David Rosenberg on America’s Turning Japanese
by Edward Harrison
The US post-bubble experience is often compared to the Japanese post-bubble experience. I have written a number of posts on the Japanese experience myself. Here are a number from 2008:
- A cautionary tale: story from 1994 Japan: The Japanese housing bubble continued to deflate long after the bubble economy first started to unravel in 1990. For example, Japanese households which bought bargain houses in 1994 found themselves quickly underwater and trapped in negative equity. This reduced labour mobility and increased structural unemployment.
- Chart of the day: Japan 1984-2004: Secular bear markets can last a very long time. In the U.S., nominal losses in the last secular bear market (1966-1982) were mitigated by inflation. But losses approached Great Depression proportions on an inflation-adjusted basis. In Japan, the nominal losses have not been mitigated by the money illusion of inflation despite quantitative easing.
- Quantitative easing: printing money like mad to ward off deflation: This policy remedy was tried in Japan – unsuccessfully. Yet, many believe it will work in the U.S. QE may reinvigorate animal spirits but the structural problems and the zombie banks still remain to re-appear in the next recession. I would expect the same for the U.S.
- Japan’s easy money policy was the trigger for the tech wreck: Excess liquidity from policy stimulus and quantitative easing in Japan created the carry trade and contributed to bubbles worldwide without reflating the Japanese economy.
- Lessons from Japan’s Bank Crisis: Regulatory forbearance and bailouts lead to zombie banks. The Japanese tried this approach to be much less satisfactory than the Swedish approach of recognizing and writing down losses more quickly.
- Turning Japanese and understanding the consequence of policy half-measures and Japan circa 1996 – forgotten already?: When recession hits, some surviving zombie institutions go from well-capitalized to undercapitalized and bankrupt as writedowns re-appear en masse in the downturn.
David Rosenberg took up this same theme today with his "Sushi with Dave" missive. Here are nine charts in support of the thesis that Japan offers important lessons for the US.