This is Not Japan

From The Atlantic

[I]t seems that Japan's banking crisis isn't nearly as analogous to America's as you might expect. As John Hempton has explained, Japanese banks had tons of savings, few loans, and slim margins -- just the opposite of the big banks here. And they didn't impair recovery by failing to lend, but by continuing to provide credit, for political reasons, to large industrial firms that were in terrible shape. This was the zombie relationship. Japanese savers poured money into the banks, the banks rolled over old debt to busted property companies and industrial firms, and so necessary shifts in the economy never took place.

As James Surowiecki notes, political involvement in the banking system in America has not led to a similar outcome -- the banks aren't being told to keep sinking firms afloat. The results have been plain for all to see; old industrial enterprises have been hammered, as have firms tied up in the housing boom. The destruction in "creative destruction" is taking place, leaving plenty of room for creation later.

Comments

[dacian]

there are other generational forces at work in the US (and Western Europe as well): demographics.

What we experienced between 1990 to 2005 was impressive. Markets are not going back to new highs any time soon. While US is not Japan (I personally think it's worse), the Japanese experiment can't be ignored. Imo, another lost decade for US is not out of question; I don't know Europe, but there are not in better shape.

[Mike C]

there are other generational forces at work in the US (and Western Europe as well): demographics.

Care to elaborate here? I'm a big believer that demographics play a massive role in secular economic trends, and I've been reading some stuff on demographic trends that concerns me. I'm curious if your outlook mirrors some of what I've been reading.

[dacian]

Well, it's funny as recently I was rejected from a blog where I posted something related to FED's policy - so don't take what I'm saying for granted.

Basically, from what I'm reading - I'm not an original guy - it will be like in Japan in the 90s, when many people went into retirement and they shifted from consuming a lot to less consuming hence less demand for everything, including stocks, bonds, etc. Look at the Nikkei's chart. Maybe the las 2 bubble bursts are for something in the sense that they had a big impact on consumer's psychology. I think there is a secular shift in consuming trends (towards frugality).

[Mike C]

Worth a read. He comments extensively on the demographic factors at play, and parallels to the Japan experience.

http://www.scribd.com/doc/14057580/Donald-Coxe-Basic-Points-Mar-2009?autodown=pdf

[psychodave]

Dacian, I've would like to know what blog rejected (ejected?) you.

My mind is too limited to even imagine such a thing. Unfortunately, I have a sordid appetite for occasionally viewing freak shows, and that blog is surely one.

[dacian]

:)

Dave, I don't know if it's worthing the effort for you to read through, but I said it's a nice lesson I got and I'll probably stop making comments on blogs (like I do now).

Here is the blog entry (with comments); unfortunately is in french.

http://lupus1.wordpress.com/2009/05/19/le-point-sur-les-resultats-des-entreprise-du-sp500-us-au-1er-trimestre-et-a-venir/

Basically my last comment was saying FED's policy failed (at least since 2003) and they are for something in the crisis (next to that I said SEC were no capable preventing Madoff affairs); the owner of the blog says I understand nothing related to monetarism (I guess he's a fan of REAGONOMICS and Milton Friedman - I know almost nothing about them) and on top of that I'm anti-American and ignorant (I don't know how one can conclude that if you say FED failed implies you're anti-American).

[alan smithee (nee kerry)]

I didn't read the article that Toro posted (am at work), but Japan had a superbubble both in the old industrials and in their property market. The US real estate bubble paled in comparison to Japan's, from what I have heard.

[alan smithee (nee kerry)]

ALSO, we have only seen the start of the bankruptcies in the US. Banks aren't so much keeping some companies alive because of political pressure but instead have decided that they are better off letting companies(and people) slide...

Companies such as Blockbuster are being kept afloat, but I think we will see another downturn as these companies go under. I will buy into this...

[Running Amok In Fantasyland]

In Japan, banks kept zombie companies afloat. In America, the banks are...make that, were... the zombies. Thanks to an unending string of acronyms, the Fed is now the central bank of the walking dead, a.k.a. U.S. taxpayers.

If there was any creative destruction, the bondholders of Ponzi banks would be dead and buried, never to rise again. Mssrs. Paulson, Bernanke, Geithner and Summers engineered that "rescue."

Willie Sutton didn't go to jail...he was given the corner office of the bank. But at least this bank doesn't have "tons of savings, few loans, and slim margins."

Talk about freak shows...P.T. Barnum would be humbled.