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America: A Mirror Image Of Japan 15 Years Later?

By Michael Lombardi, MBA for Profit Confidential

We need to learn from this example…

Similar to the U.S. economy, only years earlier, the Japanese economy also burst following a boom in real estate prices. To help revive its economy, the Bank of Japan brought interest rates to near zero in 1999 and has done several rounds of quantitative easing since. The central bank of Japan has increased its balance sheet to 166 trillion yen. (Source: Wall Street Journal, March 21, 2013.)

But all this monetary stimulus-interest rates near zero for years and lots of money printing-has helped the Japanese economy. In fact, global exports from the Japanese economy fell 2.9% in February 2013 from February 2012. This is important because it shows how the Japanese economy is struggling even after implementing unheard of monetary policy intended to bring economic growth to the country-similar to what the Federal Reserve is doing now in the U.S.

February marked the eighth consecutive month of slowing exports and an increasing trade deficit (more imports than exports) for Japan-the biggest streak of trade deficits since 1980. (Source: Bloomberg, March 21, 2013.)

Japan's national debt to gross domestic product (GDP) stands at about 204% of GDP-this shows you just how easy monetary policy has been in Japan.

The Japanese economy should be looked upon as a good example for the Federal Reserve to see how its monetary policy will play out in the U.S. economy.

What has this done for the Japanese economy with all its paper money printing? Not much, to say the least. Since 1998, wages in the Japanese economy are down seven percent, property prices are down 51%, and tax revenues are down 14%. The Japanese economy has lost its status as the second-biggest economic hub in the world to China.

The Japanese economy is proof that aggressive paper money printing will not stimulate an economy.

At home, the Federal Reserve is still planning to buy $85.0 billio… Read More