U.S. Versus Japan Versus South Korea

Includes: KEF, KF
by: TraderMark

Another in our search for countries who took their tough medicine, did not "kick the can" down the road, and now have a much easier long-term outlook than the United States. Who (of course) is not at all like Japan... just ask our leaders.

The irony here folks, for those of you who were not following things a decade ago, is there was a major currency crisis in the late 90s which started in Thailand. Many Asian economies took very hard hits. What happened next? America swooped in (along with the IMF) and handed out advice: make hard decisions which inflict pain in near term, shore up your budgets, cut debt... then we'll help you. It's very easy to talk when you don't walk in their shoes. Now the great irony is the US was correct in their advice.

But the next irony - we will not take our own advice. Because we don't like pain.... it is not politically convenient. Plus we're America - we don't do pain. So we'll follow the Japan experience although in magnitude that makes Japan look like a sissy. Because that's what superpowers do.

Just remember as long as the stock market goes up due to a flood of liquidity, it is "saying" this is the correct course of action. All is right in the world, until we look back in a few years and shake our heads. Similar to how the market was up and "saying" all was right in the world in the middle part of the decade. Until we look back now. Although this time around we can begin shaking now...

We looked at how the conservative actions of Chile in boom times helped them weather the storm [May 28, 2009: WSJ - Prudent Chile Thrives Amid Downturn] - today we'll take a quick look at South Korea which (was forced) to make some very tough decisions a decade ago. Decisions we're going to skip.

Via Bloomberg

  • Nouriel Roubini, Dr. Doom himself, has found an economy even he can love: South Korea. That might sound surprising for a nation in the news for the wrong reasons. North Korea’s nuclear test, the suicide of former President Roh Moo Hyun and stock-market-bubble worries are making for some very ugly headlines this week. Getting Roubini’s seal of approval has been a rare and welcome news- cycle counterpoint.
  • Recent Korean data “suggest there is the beginning of an economic recovery, and growth might be already positive in the second quarter,” Roubini said at a May 27 conference in Seoul.
  • And there are ....reasons the world should be paying more attention to Asia’s No. 4 economy. One, the lessons larger economies can draw from its experiences.
  • The reason Roubini says Korea may grow more than 1.5 percent next year is the economic-policy changes made over the last 10 years. The 1997-1998 Asian crisis seemed like a curse at the time. It devastated the nation of 49 million and forced the government to accept a humiliating International Monetary Fund bailout.
  • Today, that experience is proving to be a blessing in disguise.

Now the magic... sit down for this.

  • The government assessed the magnitude of its problems and admitted how bad things were.

Keep sitting...

  • It allowed weak companies and commercial and merchant banks to fail.

Please don't get up, I know this is hard to take since "We're #1"

  • It acted quickly to rid balance sheets of bad assets.
  • As a result, Korea was the first Asian economy to recover from the crisis and repay the IMF.

Contrast and compare?

  • Economists pondering how bad things might get in the U.S. tend to look at Japan. More insights may be found in Korea.
  • Even though they are spending trillions of dollars stimulating the economy, U.S. officials remain in denial. Adding liquidity isn’t enough. Steps to restore confidence and trust among corporate executives, investors, and consumers are far more important. Korea did it. The U.S. still needs to.

Korea is of course not perfect - all the world appears addicted to the US consumer... many other nations have this major problem. Their people save their money and don't spend every last penny. Hence they need the Americans to be... well, American.

  • Korea has its problems, not least of which is weak domestic demand. Korea still needs to wean its $970 billion economy off the U.S. consumer.
  • In the meantime, Korea is standing its ground better than wealthier Japan. Officials in Tokyo reveled in Japan’s exclusion from Asia’s meltdown, yet we see today that Asia’s biggest economy is experiencing that crisis -- just in slow motion.

Now let's look at what Japan did, and as you read this click your heels 3 times and repeat "We're Not Japan; We're Better than That" [

Feb 26, 2009: NYT - When Consumers Cut Back - An Object Lesson from Japan

] [

Feb 8, 2009: NYT - Japan's Big Works Stimulus is a Lesson


  • Massive government spending and zero interest rates kept Japan afloat. (sounds vaguely familiar, not sure where I can place the parallel)
  • They also delayed reducing overcapacity in most business sectors, raising productivity, getting a handle on public debt, opening the financial sector, attracting more foreign investment and revamping the tax system. (still trying to think where I've heard this before... which country... hmm...)
  • Exports and public largess avoided disaster. Now, the lack of reform is leaving Japan uniquely vulnerable to the global recession.

Oh well, can't really place what country Japan reminds me of. [

Feb 9: FT.com's Martin Wolf - "We'll Be Lucky if Downturn is Only as Bad as Japan's

] The dogma has the name blocked. All I know is we're #1 - now I need to get to the mall....


Jan 11, 2009: WSJ - America's Hard Hit Families Finally Start Saving, Aggravating Nation's Economic Woes



Dec 29, 2008: What Happens if America Returns to a Historical Savings Rate?



Nov 17, 2008: Poverty, Pension Fears Drive Japan's Elderly Citizens to Crime



Oct 28, 2008: Pooring of Japan Too?



Oct 27, 2008: Japan's Lost Quarter Century



Oct 7, 2008: 2000s Stock Market Worse than 1930s



Sep 20, 2008: US News & World Report - The End of the Shopaholic Nation?


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