Thursday , 13 June 2024

Artificial Stimulus Will NOT Revive U.S. Economy

Japan experienced in the late 80’s what the world experienced in the lead up to the recent ‘global financial crisis’ – a huge property and stock market bubble. In the interim their government has done everything possible to get back to where they had come from yet more than two decades into its economic nightmare, Japan is still fighting hard to keep its economy from a complete and utter collapse. Words: 861

In further edited excerpts from the original article* at, Frank Suess goes on to say:

Japan’s ‘Weak DecadeS’
With the U.S. stock markets experiencing weak performance over the past decade, filled with weak monetary policies, weak fiscal policies, weak geo-political progress and weak leadership the 2000’s could best be described as our “Weak Decade” andl ooking back we can’t avoid being reminded of Japan’s earlier two decades of weakness. Today, at [less than 11,000], the Nikkei 225 stands pretty much at the same (nominal) level as it did around 1987 and it´s a lot lower than it was at the end of its great bull market in 1989. On December 29, 1989, the Nikkei peaked at 38,876. In other words, the price level of the Nikkei today stands at roughly a quarter of what it was 20 years ago!

Is This Deja Vu?
It´s an ongoing debate whether global economies and financial markets have entered a similar path as did Japan more than twenty years ago:

1. Japan experienced repeated and substantial rallies on the way down. If indeed we should consider the Japanese story line a blueprint for the decade ahead, then the current market has potential for more upside in the current bear market rally before it goes a LOT lower.

2. Patience is big factor in these kinds of markets. Bear markets can take a long time. Similar to the Great Depression, when the Dow took approximately 23-and-a-half years to regain the nominal level it first reached on September 1, 1929, the Nikkei is taking a very long time to regain its health. Despite all the monetary inflation around the globe and certainly in Japan, hardly anyone would at this point expect the Japanese market to regain its 1989 highs anytime soon.

3. Similar to the US, the Japanese stock market boom was accompanied by a property boom of immense proportions.

In summation, Japan experienced in the late 80’s what the world experienced in the lead up to the recent ‘global financial crisis’ – a huge property and stock market bubble. In Japan, the collapse came in early 1990 and the nation’s economy has not recovered since.

The Japanese ‘Remedy’ Has Failed
As mentioned in the introduction, the Japanese did everything possible to get back to where they had come from but today, after twenty-some years of unprecendented ‘deflation fighting’, Japan remains mired in deflation, with unemployment on the rise once again and the economic ‘recovery’ once again losing steam. The Hatoyama government is increasing the deficits and growing the country’s debt even further. At this point, there appears to be no other way to keep Japan from tipping over completely.

Comparing Our ‘Weak Decade’ with Japan’s ‘Weak DecadeS’
Yes, there are differences between the lost decades of Japan and our Weak Decade.
1. the Japanese people continued to save throughout the crisis and largely stayed away from living beyond their means
2. the Japanese economy did continue to produce real goods and to export.
3. Japan relied on the Yen ‘carry trade’. However, since 2007, the problem has been that as the rest of the world (notably the US) quickly erased the ‘advantage’ Japan’s ultra-low interest rates gave it, the Yen has been going up (+27% against the US dollar) which has destroyed Japanese exports and rendered huge damage to the Japanese economy.

The Cost of Economic Growth Getting More Expensive
Economic growth is getting VERY expensive! So far, lower interest rates have been a trend largely produced artificially by governments and central banks. However, we have reached rock-bottom and the fact is that governments and central banks can only manipulate the price of money to a certain degree. Once short-term interest rates start rising – yields for long-term bonds are on the rise already – financing the boom will become increasingly difficult.

Every time government fights the economic downturn with fresh and huge amounts of taxpayer money, a true recovery is postponed and the artificial daydream of economic growth, financed on the back of coming generations, becomes yet a little more expensive.

The Japanese monetary and fiscal anti-deflation reflex in reaction to the crash in the 90´s was very much the same as the recent and currently ongoing global pumping approach. Japan has been running exactly the same “stimulus” as the rest of the world is now employing to fight the downturn. It didn´t work in Japan and I doubt it will work globally.

If ever there was an economic illustration of the fact that “stimulus” cannot revive a REAL economy, Japan is that illustration.

* (Frank Suess, chairman and chief executive officer of BFI Consulting Inc., a Zurich, Switzerland wealth management and consulting company.)

Editor’s Note:
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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