Daibutsu, Kamakura

Daibutsu, Kamakura
Daibutsu in Kamakura, June 2010. There were thousands of school kids visiting that day. It was still great fun.

Thursday, December 04, 2008

U.S. is no Japan

At least when it comes to the current economic problems faced by the United States when compared to Japan's economic crisis during the Lost Decade of the 1990's.  This is according to economist Carl Weinberg

I have heard this comparison before and they are similar.  Both Japan and the United States had massive real estate bubbles.  I believe Japan's was more in the commercial sector while in the USA, it was based in the residential real estate sector.  They both spread to the financial sector resulting in massive losses and failures in the banking and financial industry.

But what I have also heard and read several times recently, and repeated by Mr. Weinberg, is that how Japan and the United States dealt with their economic and banking problem was and is quite different.  Below are some quotes from Mr. Weinberg that explains the differences in how Japan and the US dealt with the crisis.

"What happened in Japan was a more serious crippling of its banking sector followed by inept policies aimed at covering up imbalances in the system, not addressing them," Mr. Weinberg wrote. "Policy makers today are doing the right thing, which is to bridge the credit crunch and to rehabilitate the institutions. Today's episode will be long — longer by far than a normal downturn — but it will not be catastrophic."

The Japanese  banks were sitting on a mountain of non-performing loans that was as big as GDP, Mr. Weinberg wrote. They couldn't write off the loans or they would go bust. The government provided new accounting rules instead of new capital to support the system. Banks couldn't lend, borrowers couldn't get any money.

"In the current financial crisis, bank problems are being addressed by both generous liquidity to keep them afloat and public and private capital injections to speed up the healing of balance sheets," he added. Borrowers remain generally creditworthy and there is important fiscal stimulus coming on stream which Japan did not get around to until well into the collapse.

"The enormous insolvencies and policy errors Japan endured in the 1990s are not being repeated, so we do not see many parallels between them and what everyone is experiencing today," he said. 

The problems in the US are bad, worse than in decades.  But they probably won't be as bad as what happened in Japan and it will be nowhere near as bad as it was in the Great Depression.  People and the media need to stop throwing around the big D word because it is not going to happen and only creates more fear.  But of course fear is what sells newspapers.


  1. I agree that doomsaying doesn't help, but it seemed that when the U.S. government tried to take quick action to stop the worsening crisis and maintain a sense of optimism, investors still kept selling off. I'm sure that's more of a problem of quick fixes not being effective, but it does seem like people in the U.S. don't really trust the gov't and media enough to give them the influential power that they use to have.

    Interesting post.

  2. I agree that they don't trust the feds and I don't blame them. That's one reason why they keep selling. Plus, the economy is still expected to go into the toilet for a while so people are fearful and want to get out.