventional measures (such as nationalizing corporate debt) are still an option." [reference the chart below]
• Central Bank of Cyprus Governor Athanasios Orphanides: "Low or zero interest rates alone do not indicate a liquidity trap as long as there are assets in the economy that the central bank can purchase with money." [Bernanke read these notes!]
• Analyst David Rosenberg of Merrill Lynch: "Fiscal stimulus in 1990s Japan was a band-aid, not a solution. All the stimulus did was prevent an even greater decline in real GDP. As for monetary policy, aggressive moves to boost the money supply are offset by the contraction of private sector credit as money disappears into debt elimination. Reflationary monetary policies are merely going to minimize destabilizing deflation pressures."

So, how's it looking across the Pacific over here in the good 'ole US of A? As excerpted from, and sourced with the assistance of RGE Monitor:

• The National Federation of Independent Business (NFIB) Index of Small Business Optimism posted a modest gain of 0.3 points to reach 89.1 October 2009 after remaining largely flat in September. Small business owners reported weak sales as the biggest cause of concern and a net 40% of firms reported a negative profit trend. Plans to increase employment remained negative in October, but improved over September. Firms continued to liquidate inventories in October. Plans for capital expenditure over the coming months fell, and as of October, stood 1 point above the 35 year record low reached in August. (National Federation of Independent Business, 11/11/09)
• Demand for loans remains weak as a result of a delay in restocking and capital expansion plans. The net percentage of borrowers reporting tighter access to credit remained high at 14% in October, and firms reported high rejection rates. (National Federation of Independent Business, 11/11/09)
• Melinda Pitts, Research Economist, Federal Reserve Bank of Atlanta: When national employment levels were expanding since 1992, small firms operating with under 50 employees accounted for one-third of the employment growth. While in the 2001 recession, these firms accounted for only 9% of job losses, in the current recession, they have accounted for 45% of job losses. If the financial constraints are a major contributor to the disproportionately large employment contractions for very small firms, then the post recession employment boost these firms typically provide may be less robust than in previous recoveries. (Macroblog, 10/06/09) [which portends significantly longer lasting unemployment than I think many are even coming close to pricing in]
• According to a New York Times report on October 12, 2009, many small businesses are struggling to get bank loans, which is constraining expansion plans. While the credit squeeze from banks reflects risk aversion as lenders confront economic uncertainties, the banks say that the tight credit conditions stem from weak borrower performance rather than a reluctance of banks to make loans. (NYT, 10/12/09) [exactly as experienced in Japan, seen via the chart above. This is exacerbated by major sources of small business loans going bankrupt - reference Retailers Fear Impact of a CIT Bankruptcy - washingtonpost.com and CIT Bankruptcy Filed: US Will Likely Lose $2.3 Billion, Goldman ...]
• Dennis Lockhart, President, Federal Reserve Bank of Atlanta: Banks with the highest exposure to commercial real estate loans also happen to account for 40% of all loans going to small businesses. The potential impact of the commercial real estate problem on the broader economy remains a concern. Commercial real estate could be a factor that suppresses the economic recovery by impairing the ability of small banks to support the small business sector, which is critical for job creation.
• William C. Dunkelberg and Holly Wade: Financing is cited as the most important problem by only four percent of NFIB’s member firms. Enhancing SBA lending programs will not help as too many owners have no reason to borrow. "Record low percentages cite the current period as a good time to expand, more owners plan to reduce inventories than to add to them, and record low percentages plan any capital expenditures. In short, the demand for credit is in short supply and failing to understand the more major problems facing small business leads to bad policy." (National Federation of Independent Business, 11/11/09)
• According to the October 2009 Federal Reserve Senior Loan Officer Survey, lending standards for commercial and industrial loans for smaller firms (with annual sales less than US$50 million) continued to tighten, though at a slower pace as compared to July 2009. About 16% of the surveyed banks reporting tighter lending standards for loans to smaller businesses. 55% of respondent banks reported lower demand for commercial and industrial loans from small businesses. 44% of the surveyed banks reported weaker demand for commercial and industrial loans in Q3 2009, with 40% of the surveyed banks attributing the weakness to lower investment in plants or equipment. (11/09/09)
• Jan Hatzius, Economist, GS: Indicators that reflect the performance of small businesses look significantly weaker, like the National Federation of Independent Business (NFIB) small business index. The household survey of employment, which does not contain a small business bias unlike the establishment survey, shows an average loss of 140,000 jobs per month over the establishment survey. Standard economic indicators such as nonfarm payrolls, factory orders, shipments and the ISM extrapolate from the behavior of larger firms to the behavior of the aggregate economy and may be overstating economic activity at present. "Although both the economy and the financial markets are in much better shape than they were earlier this year, we are far away from a V-shaped recovery." (via the October 13, 2009 Report: "The Small Business Slump, and Why It Matters")
• Jan Hatzius, Economist, GS: The economy might have grown between 0.5 to 2 percentage points more slowly than indicated by the advance Q3 2009 estimate of 3.5% annualized real GDP growth, because of the inability of official estimates to capture the unusually poor performance of small firms. Even if this is correct and shows up in the revision data, it could take several years.(via the November 11, 2009 Report: "Small Firms and GDP Measurement")
• William C. Dudley, President, Federal Reserve Bank of New York: “For small business borrowers, there are three problems. First, the fundamentals of their businesses have often deteriorated because of the length and severity of the recession—making many less creditworthy. Second, some sources of funding for small businesses—credit card borrowing and home equity loans—have dried up as banks have responded to rising credit losses in these areas by tightening credit standards. Third, small businesses have few alternative sources of funds. They are too small to borrow in the capital markets and the Small Business Administration programs are not large enough to accommodate more than a small fraction of the demand from this sector.” (10/05/09)
• Apart from the traditional interest rate channel of monetary policy transmission, the effects of monetary policy are argued to work through a separate “bank lending channel” – the effect of policy changes on the supply of credit by banks. Mark Thoma, Economist’s View Blog: While large firms can raise credit from non-bank sources such as the issuance bonds and commercial paper, small businesses are dependent on bank lending for credit. The effect of a credit or policy shock on borrowing by large and small firms is thus asymmetric, and can cause small firms to contract activity more sharply. Tight credit conditions for small businesses are suggestive that the bank lending channel has been important in this recession. (10/13/09)

