US risks following Japan's "lost decade"

jimpeel

jimpeel

Well-Known Member
Japan did what the United States is now doing and they are still struggling with the problem.

Either we will spend the next nine years learning the same lesson or we will start solving the problem in 2012.

SOURCE

US risks following Japan's example of stagnancy

By TOM RAUM (AP) – Nov 11, 2009

WASHINGTON — Heavy government stimulus spending and near-zero interest rates did little to end a "lost decade" of stagnation and mushrooming debt in Japan. Some economists and lawmakers say the U.S. may wind up following the same trajectory.

Despite early signs of recovery and a strong U.S. stock market rally, fears persist that the failure to generate new jobs or ignite more consumer spending could drag the economy back into recession, or result in a protracted Japan-like period of poor economic and stock-market performance.

Japan is President Barack Obama's first stop on a tour of Asia beginning Friday — and the gloomy world economy will be high on the agenda. Both Japan, beginning in the 1990s, and the U.S., in the most recent economic crisis, had credit and housing bubbles and both engaged in huge amounts of overborrowing leading up to sharp economic downturns. And both used historically low interest rates and government stimulus spending to try to lift their economies out of the ditch — with questionable results in Japan.

"It seems to me we are on the exact same path that the Japanese took in their `lost decade' — of running up huge government debts, of not stimulating growth and at the end of the decade having this massive debt," said Kansas Sen. Sam Brownback, senior Republican on Congress' Joint Economic Committee.

Others cite differences in the American and Japanese economies and business cultures to argue that things here are different and less susceptible to a prolonged period of economic lethargy. While the debate rages, both sides agree Japan's painful experience offers the U.S. a lesson of how attempts at stimulus can go horribly wrong.

In the 1980s, Japan's factories were humming and the country seemed on track to surpass the United States as the next global economic superpower. Japan's banks were the largest in the world by market capitalization. Real estate and stock prices soared. Japan was buying up large chunks of the United States.

Japan's bubble economy burst in 1990 and it lapsed into a lost decade that is fast becoming two lost decades. Struggling to regain its economic footing and manufacturing competitiveness, Japan is about to lose its standings as the world's second-largest economy and be replaced by China.

David Wyss, chief economist for Standard and Poor's, said a drawn-out period of economic stagnancy like Japan's is a possibility.

"But I don't think it's as likely over here. For one thing, one of the problems in Japan was the demographics. And we don't have the problem of a declining population to deal with, although the labor force is going to slow down considerably as soon as the baby boomers retire," Wyss said. He predicted "a very sluggish recovery here."

Japan's older population means more government social security spending and a movement by older Japanese away from saving towards spending.

One other difference is that Japan's crisis was largely created by corporate debt excess, much of it borrowed against property with inflated prices, rather than personal debt and housing-market failures as in the United States.

Stock prices bottomed in Japan in 2003 until hitting an even lower low in 2008. Japan's Nikkei stock index, now just under 10,000, still stands about 75 percent lower than where it was 20 years ago.

Some analysts say that Japan's example doesn't show how stimulus can be ineffective so much as it shows the dangers of spending too little up front — or withdrawing it too quickly.

Japan protracted its recession twice by unwinding stimulus measures too early — in 1997 and in 2000 — the International Monetary Fund said in a recent report on Japan's lost decade.

"An important lesson from Japan is that green shoots do not guarantee a recovery, implying a need to be cautious about the outlook today," the IMF said in a reference to stimulus measures that the Group of 20 major economies now have in place. Finance ministers of G-20 nations agreed last weekend to keep stimulus measures in place for now, helping to fuel a stock market rally earlier in the week.

Years of expensive post World War II spending on roads, dams and other projects, together with government stimulus spending to combat recessions, have left Japan with a national debt twice the size of its $5 trillion economy, the biggest deficit of any major economy.

The U.S. national debt of $12 trillion, by contrast, is approaching the size of the overall economy, $13.6 trillion as measured by the GDP. As staggering as that is, the ratio is half that of Japan's.

Worrisome for both Japan and the U.S. is the fact that interest rates are exceptionally low right now, in part because of action by central banks in both countries. That makes servicing the national debt less expensive than it would otherwise be. But as interest rates begin to rise again, as they inevitably will, the costs of paying interest on new government bonds issued to cover deficit spending will soar.

The U.S. may already be in a lost decade — and not realize it yet.

Some 7.3 million jobs have been lost since the recession began in December 2007. Just getting back to even and keeping pace with population growth could take many more years.

Copyright © 2009 The Associated Press. All rights reserved.
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Stopping a Financial Crisis, the Swedish Way

By CARTER DOUGHERTY
Published: September 22, 2008
A banking system in crisis after the collapse of a housing bubble. An economy hemorrhaging jobs. A market-oriented government struggling to stem the panic. Sound familiar?

