Explaining Japan's Recession

Discussion in 'Trading' started by Madison, Dec 6, 2002.

  1. And what's the difference between that situation and the current US situation?

    - Their markets were overinflated by poor monetary policy, our markets were overinflated by poor monetary policy.

    -You can be assured that the US government will soon be spending trillions of dollars to try and get the economy started again (just like the Japanese). Give us about ten years of spending like that and we'll probably have a debt to GDP ratio that's over 100%.

    -They had a construction boom, we're having a construction boom

    The only things that are different is that in the US we haven't seen a steep loss in the value of assets yet and we don't have a banking system that is allowed to hide the debt of nonperforming companies (I don't think this is as big of a deal as everyone else does).

    I think we need to keep a very close eye on the value of real estate. Commercial buildings are being sold at less than the cost to build them and you have to believe that residential prices are starting to cool (I see listings everywhere all of sudden).

  2. man


    I think there are two forces in place at anyone time. First is the economic force and I think that the article is perfectly right in claiming that government as such is less productive and therefore less efficient than private business operation. At least I figured that out as the basic claim.

    The problem is the second force - government, since knowing one thing and doing it consequently are two quite different things. Modern goverments are usually - more or less in a fair way - elected. And they want to be reelected. I think that most official people in Japan are quite aware of the situation and the economic distortions there are. But their mind set does not necessarily go for solving the problem immediately. It is a very unpopular thing to do what the Austrian School claims, letting it go once it gets into trouble. I think one of the reasons for success of keynesiansim is its human touch: help, once it is necessary. Or to give this a more scientific term: government spending. To do so is maybe not always good for the economy but it is easy to sell - and elected governments are to significant extent salesmen.

    So, when can that turn around? Atcually when enough people within the society have realised that the other way of "spending" postpones the solution and that this postponing makes the final solution worse and worse. At that point of time the claim for government spending will find fewer and fewer followers, enabling a goverment to implement unpopular economic policies. Japan is special to some extent because the whole postwar growth story was heavily based on goverment action. They have a strong tradition of government solving economic problems. Unlike the US - until recently imo. So it will take longer until Japanese goverments are "allowed" to do what is necessary, but there are signs that things are changing, since originally the recent programs where quite aware of the problem and rather ambitious. They failed to some extent - but they will come up again.

    In the US the situation is totally different in the basics, yet similar on the surface. The late nineties bubble was to some extent homemade, by fiscal policy trying to protect equity markets. And there is still highly active fiscal policy in place fighting recession. Thats the similarity. But there is a very different basement. US economy has always been market driven. That's finally the major force behind american economy which is drastically different from Japan.

    I doubt that there are ten years ahead of the US, since american mentality is much more active in solving problems than the japanese is. But there will be more trouble to come. So far we still have expensive equity markets and there is still no drastic economic crisis.

  3. dgmodel

    dgmodel Guest

  4. lescor


    How many people caught the comment by Todd Harrison today at minyanville.com?

    "Would you really be THAT shocked if the S&P is at 300 in 7 years?"

    Along the lines of what I think the market has in store, but 300 seems pretty severe. But look at the attached chart showing the head and shoulders on the S&P500. A price projection of the break is taken by subtracting the difference between the head and neckline from the neckline. Roughly 1550-950=600, 950-600=350. So maybe he's not so far off.
  5. The thing that would shock me is if it took that long to happen (not if it happened at all).

    Although I really don't see the S&P getting much below 450, but what do I know?
  6. i am unaware of a construction boom, although the current vacancy rates across the nation for office space is scary!

    i believe you underestimate the impact of booking bad U.S. loans in japan to avoid U.S. regulators and just plain hiding non-performing assets. on paper they looked great and therefore continued to make the same stupid accommodation loans that got them knee-deep in it to begin with and just compounded the losses. here in the socal lenders continue to make 75% LTVs as prices just climb into the moronosphere. they could have 100% LTV soooooooooooo fast it would be scary.

    here in socal, few properties come to mind that are being sold below replacement cost. what is absolutely scary is the appreciation in residential properties, both SFRs and MFD. as demand drives CAP RATES down only historically low interest rates allow for positive cash flow. what is driving the market is a demand for yield as well as real assets. interesting to see some sellers, who originally purchased in the late-1980's, getting out whole. buyers point to a lack of available land, restrictive zoning and high fees to rationalize the prices - just like they did back in the late-1980's. home buyers view higher home prices as an increased basis for the eventual appreciation and give little though their ability to actually write a check for that $400,000 entry-level 1,600 SF home on a 4,000 to 5,000 SF lot. note the recent figures published in IBD, something like a 5.5% loss in overall wealth in the last quarter (from memory - dont shoot me if im off a bit), but the savings rate edged higher. coumpound that action out and see what happens to real estate prices.

    personally, im watching the unemployment rate as i cannot see why renters continue to live here in socal. some middle class areas have 2br/2bth apartment rents over $20,000 a year, which will service alot of mortgage debt at 6% interest rates or less. i cant believe that people continue to support illegal immigration and a general welfare mentality. people will leave again inspite of our great weather when the economy dumps. we were last-in, last-out during the recession that began circa 1990, we might get a repeat. feels the same now as it did then: like we dodged the bullet (recession).

    recent $24 billion shortfall in california state budget may wake some people up, but eventually they'll be coming for my pocketbook again. you cannot continue to provide "everyting" for people whoi make minimum wage and pump out ninos like there is a premium on them (hey, maybe there is?).

    im voting with my feet, nevada here i come. :D
  7. japans problems can be explained by two facts:
    1.average house size around 400 square feet.no place to put any more stuff.
    2.an aging population with negative birth rate and no immigration.
  8. the japanese should figure out a way to slide those 4 islands over next to mexico. by your way of thinking, that would solve all of their problems? :p
  9. lol it might.the point is that their people aren't likely to increase their spending no matter what the government does.they got by for a while because they could export their overcapacity to other countries but that stopped because they became a high cost exporter.
    #10     Dec 10, 2002