This really calls into question the usefulness of broad GDP reports in anticipating asset value recovery after a land bubble bust. See, "Who are ya gonna believe, the pundits or your lying eyes?" (for pictures), "Who are you going to believe, the pundits or your lying eyes, part 2" (for numbers and a very shaky video) and Boo!!! Will Halloween Scare the Market into Respecting the Fundamentals? for an idea of what needs to be cleared up in this space before we move forward.

And read this -- Treasury Sales Smash Record - WSJ.com: Oct 30, 2009 -- For all the concern over Washington's deficits and its $12 trillion debt load, the US demonstrated this week that it retains the capacity to.

Now check out the chart below and tell me if this calls anything to mind...

If we do follow the path of the Japanese (and thus far I see nothing but similarities except for where Japan was in better shape than the US, save sume structural rigidity) one can be rest assured that their will not be a big future in lending and fixed income products...

If our situation is indeed more intense than the Japanese, then it can easily be surmised that to exist stimulus before Midterm Elections next year will push us back into recession. Who wants to take that bet?

According to Nomura, although the US and Japan may be (have been) successful in bolstering the money supply through government action, that money acts very, very differently during a balance sheet recession.

The logic behind the debasement of the dollar? According to the most popular school of thought amongst the academics, it is unavoidable.

I will suggest congress force the three main ratings agencies to post this disclaimer everywhere their name or logo appears.

The graphic comes from the Nomura report linked above.

Bankers, if you are not yet convinced it is time to take the first mover advantage on some of those rotting CRE assets, then I don't think you will be convinced at all.

Disclaimer: Assume I am short anything I am bearish on.

Comments

[eatthis:]

thanks for another thorough article and compelling argument. i have yet to read the entire post, printing it out now!

my only thought is that we need to be careful of comparisons with japan since, as i understand it, japan was quick to raise rates and much more hawkish than this fed will be. also, since other countries are slowing down with us and also lowering rates, the coordinated effort will change the macroeconomic results. i truly think we are in uncharted waters.. and i have a hard time believing that it will end in a v bottom as we are now seeing.

