Paul Kedrosky: Why Japan Isn't the U.S., or the Reverse.
quoted from Why Japan Isn't the U.S., or the Reverse.
Lots of people continue to make over-strict comparisons between Japan's debt-engorged situation and that of the U.S. There is a new Credit Suisse report out arguing that such comparisons are way overdone. Here are the main bullets:
- The US has had far more proactive fiscal/monetary policy (Japanese monetary conditions were tight until 1995 unlike the US today, Japan fiscal easing was small);
- Japan had falling wages since 1997 and negative inflation expectations since 1993 (US wage growth and inflation expectations are >2%). Falling wages create sustained deflation;
- Asset deflation was more acute in Japan, with house prices declining by almost 80% in the big cities;
- The US moved to recapitalise banks quickly and have already written down 85% of their estimated losses (Japan needed 13 years to do that);
- Japan was very slow to de-regulate (and hence the price of labour fell as oppose to the quantity) with companies having little incentive to maximise RoE, the return on capital is a third of the US;
- Deflation became economically and politically acceptable because Japanese households have net financial assets of 41% of GDP so they benefit from deflation.
I don't disagree, but keep in mind that it's early. Japan has had more time to sink deeply into its mess than the U.S. has.
I'd like to think that the various US government bailouts have helped us avoid a decade of deflation, but I strongly believe there has been a structural shift in employment that will leave a lot of blue collar / lower middle class people out of work for a long time.