WHEN JAPAN COLLAPSES (shredding Krugman fantasy)

The Burning Platform ^ | 09/15/10 | Jim Quinn

[TigerLikesRooster]

WHEN JAPAN COLLAPSES

Only a partisan two-bit hack economist/liberal rag columnist from an Ivy League University with a Nobel Prize could look at the following two charts and conclude that the Japanese Government failed to revive the Japanese economy over the last twenty years because they spent far too little on fiscal stimulus. Japanese government debt as a percentage of GDP was 52% in 1989, prior to their real estate and stock market crash. Today it stands at 200% of GDP. Current budget projections show the debt reaching 250% of GDP by 2015. Meanwhile, Japanese consumers and corporations have been reducing their debt for the last 16 years. The net result has essentially been a 20 year recession. The pundits who never see a crisis on the horizon point to the fact that Japan has not collapsed under the weight of this debt as proof that the U.S. debt level of 90% of GDP has plenty of room to grow without negative repercussions. This is the same reasoning “experts” used in 2005 when they proclaimed that home prices in the U.S. had NEVER fallen on a national basis, so therefore there was no reason to worry about home prices. A basic economic law is that an unsustainable trend will not be sustained. When the 3rd largest economy in the world implodes, the reverberations will be felt across the globe.

/snip

John Mauldin has described Japan as a bug in search of a windshield. Bug meet windshield.

[TigerLikesRooster]

P!

[InterceptPoint]

Freepers, you really ought to read this article. Japan is in trouble and it is the same sort of trouble that we are heading for if we don’t curb the spending in Washington very soon.

[PeterPrinciple]

“Roads and bridges are attractive, but they create jobs only during construction,” said Shunji Nakamura, chief of the city’s industrial policy section. “You need projects with good jobs that will last through a bad economy.”

---

The major point of the “Wealth of Nations” is that when you spent you money, it created more wealth. The first road projects in our country created many jobs and wealth.

What are the projects that will create wealth now?

[PeterPrinciple]

Freepers, you really ought to read this article.

---

Good article but requires a thinking cap which is rare now days...............

[nascarnation]

Twenty years ago, a lot of economists had them pegged to take over the world. Shows how things can change in a (relative) hurry.

[tiki]

What countries are growing, those who have retained their production capabilities. America has regulated most producers out of existence and the productivity has moved overseas. Until we get our mines and our factories and our farms and mills going again we will remain broke.

In my town the big stimulus job was the paving of a street that will never have a higher than 25mph speed limit, it was fine as it was. I can’t believe that it has taken over 6 months to rip out and repave about a mile of street.

I remember about 25 years ago we got a government grant to build an animal barn at the fairgrounds. The grant was meant to create a few jobs. It had all kinds of clauses. One was a prevailing wages clause which was 3 times what the real prevailing wage was in our town. We also had to accept the low bid and then the guy who won it did every bit of it himself and didn’t hire one person to help him.

Then we still had money to build some bathrooms, we ran the figures and we could have done it for around 15K but after all the red tape, because there could be no donated labor, they cost 40K.

This is government spending, it lined the pocket of one man who was capable of meeting all the stringent government regulations when the grant was originally supposed to create jobs. I’m not putting down the guy who took advantage but the system that made it possible.

[GOPJ]

There has been only one reason that investors have accepted virtually no interest income on Japanese bonds. The relentless strength of the Japanese Yen has made up for the lack of interest. The Yen has appreciated 100% versus the USD since 1995. The Yen has stayed strong despite a weak economy because Japan has run a massive trade surplus for decades. That unsustainable trend is also coming to an end. China, Vietnam, Indonesia, and other developing Asian countries can produce the crap that Americans desire much cheaper than Japan. The Japanese trade surplus has begun to plummet. The Japanese politicians are flailing about trying to revive their exports. Yesterday’s intervention in the currency markets to weaken the Yen is a sign of desperation. It will fail. Every Central Bank in the world is trying to devalue their way to prosperity.

The center isn't going to hold - it's just a question of time.

[altair]

Japan is in trouble and it is the same sort of trouble that we are heading for

Yes and no and the comparison between the US and Japan breaks down in a few areas. The most major being that Japan has a trade surplus and still has a national income. When they crash it will be bad, but it won't be as bad as the US will crash.

I have a close friend who is a Professor of Economics at Tsukubadai (University of Tsukuba). He is convinced that the root cause of Japan's woes was the wholehearted adoption of Keynesian Economics that was relentlessly pushed down Japan's throat during and after reconstruction.

Japan has had mostly single party rule since the war. The ruling Liberal Democratic Party did their worst in the late 1990s, shortly before I moved to Japan, when they passed a national consumption tax. First 3%, later raised to 5%. Along with an income tax, that's the worst of all worlds. They finally threw the bums out a couple years ago, but the news guys appear to be the same as the old guys. (The late Mrs. Altair I would scream when she saw Hatoyama-sama on TV, although I never figured out quite why - he just seemed to me to be the typical 2-bit politician).

They've had their share of corruption. I've lived next to a halfway built bridge to nowhere in Kobe. The "stimulus" package they passed the first year I was there was aimed at courting New Komeito (who later joined the ruling coalition to keep it alive for a few more years). It was a narrowly aimed package of vouchers aimed at young families with at least one small child - the core demographic of Soka Gakkai. The scandal arose when it was later revealed that a vast amount of the vouchers were redeemed in hostess bars.

Given the continued trade surplus, the amount of private savings, and the fact that Japan has survived many crises in its past before, I'd expect them to last longer than we will here.

[CPT Clay]

Thanks

[Pelham]

Eric Janzsen issues the same warning in his ‘The Postcatastrophe Economy’. That book ought to be issued with the warning “abandon hope all ye who enter here”. Unfortunately Janzsen appears to know what he’s talking about.