Nov 13 10:33 PM

[Mad Hedge F...:]

there's no comparison. Look at the world’s worst population pyramid, that for Japan. These graphs show that a nearly perfect pyramid drove a miracle stock market during the fifties and sixties which I remember well, when Japan had your model high growth emerging market economy. That changed dramatically when the population started to age rapidly during the nineties. The 2007 graph is shouting at you not to go near the Land of the Rising Sun, and the 2050 projection tells you why. By then, a small young population of consumers with a very low birth rate will be supporting the backbreaking burden of a huge population of old age pensioners. Every two wage earners will be supporting one retiree. Think low GDP growth, huge government borrowing, deflation, and a terrible stock and housing markets. Dodge the bullet.

Nov 13 10:39 PM

[bob adamson:]

Mr. Middleton, I would be the first to agree with you that, if the governments and central banks of the US, UK and other global investment banking centres simply tried to resolve the current crisis by what you so elegantly describe as a policy of ‘pretend and extend’, then the ‘best’ that might be achieved would be a transitory return of a weak approximation of the economic situation of 2005 soon followed by an even deeper and more intractable collapse than that threatened but dodged in October of 2008. On the other hand, I see no gain for anyone if the banks all now started rushing for the exits (i.e. “time to take the first mover advantage on some of those rotting CRE assets”); that would simply precipitate a panic.

I see the stimulus steps of the past 18 months or so as simply a first necessary step on the road to recovery, not a panacea that alone will resolve the many problems to be faced. Stimulus was vital to calm the panic of October of 2008 and stabilize a global economy that was on the very edge of implosion into a deep uncontrollable deflationary depression of indeterminate duration. The long and difficult task of reform remains now that calm and stability, however fragile, have returned.

Nov 14 01:59 AM

[TradingHelp...:]

Good article thanks. I think Japan had one problem that the US does not have - a lack of flexibility. But Japan'a balance sheet is stronger. I think we'll see the US recovery persist but as the structural problems remain we can be pretty sure another very nasty recession is coming some years hence. If you have the time I recommend a review of a very good 118 page market report available via:

tradinghelpdesk.ning.c...

Nov 14 04:47 AM

[nobby73:]

The similarity between the US today and Japan at the start of the Nineties are limited to the collapse of the real estate market and toxic assets on the bank balance sheets. Even though everyone talks of the lost decade in Japan, the country still benefited from very strong export sector and to this day is the largest net creditor nation. I am still not sure what the term "lost decade" means - that the Nikkei did not recapture the pre-bubble heights? Pretty hard to do that without a good dose of inflation, which you will never get without higher rates and a falling currency. Was it that property prices never reached the previous levels? Well, the Japanese realized the madness of that period was not sustainable.

All I know is whatever path had been taken by the Japanese economy post 1990, it could have been a lot worse. Unemployment never reached 20% like the US faces, the JGB market never faced exploding yields. Japan may have experienced sluggish growth, but there was growth, there was no depression and there was no collapse in living standards.

Many pundits take the view that the US must avoid the Japanese experience of the "Lost Decade" at all costs, but we would be wise to remember that there are many possible futures that are far worse than that.

The greatest concern for the US should be that, as indicated by the latest trade data, any "recovery" fueled by rate cuts, tax cuts or other form of stimulus will merely exacerbate the external deficit (which Japan does not have) and the level of indebtness, which is already at a comparable level to Japan nearly 20 years into their "lost decade".

Is the US headed down the same path as Japan? Probably not, but in 10 years time, they may wish that they had been....

Nov 14 07:29 AM

[john s. gordon:]

yes reg all rating agencies should be required to display your notice.

japan - story on the tube yesterday about how JAL balance sheet is being eaten alive by required payments to retirees.

'govt complicity in purposeful opacity of mortgage asset values' - certainly describes the problem, or that part of the problem.
> jack

Nov 14 09:30 AM

[jerrydd:]

Several details. The banks have or will receive 2 yrs of mortgage payments making their losses much lower and RE prices have come back up in most markets.

