The pent-up deflationary forces in the US are such that deflation American-style figures to be far worse than deflation Japanese-style.Then wat to reflate? Rising oil prices, rising gold prices, or rising wheat and corn prices will only make problems worse for cash-strapped consumers. Even if reflation did create jobs, it would not accomplish much other than to postpone the day of reckoning.
Differences Between Japan and the US:
1) Look for steeply rising unemployment in the US. One of the consequences of those debt writedowns in the US is that US corporations will be forced to cut expenses. The biggest expense for many companies is employees. Japan had far more loyalty to its employees than US corporations ever will.
2) Enormous consumer debt makes the problem the US faces far more severe than the problem Japan faced. Consumer debt that that cannot be repaid will be defaulted on. Rising unemployment will further exacerbate mortgage-related problems and credit card-related problems.
3) Consumption continued in Japan because of savings. The US will be forced to cut back on consumption and increase savings.
4) Global wage arbitrage is a far bigger economic force now than during the bulk of Japan's deflationary years.
5) Japan had the benefit of a global Internet boom followed by a global housing boom to help the economy. The US is facing a global contraction of the housing boom.
6) Most people in the US "own" their own home. The skew of those deep in debt is huge. 1/3 of Americans owe nothing on their homes. The debt is carried by those who can least afford to carry that debt in an economic downturn.
7) Japan had a huge valuation problem in real estate. The US not only has a huge valuation problem, commercial real estate is also woefully overbuilt.
Those who argue "it's different in Japan" need to weigh the impact of those differences. The pent-up deflationary forces in the US are such that Deflation American Style figures to be far worse than Deflation Japanese Style. Here is one similarity: Fiscal stimulus failed in Japan. Fiscal "Stimulus" Is Doomed To Fail in the US. The consequences to the US will be severe.
1 comment:
The stimulus package will work. But the way it was planned and communicated to the market is at wrong timing.
US needs to address the banking issues first. STOP the leakage from the system. Ensure no further interest cut, stabilize the currency. STOP the mass exodus of capital flight and learn from Malaysia.
Then talk about the stimulus package. Or else, it is as if throwing the whole punch of monies into the drain. Oh dear Paul??
I am not really concerned about the rising retail bad debt. I am seeing behind the scene "Anti-Asia" feelings subsequently, if any, I hope I am wrong.
I cann't help but to relate the economy to the politics again. I hope this will never appear at all.
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