The big fear that occasionally wakes even die-hard bulls up screaming is that the US is en route to becoming Japan.
If we're Japan, any recovery in the economy and market will likely be temporary. In the case of the market, any recovery will also be followed by a plunge to lower lows. For another decade, at best.
Japan's economy has basically gone nowhere for the past decade, and its stock market is trading at about one-quarter of its level of 20 years ago. If the US were to suffer the same fate, the DOW will be trading at 4,000 in 2020.
So be afraid, very afraid.
Most bulls, of course, dismiss the Japan comparison as absurd. They note the speed with which we dealt with our banking crisis (at least partially), whereas Japan let its own drag on for more than a decade. They note that Japan's population growth is stagnant and will soon start shrinking. They note that Japan's economy is rigid and inflexible and that our more entrepreneurial culture will pull us out of our own doldrums.
These points have some truth to them. And those who scoff at the idea that we're becoming Japan will continue to hang their hopes on them.
But there's another area in which the two countries are very similar, one that could be the most important of all: At least for now, we're both in the midst of a deflationary deleveraging, in which money supply growth is miniscule and bank credit continues to contract.
Paul Kasriel of Northern Trust has put together a series of charts that show this comparison, and it's not encouraging. Despite the Fed offering unlimited free credit to the banking system, banks continue to shrink the amount they're lending (except to the Federal government). Thus, this free money is not making its way into the economy, the money supply is barely growing, and credit continues to shrink (for the first time in 60 years).
Here's Why We're More Like Japan Than You Want To Know >
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Banks borrow from the Federal Reserve at basically 0.0%.
Banks then buy U.S. obligations at perhaps 2.0%.
The bank basically makes 2% from the U.S. Treasaury using the U.S. taxpayer's money from the Fed. This is generally a risk-free transaction, since the U.S. obligations which the bank purchases are guaranteed by the 'full faith & credit' of the U.S. government.
Why should the banks do anything else? Answer: They shouldn't.
Therefore, none of the borrowings from the Fed find their way into the economy of Main Street.
maybe the FED needs to by-pass the banks and give some free money to those who will use it ---
ie those begging the banks for cash the banks wont give them
it takes a very long time to pick up the pieces after an explosion ---the last such explosion in the USA took about 60 years to get over
Attempt to purge the bad debt from the books, which will be nearly impossible now:
Raise interest rates
Break up the banks
Put in place strong consumer protections
Then,
Reevaluate the strength of banks under those conditions and place some under receivorship (nationalize them, purge their bad debt, destroy stock holders-sorry it was a bad investment)
I...think...that...would...work
Of course, our government is completely corrupt, so it will never happen. Welcome to the next Lost Decade.
That means Japan's per-capita GDP may still be growing, although national GDP is not.
But US population is still increasing, so our per-capita GDP may decrease.
But note: Japan's population is better off than they were 20 years ago, and better off than we are.
Which begs the question: except to match population growth, why do we WANT to grow?
Do you want more buildings, more traffic, more malls around you?
I don't, which is why I live in the country.
A system that requires growth to function is a "pyramid" or "Ponzi" scheme. That's capitalism.
1. we are burdening the earth with the population that now exists.
2. we require too many to live in deplorable inhuman conditions now
3. the earth's resources are finite.
Do you capitalists have any other plans?
kill Social Secutity/Medicare
Kill any/all consumer/employee safety regulations.
Kill minimum wage laws
Kill all environmental rules and "public lands" for open spaces/nature preserves.
They will simply open the door for millions and millions of ultra cheap labor to exploit all this land and water.
That is the conservative view of utopia
scorched earth and massive ghettos of barely alive slave workers.
You propably think this is an exaggeration, really they are almost there. Just a few more steps.
Maybe Wall Street and stock traders need to be afraid, very afraid...but for the rest of us, not so much.
It’s interesting to note that we know better, yet we are falling prey to the same failed logic as the Japanese. In the midst of the “Lost Decade” the U.S. Treasury Secretary told the Japanese to follow our successful experiences which we learned from the Savings and Loan crisis: find the truth, prosecute the frauds, close failed institutions or take over those institutions that were worth saving. In essence, don’t sit back and wait for the problem to solve itself under the cloak of secrecy, but rather take a straightforward proactive approach to find the underlying challenges and fix them. Of course now we are failing to follow our own good advice.
Knowing how the Japanese approach worked, we shouldn’t be surprised to find that our recession will continue for years to come because we have adapted the same approach of lying about the assets
and that growth means extracting resources at a faster pace
Using the avaliable fresh water at a faster pace
Faster increase in in population for both workers and consumers
Capitalism is based on huge pools of cheap labor and expanding markets,
not on "investment" by the wealthy.
No, I am not a commie, I like having property I call mine.
I want to decide what kind of work I want to and all that.
But we need some re-thinking.
The German worker who made that can opener has universal health care, more vacation days, and his kids can go to college for free.
Tell me again how free we are and how we are the greatest country in the world. Maybe that will help me to ignore the MBAs who rape(d) me and my Government that stood lookout so they could. Thanks for voting for the bankruptcy bill, Hilary.