Now add we can now let banks fail as we are no longer on the edge of a depression and things are not as bad as thought by the author.

What is needed now is a good job program by lending small business the money needed for start ups, etc would increase market values by making the economy better.

Here is mine.


Here is how to do this better for jobs. We can have a stimulus that costs almost nothing to the taxpayer, in fact paid a lot by Iran, Russia, oil dictators!!

How is start up loans for RE companies and energy eff ones. Let most anyone with a good business plan through the SBA get start up loans to build or install homes. small business size windgenerators, solar CSP unit, CHP, small lightweight, aero 3 wheel EV's, etc. Then loans to buy, install, etc these.

Loans for home, building eff upgrades from windows, insulation, etc are next. This would put construction, material workers back to work.

Banks have shown they won't loan so other methods may be needed.

All these can be paid for in energy savings in 5 yrs so no new income costs either. This will create about 3 million jobs directly and probably 6 million indirectly of people supporting them.

Next is a fossil fuel tax to pay their full cost of the direct, indirect subsidies we already pay in our income tax, health care, etc. it's time those who make, benefit from those costs to pay them It should be a $1.50/gal on oil and about double the price of coal.

But you say a tax will kill the economy. Not if it's put in over 2 yrs at 4% each month and loans given to buy more eff cars, etc to cut people's costs. Switching trucks, semi's to NG is very cost effective now being under 50% of the cost of diesel/gasoline. This can in 5 yrs cut imported oil needs.

The beauty of this is oil, coal will drop in price making Iran, Russia, oil dictators pay most of the oil tax, coal is only 25% of your electric bill so it won't go up much.

But new, more eff cars, trucks, EV's, PHEV's and mass transit will create more new jobs too.

The fossil fuel tax revenue, 1/3 would go to a tax cut so those people paying it have the extra money needed if they continue to use the same amount or better, use less and have extra income, the more likely outcome. 1/3 to to help switching to more eff cars, trucks, homes, buildings and 1/3 to balance the budget fossil fuels have been a large part in making.

So this program would have a net increase of about 8-10 million jobs of both direct and supporting those who have the new jobs, solve our imported oil problem, let us leave the Persian gulf between the 2 are about $1T/yr in a few yrs if we don't, stop subsidizing our enemies, oil/coal corporations and balance the budget.. All at little cost to the gov, in fact get rid of our debt on our children and make our country strong again.

Or we will be broke, at war, our enemies strong and we will be weak. To me it's the only real patriotic way to go

Nov 14 11:48 AM

[ryanclarke:]

Japan got away with the ZIRP policy for twenty plus years for two reasons:

(1) Crude oil was not priced in terms of Yen, and the Japanese economy used what crude they imported more "efficiently" than the U.S. can ... mostly because Japan has less land mass than the U.S.

(2) Japan could use their weakened currency to their export advantage. The primary reason why Toyota was able to "overcome" the U.S. auto makers ... in the United States ... was because of the Bank of Japan's decision to trash the Japanese currency ... and provide Toyota, Honda, Nissan, etc. with an "unpublished" advantage ... which worked for both Japan's auto makers and NYC's Wall Street.

The U.S. has neither an export market nor a new source of energy to bypass the two reasons that kept Japan afloat for twenty plus years. As much as Bush and Obama would like to export Intel chips or GE engines to China ... the Chinese will not allow it ... based on the past ten years ... nor will the Saudis continue to give their "oil wealth" away to the U.S. ... as they did from 1985-2000 ... in order to receive "protection" from the U.S. and promote stability in the Middle East.

Nov 14 12:55 PM

[ryanclarke:]

Jerrydd wrote, "Switching trucks, semi's to NG is very cost effective now being under 50% of the cost of diesel/gasoline. This can in 5 yrs cut imported oil needs."

My reply is please don't forget, Jerrydd, "increased use of natural gas will 'naturally' increase the price of such methane." WHEN GASOLINE AND DIESEL WERE 'DISCOVERED' in the 19th century ... there was little use for such a 'chemical compound,' and for the most part it was thrown away until ... Ford and Diesel were able to mass produce their engines. Both Ford and Diesel thought as you did ... the supply of such energy was 'overtly abundant' and would be so cheap ... such energy would last "FOREVER!"


