Saturday, October 11, 2008

Can Japan Help?

Japan went through a major economic crash in the 90s. Can we learn anything from their suffering?

Studying Japan's Dark Decade to See How U.S. Might Fare

The sky over Tokyo seemed to fall in September of 1990, when the Nikkei stock index dove almost 20 percent in one month. Real estate prices would plummet and the financial sector would crack, trapping Japan in a "lost decade" of economic growth. Is the United States now set for its own?
That prospect may not be as scary as it sounds.
It is too early to tell just how sharp a U.S. recession might be, but fears of a long malaise are conjuring images of Depression-era soup lines. If Japan is any guide, however, such fears may be out of proportion.
Japan in the 1990s saw billions of dollars worth of wealth disappear. A generation of "parasite singles" grew up, living with their parents well into their 30s. The suicide rate spiked, and university graduates spent years in part-time jobs. Japanese entrepreneurs had no or limited access to capital, stymieing innovation. Yet the standard of living for the average Japanese did not dramatically change -- the pain of the crisis unfolded over many years and the government refrained from dire pronouncements.
Unemployment would peak at only 5.5 percent, an enviable rate for much of the world in good times. Deflation -- or price declines as gloomy consumers and skeptical businesses put off purchasing -- sickened the economy. Yet leading experts now agree its impact was not as severe as originally thought.
Japan saw repeated years of low or negative growth, but the final tally was something short of a decade-long recession -- with the 10 years leading up to 2000 averaging out at almost 1 percent growth. Companies like Toyota would prosper in adverse times, forced to sharpen their competitive edge. Emerging in the 2000s as the leader in hybrid cars, Toyota found itself on stronger footing than its U.S. counterparts.

Read the rest here.

The US is a lot bigger economy and some would place us as the key support to all the other markets in the world. Does this make it different and can a huge bailout turn it around?
The wealth cycle is: Precious Metals, Stocks & Bonds, Property than back to Precious Metals. The bailout is an attempt to jump over the precious metal cycle straight into the stocks and bonds cycle. The key to the system is confidence and security. These are emotional engines that drive the financial markets. What steps will the government take to boost confidence because throwing money at it doesn't heal the pain and restore the emotional ties to wealth?

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