Tuesday, November 25, 2008

Speaking of a depression

Just after Japan's real estate bubble burst in 1989, I came to Japan for 2 years (1991-1993). At that time, Japan's economy was starting its long recession, but few average people seemed to realize it. Instead, folks were more convinced that the US was going all to hell. A lot of this was due to the 1992 US election between Daddy Bush, Willy Clinton, and crazy-man Ross Pea-rot.

Clinton was running around screaming about "the worst economy since the Great Depression" and others about the "end of the American Dream" whatever that is. The problem was that it was all believed here by many. I heard time and time again, on TV, on the train, and from people whom I knew about the end of that dream. Few had much to say about Japan's economic problems, although it would be mentioned in the press. It seems that it was not yet real to many.

It seems similar today, (at least among people I speak to*, most of whom should know better) only this time the problems of the US are very, very, real and very, very, serious. The problems have just begun for Japan too, and I suspect they will be very, very real and very, very, serious soon enough---no matter what the government, the banks, and others were claiming just a month ago. I have even had one Thunderbird MBA explain how the US problems meant that Japan would surpass the US in his imaginary world of a US/Japan who's-on-top cycle. He sorta forgot China and the fact that we may all be on a downward cycle.

John B. Judis has an extremely interesting and important article on Japan Focus in which he takes a look at the house of cards that the US/Japan/China economies are operating on:

The international monetary system is in big trouble.

For decades, the United States has relied on a tortuous financial arrangement that knits together its economy with those of China and Japan. This informal system has allowed Asian countries to run huge export surpluses with the United States, while allowing the United States to run huge budget deficits without having to raise interest rates or taxes, and to run huge trade deficits without abruptly depreciating its currency. I couldn't find a single instance of Obama discussing this issue, but it has been an obsession of bankers, international economists, and high officials like Federal Reserve Chairman Ben Bernanke. They think this informal system contributed to today's financial crisis. Worse, they fear that its breakdown could turn the looming downturn into something resembling the global depression of the 1930s...

...economists Brad Setser and Nouriel Roubini argue that even the implicit threat of dumping dollars--or of ceasing to purchase them--could limit U.S. maneuverability abroad.

We are all just waiting for the other (truckloads of huge) shoes to drop. See Japan Focus here for the full article.

Also see a translated essay at Japan Focus (here) by Tahara Soichiro The Tamogami Essay: The Danger of Indignation is the Heart of the Problem.”

*Polls and surveys are showing that a majority are worried about the economy.

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