On Nov 14 11:48 AM jerrydd wrote:

>
> Several details. The banks have or will receive 2 yrs of mortgage
> payments making their losses much lower and RE prices have come back
> up in most markets.
>
> Now add we can now let banks fail as we are no longer on the edge
> of a depression and things are not as bad as thought by the author.
>
>
> What is needed now is a good job program by lending small business
> the money needed for start ups, etc would increase market values
> by making the economy better.
>
> Here is mine.
>
>
> Here is how to do this better for jobs. We can have a stimulus that
> costs almost nothing to the taxpayer, in fact paid a lot by Iran,
> Russia, oil dictators!!
>
> How is start up loans for RE companies and energy eff ones. Let most
> anyone with a good business plan through the SBA get start up loans
> to build or install homes. small business size windgenerators, solar
> CSP unit, CHP, small lightweight, aero 3 wheel EV's, etc. Then loans
> to buy, install, etc these.
>
> Loans for home, building eff upgrades from windows, insulation, etc
> are next. This would put construction, material workers back to work.
>
>
> Banks have shown they won't loan so other methods may be needed.
>
>
> All these can be paid for in energy savings in 5 yrs so no new income
> costs either. This will create about 3 million jobs directly and
> probably 6 million indirectly of people supporting them.
>
> Next is a fossil fuel tax to pay their full cost of the direct, indirect
> subsidies we already pay in our income tax, health care, etc. it's
> time those who make, benefit from those costs to pay them It should
> be a $1.50/gal on oil and about double the price of coal.
>
> But you say a tax will kill the economy. Not if it's put in over
> 2 yrs at 4% each month and loans given to buy more eff cars, etc
> to cut people's costs. Switching trucks, semi's to NG is very cost
> effective now being under 50% of the cost of diesel/gasoline. This
> can in 5 yrs cut imported oil needs.
>
> The beauty of this is oil, coal will drop in price making Iran, Russia,
> oil dictators pay most of the oil tax, coal is only 25% of your electric
> bill so it won't go up much.
>
> But new, more eff cars, trucks, EV's, PHEV's and mass transit will
> create more new jobs too.
>
> The fossil fuel tax revenue, 1/3 would go to a tax cut so those people
> paying it have the extra money needed if they continue to use the
> same amount or better, use less and have extra income, the more likely
> outcome. 1/3 to to help switching to more eff cars, trucks, homes,
> buildings and 1/3 to balance the budget fossil fuels have been a
> large part in making.
>
> So this program would have a net increase of about 8-10 million jobs
> of both direct and supporting those who have the new jobs, solve
> our imported oil problem, let us leave the Persian gulf between the
> 2 are about $1T/yr in a few yrs if we don't, stop subsidizing our
> enemies, oil/coal corporations and balance the budget.. All at little
> cost to the gov, in fact get rid of our debt on our children and
> make our country strong again.
>
> Or we will be broke, at war, our enemies strong and we will be weak.
> To me it's the only real patriotic way to go

Nov 14 01:02 PM

[Gary A:]

Mad Hedge, that sounds like the US to me. Where did all the illegals go who were building our homes? They can't make it here so they left. People are putting off family formation here, and we have some parallels to Japan. A jobless recovery is in your dreams Mad Hedge, because other people want our exports less than we wanted Japanese exports.

This is what is wrong with bankrupt America. The ponzi housing scheme allowed by the Fed wiped out the US consumer. Now the government policy is to ignore the US consumer. No bailout for him. And the government thinks our economic salvation is in foreign buyers of our goods, yet the golden goose of world prosperity has been the US consumer.