It does to Sweden. The country was so far in the hole in 1992 — after years of imprudent regulation, short-sighted economic policy and the end of its property boom — that its banking system was, for all practical purposes, insolvent.

But Sweden took a different course than the one now being proposed by the United States Treasury. And Swedish officials say there are lessons from their own nightmare that Washington may be missing.

Sweden did not just bail out its financial institutions by having the government take over the bad debts. It extracted pounds of flesh from bank shareholders before writing checks. Banks had to write down losses and issue warrants to the government.

That strategy held banks responsible and turned the government into an owner. When distressed assets were sold, the profits flowed to taxpayers, and the government was able to recoup more money later by selling its shares in the companies as well.

“If I go into a bank,” said Bo Lundgren, who was Sweden’s minister for fiscal and financial affairs at the time, “I’d rather get equity so that there is some upside for the taxpayer.”

Sweden spent 4 percent of its gross domestic product, or 65 billion kronor, the equivalent of $11.7 billion at the time, or $18.3 billion in today’s dollars, to rescue ailing banks. That is slightly less, proportionate to the national economy, than the $700 billion, or roughly 5 percent of gross domestic product, that the Bush administration estimates its own move will cost in the United States.

But the final cost to Sweden ended up being less than 2 percent of its G.D.P. Some officials say they believe it was closer to zero, depending on how certain rates of return are calculated.

The tumultuous events of the last few weeks have produced a lot of tight-lipped nods in Stockholm. Mr. Lundgren even made the rounds in New York in early September, explaining what the country did in the early 1990s.

A few American commentators have proposed that the United States government extract equity from banks as a price for their rescue. But it does not seem to be under serious consideration yet in the Bush administration or Congress.

The reason is not quite clear. The government has already swapped its sovereign guarantee for equity in Fannie Mae and Freddie Mac, the mortgage finance institutions, and the American International Group, the global insurance giant.

Putting taxpayers on the hook without anything in return could be a mistake, said Urban Backstrom, a senior Swedish finance ministry official at the time. “The public will not support a plan if you leave the former shareholders with anything,” he said.

The Swedish crisis had strikingly similar origins to the American one, and its neighbors, Norway and Finland, were hobbled to the point of needing a government bailout to escape the morass as well.

Financial deregulation in the 1980s fed a frenzy of real estate lending by Sweden’s banks, which did not worry enough about whether the value of their collateral might evaporate in tougher times.

Property prices imploded. The bubble deflated fast in 1991 and 1992. A vain effort to defend Sweden’s currency, the krona, caused overnight interest rates to spike at one point to 500 percent. The Swedish economy contracted for two consecutive years after a long expansion, and unemployment, at 3 percent in 1990, quadrupled in three years.

After a series of bank failures and ad hoc solutions, the moment of truth arrived in September 1992, when the government of Prime Minister Carl Bildt decided it was time to clear the decks.

Standing shoulder-to-shoulder with the opposition center-left, Mr. Bildt’s conservative government announced that the Swedish state would guarantee all bank deposits and creditors of the nation’s 114 banks. Sweden formed a new agency to supervise institutions that needed recapitalization, and another that sold off the assets, mainly real estate, that the banks held as collateral.

Sweden told its banks to write down their losses promptly before coming to the state for recapitalization. Facing its own problem later in the decade, Japan made the mistake of dragging this process out, delaying a solution for years.

Then came the imperative to bleed shareholders first. Mr. Lundgren recalls a conversation with Peter Wallenberg, at the time chairman of SEB, Sweden’s largest bank. Mr. Wallenberg, the scion of the country’s most famous family and steward of large chunks of its economy, heard that there would be no sacred cows.

The Wallenbergs turned around and arranged a recapitalization on their own, obviating the need for a bailout. SEB turned a profit the following year, 1993.

“For every krona we put into the bank, we wanted the same influence,” Mr. Lundgren said. “That ensured that we did not have to go into certain banks at all.”

By the end of the crisis, the Swedish government had seized a vast portion of the banking sector, and the agency had mostly fulfilled its hard-nosed mandate to drain share capital before injecting cash. When markets stabilized, the Swedish state then reaped the benefits by taking the banks public again.

More money may yet come into official coffers. The government still owns 19.9 percent of Nordea, a Stockholm bank that was fully nationalized and is now a highly regarded giant in Scandinavia and the Baltic Sea region.

The politics of Sweden’s crisis management were similarly tough-minded, though much quieter.

Soon after the plan was announced, the Swedish government found that international confidence returned more quickly than expected, easing pressure on its currency and bringing money back into the country. The center-left opposition, while wary that the government might yet let the banks off the hook, made its points about penalizing shareholders privately.

“The only thing that held back an avalanche was the hope that the system was holding,” said Leif Pagrotzky, a senior member of the opposition at the time. “In public we stuck together 100 percent, but we fought behind the scenes.”
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http://www.nytimes.com/2008/09/23/business/worldbusiness/23krona.html
 
you realize, jim, that the japanese economy that was massively successful for some time was built through enterprise and government being very tight bunk buddies, right? sounds kinda... socialist.
 
