Is the US turning Japanese?

Oct 22, 2014

Baltimore, Maryland

    You've got me turning up and turning down
    And turning in and turning 'round.
    I'm turning Japanese I think I'm turning Japanese I really...

    - The Vapors

Dear Diary,

Are we all turning Japanese?

Long time Diary sufferers will find the question familiar...and perhaps tedious. We've been asking for almost 15 years - ever since we saw the US following in those Japanese footsteps, running from a big a big bust.

It all started for us when we were driving out to the country one evening many years ago. To keep the children occupied - there were five of them with us at the time - we asked them what they wanted to be when they grew up. Imagine our surprise. Among the fighter pilots and TV stars was one little boy who replied: "I want to be Japanese."

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Manga cartoons were popular at the time. So were Japanese video games. Japanese stocks, on the other hand, were not. After trading over 38,000 in 1989, the Nikkei index fell to 7,000 in April of 2000. Meanwhile, every smokestack in Nippon seemed to take a breather, every working man got 10 years older, and every financial journalist wondered what was wrong with the whole race of people who had been so dynamic just a few years before.

We foresaw the same for US stocks.

Maybe we were just 14 years - and counting - too early. Or maybe we were just wrong.

The Financial Times managed a particularly lunkheaded editorial on the subject of Japan in yesterday's paper. After rehearsing all the prime minister's failures the FT concludes that although "...the exuberance has gone out of Abenomics. Mr. Abe must continue with his course and not allow himself to be distracted."

On the evidence, the Japanese prime minister would do better to go play golf. His interventions so far have been either ineffective or disastrous, depending on how you look at them.

The poor man came into office promising to break a long losing streak. Since '90, Japan's stocks and real estate have been flattened...its once smooth running economic machine coughs and sputters ....its people are getting older and shrinking...and its debt is getting bigger. As the FT put it, Abe came into office and brought a "huge fiscal stimulus followed by a massive dose of quantitative easing. This appeared to jolt Japan out of its deflationary torpor."

Until the second quarter. Then, it became obvious that Japan was in an even deeper deflationary torpor, with MINUS 7.1% growth, the worst since the earthquake, tsunami, and nuclear meltdown in 2011. All that Mr. Abe really seems to have wrought is a tax increase and Japanese government debt approaching 250% of GDP.

For us, Mr. Abe is another data point, confirming our hypothesis:

    Modern policy makers (central bankers most prominent among them) are either fools or knaves. Their programs are senseless and useless. Their theories are nothing more than airy claptrap.
But we admit that we live in an age of manmade wonders. We're ready to be impressed. The trouble is, the Abes of this modern era seem to lack imagination. What is wrong with them? Surely, there is something else officials can do, other than the very same things that have never worked. You cannot cure a debt crisis with more debt. Why not try less debt?

And now both Europe and America are turning Japanese, as we predicted more than a decade ago.

Instead of Japan's growth rates catching up to the rest of the developed world, growth is slowing down elsewhere to Japanese levels. And instead of bond yields and inflation rates rising in Japan, to match those in the rest of the world, they are falling in Europe and America to match those of Japan. And instead of Japan's birthrates going up to keep the population more or less even with those of its rivals, women in Europe and America are having fewer children too.

And, of course, we need not tell you that people in the developed world are all getting older, just like the Japanese.

How do officials react to the challenge? They have turned Japanese too...

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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1 Responses to "Is the US turning Japanese?"

B Vepa

Oct 22, 2014

Dear Sir

If there is de-growth and deflationary pressure in the developed world, then why own gold, which is typically a hedge against inflation.

B Vepa

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