Larry Summers is behind all this and he is a total moron. Deleverage yourselves: dontpaycreditcards.com


On Nov 13 10:39 PM Mad Hedge Fund Trader wrote:

> there's no comparison. Look at the world’s worst population pyramid,
> that for Japan. These graphs show that a nearly perfect pyramid drove
> a miracle stock market during the fifties and sixties which I remember
> well, when Japan had your model high growth emerging market economy.
> That changed dramatically when the population started to age rapidly
> during the nineties. The 2007 graph is shouting at you not to go
> near the Land of the Rising Sun, and the 2050 projection tells you
> why. By then, a small young population of consumers with a very low
> birth rate will be supporting the backbreaking burden of a huge population
> of old age pensioners. Every two wage earners will be supporting
> one retiree. Think low GDP growth, huge government borrowing, deflation,
> and a terrible stock and housing markets. Dodge the bullet.

Nov 14 01:47 PM

[perceptions...:]

It is correct to say that the US today is different to the Japan of 1990-2009

However, and risking the possibility of graphics overload, there are some interesting graphs at the following site -
georgewashington2.blog...

That said and whilst there are differences, there are also some similarities. Yes, Population Aging is a common factor and Yes, Real Estate & Share Market declines are also common factors.

In terms of differences, the Japanese were the Canary in the Mine, they were the first to experience this modern population Aging & subsequent decline, so outside intervention & assistance was possible. And, whilst they were & still are a large Global economic player, they were not like the US, the largest Global economic player, by a long, long way!

Also, the Japanese only had to fight off the loss of one major economic driver, that being the Aging of their Population and the subsequent Population decline. In the current event, the US & the rest of the Planet, are facing similar population issues, but now there is the added dimension of losing the 2nd of the three major economic drivers, that being the loss of a Cheap & Abundant source of Energy, Fossil fuels if you will, Oil in particular.

The is no doubt a great deal of disagreement on this issue, but the Conventional Production/Extraction of Oil has effectively Peaked in 2005, as since then it has failed to keep up with Demand, Inflation & Population Growth!

Events are seldom simple repeats of history and this event is no repeat of Japan in the Nineties.

Whilst some of the inputs may seem similar, when viewed with historical 20-20 vision, the current event outcomes will clearly be a once in history event

Nov 14 09:10 PM

[The Khan:]

For years I have been hearing about how the much-vaunted US "flexibility" means comparisons with Japan are irrelevant. Ditto Japanese "structural rigidity". The implication seems to be that superior US governance will bring us through. Well, US governance doesn't look too bloody superior to me. Doesn't look like much more than a bunch of corrupt, incompetent, complacent, hubris-blinded fools, fiddling away while the country burns, as far as I can see.

As several people say above, in a few years time we might just be wishing we had done as well as Japan in its "lost decades" .

Nov 14 10:32 PM

[GreenMom:]

Mr. Middleton, absolutely love your research and visit boombustblog regularly. Thanks for all that you do to warn and educate, keep it up! What do you think of Jamie Dimon's comment late last week about "no more too big to fail?" Very curious for a big bank CEO to talk like that. I wonder what's up... I wonder if he sees a tsunami coming that we could never pay for.

As Obama stood next to Japan's Prime Minister Yukio Hatoyama this weekend, I could hear Dylan's "Like a Rolling Stone" playing in my head... as if all of Japan was singing it to the USA...

Once upon a time you dressed so fine
You threw the bums a dime in your prime, didn't you?
People'd call, say, "Beware doll, you're bound to fall"
You thought they were all kiddin' you
You used to laugh about
Everybody that was hangin' out
Now you don't talk so loud
Now you don't seem so proud
About having to be scrounging for your next meal.

www.bobdylan.com/#/son...

Nov 15 12:56 AM

[LCACM:]

Japan was the first country to suffer the onslaught of unfair trade practices by Communist China. In a way Japan got a taste of their own medicine. Japan had been running trade surplusses with the West for a number of years but the Western countries were able to absorb this due to the relatively smaller size of the Japanese population. When China got into the fray with it's 1.3B slave workers, it saturated the marketplace leaving no room for Japanese exports. The bubbles happened in the housing market for 3 reasons. Firstly housing market is one of the most leveraged of all markets, so prone to problems. Secondly, housing was one of the few market which was relatively free of Chinese depredation . Thirdly the Chinese supplied the liquidity for the bubble by recycling the trade surplus dollars into financial instruments. Since the main driver for the fiasco is China not only US but other countries are likely to face a fate worse than that of the industrious Japanese.

Nov 15 02:00 AM