US is entering the "lost decade".

You realize it is all a simple matter of demographics?

As the baby boomers aged past their peak spending years (48)
in both countries, economic activity waned.

We are at the start of a 2nd 'great depression' ala the 30's

Perhaps the slogan for the years 2008-2018 are:
"there is a fortune in misfortune".

The companies that dominated for decades were those that came
out of the 30's. Oh never mind the average Joe stumbles through
their short time on this dust mote in the endlessness of space without a clue.
yeah that means you.

The guberment can not affect this only make it worse
and that is just what this administration IS doing.
 
Japans closeness with government almost destroyed it, it tried many of the same things we are are now getting into. Its taken over a decade to move away from that model and its still huge burden for them.
 
US diving into a depression, takes the world with her.

I typed what I did in a vain attempt to save some of you
the trouble of paying any attention to the 'blathering idiots"
in the mainstream media that will go on and on and on about
the economy. Jobless recovery heh heh not to worry, by 2023
we will return to real growth in our GDP, prior to that not so much.
 
Re: US diving into a depression, takes the world with her.

Winky said:
I typed what I did in a vain attempt to save some of you
the trouble of paying any attention to the 'blathering idiots"
in the mainstream media that will go on and on and on about
the economy. Jobless recovery heh heh not to worry, by 2023
we will return to real growth in our GDP, prior to that not so much.
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Jobless recovery will work Winks, I for one welcome our new overlords and masters.
 
2minkey said:
you realize, jim, that the japanese economy that was massively successful for some time was built through enterprise and government being very tight bunk buddies, right? sounds kinda... socialist.
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Actually having the government subsidize and control business is Fascist, not Socialist.

Socialism is the government taking from one segment of the citizenry and giving to another segment of that citizenry. It works just fine until the number of takers exceed the number of providers. Taking from the citizenry and giving to industry is not Socialism.

As to Japanese fascism -- companies like Toyota, Mitotoyo, Sony, Toshiba, et al got HUGE SUBSIDIES from the government to keep their costs low so they could undercut the American market. They did the same thing with STEEL DUMPING several years ago that caused the closure of much of our steel industry. Although WE WENT AFTER THEM for this under the Clinton Administration the WTO RULED AGAINST US.
 
jimpeel said:
Socialism is the government taking from one segment of the citizenry and giving to another segment of that citizenry. It works just fine until the number of takers exceed the number of providers. Taking from the citizenry and giving to industry is not Socialism.
Click to expand...

"Socialism refers to various theories of economic organization advocating public or direct worker ownership and administration of the means of production and allocation of resources, and a society characterized by equal access to resources for all individuals with a method of compensation based on the amount of labor expended."

http://en.wikipedia.org/wiki/Socialism
 
Yeah, it's useful. Helping out Jim with his made up definition.

Don't tell me you just unlocked another thread so you could get the last word in.
 
Read between the lines.

spike said:
"Socialism refers to various theories of economic organization
GOVERNMENT
advocating public
GOVERNMENT
or direct worker ownership and administration of the means of production and allocation of resources, and a society characterized by equal access to resources for all individuals
FROM EACH ACCORDING TO HIS ABILITY. TO EACH ACCORDING TO HIS NEED.
with a method of compensation based on the amount of labor expended."

http://en.wikipedia.org/wiki/Socialism
Click to expand...

Let's see what the real dictionaries have to say ...

so⋅cial⋅ism
–noun
1. a theory or system of social organization that advocates the vesting of the ownership and control of the means of production and distribution, of capital, land, etc., in the community as a whole.
2. procedure or practice in accordance with this theory.
3. (in Marxist theory) the stage following capitalism in the transition of a society to communism, characterized by the imperfect implementation of collectivist principles.

Origin:
1830–40; social + -ism
Dictionary.com Unabridged
Based on the Random House Dictionary, © Random House, Inc. 2009.


so·cial·ism
n.

1. Any of various theories or systems of social organization in which the means of producing and distributing goods is owned collectively or by a centralized government that often plans and controls the economy.
2. The stage in Marxist-Leninist theory intermediate between capitalism and communism, in which collective ownership of the economy under the dictatorship of the proletariat has not yet been successfully achieved.

The American Heritage® Dictionary of the English Language, Fourth Edition
Copyright © 2009 by Houghton Mifflin Company.


socialism

An economic system in which the production and distribution of goods are controlled substantially by the government rather than by private enterprise, and in which cooperation rather than competition guides economic activity. There are many varieties of socialism. Some socialists tolerate capitalism, as long as the government maintains the dominant influence over the economy; others insist on an abolition of private enterprise. All communists are socialists, but not all socialists are communists.

The American Heritage® New Dictionary of Cultural Literacy, Third Edition
Copyright © 2005 by Houghton Mifflin Company.
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