Guest Post: The Future of America Is Japan: Stagnation

Tyler Durden's picture

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

If Japan's economy has stagnated during a global boom, what will it do during a global bust?

Japan's economy has stagnated for two decades despite the global economy experiencing one of its greatest economic booms ever. To get a sense of the stagnation, let's look at some charts, courtesy of frequent contributor B.C.

It's difficult to maintain widespread prosperity if the percentage of the populace powering the economy declines. Here is a chart of the employment-population ratio in Japan and the U.S.

B.C.'s comment: The US is 12 years behind the Japanese peak Baby Boomer curve (1947-49 and 1956-61). Beginning next year, the peak demographic drag effects begin in earnest for those peak Boomers turning age 62-65 en masse. With US fertility rate falling below replacement at 1.9, we will not experience a reacceleration of the employment-population ratio.

Despite 23 years of unprecedented stimulus and deficit spending, Japan's consumer price index (CPI) is at 1994 levels. Japan's stock market and real estate bubbles peaked between 1989 and 1991. CPI rose smartly in the post-bubble decline and then leveled off, rising during the tech/dot-com bubble of the late 1990s and the global commodity bubble of 2008. But despite these temporary (and modest) spikes, adjusted CPI is back to 1994 levels. So much for inflating away one's debts.

Japan's gross domestic product (GDP) has oscillated around the zero line for 20 years. Japan was in effect bailed out by China's massive stimulus spending after the 2008 global financial meltdown, but now that China's growth and stimulus are both slowing, saviors of Japan's export-dependent GDP are nowhere in sight.

Japan has relied on government deficit spending to prop up its economy and GDP. Deficit spending means borrowing money via the bond market and squandering it on sclerotic fiefdoms, entrenched cartels and bridges to nowhere (the construction industry cartel).

Subtract government spending from GDP and we get a snapshot of the private-sector economy. The private-sector GDP topped in 2007, and has not recovered that peak.

Yesterday we covered Japan's "fiscal cliff," as tax revenues don't even cover interest on the national debt and Social Security. ( The Future of America Is Japan: Runaway Deficits, Runaway Debts)

Japan continues to avoid fiscal or financial crisis, and perhaps it can do so for decades to come. But we should note that Japan has had the incredible, once-in-a-lifetime tailwind of a global boom for the past 23 years. That has enabled Japan, and all the other developed economies, the means to avoid facing their structural and demographic problems.

If Japan's economy has stagnated during a global boom, what will it do during a global bust? How will it fare as demographic forces reduce its workforce while increasing the number of retirees depending on government spending? Can a nation borrow its way to prosperity while its tax base erodes and its Central State expenses skyrocket?

Japan's stable stagnation will continue in a linear fashion--until it doesn't.

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LawsofPhysics's picture

Could we get a 30 year chart of the NIKKEI, just to really complete the picture for all those fresh graduates out there. --  Thanks.

babylon15's picture

Japan didn't have Bernanke-san.  What go up, must go up more.

Half_A_Billion_Hollow_Points's picture

Please compare Japan's great balance of trade with the USA's FUBAR balance of trade next time.

Quinvarius's picture

You need one of the US 80's, not the Japan 90's.

LawsofPhysics's picture

wrong.  In the 80's interest rates went up substantial on American paper.  Go ahead, raise interest rates now, I double dog dare you.  - FAIL.

Mountainview's picture

No, QEternity and the current account deficit will lead to the final US Dollar meltdown...It's only a question of when !!!

Snidley Whipsnae's picture

Kyle Bass... all you need to read regarding the outcome in Japan. BTW, Mr Bass was the man that took physical delivery and rattled some cages.

LULZBank's picture

Americans wa Nihon-jin desu Bitchezz!!!

asteroids's picture

It'll continue until most of the old generation dies off and transfers what little wealth to the new generation. Where up inflation will hit big time.  Another 15-20 years.

DaveyJones's picture

The Future of America is Japan: military defeat, smaller cars and internment camps

the 300000000th percent's picture

Yeah GDP can change by merely just deciding what new things you are going to start calling "products"

odatruf's picture

Now that home gardening has become vogue once again, how long before the value is included in GDP?

It is production. It is consumed. That it is personally produced and consumed is irrelevant to the market effect (see Wickard v. Filburn).

This one guy tried to calculate the replacement consumption value of his garden ( and calculated a total of about $2,100. He is probably more active than most would ever be, but when you consider that there are about 110 million households (with replacement community gardens for those with no space), right there you could boost GDP a quarter trillion just be changing the definition. Even cut the effect in half and you'd still be at more than $100 billion. Then add backyard auto mechanics plus homeowner performed renovations.

Mowing your own lawn? Bang, you've just added another AAPL equivalent to the Good Old USA economic might! Cutting your children's hair? There is another GE.

Now let's talk about the taxes that are owed on all that....


Sandmann's picture

Japan also transferred its production to China to circumvent tariffs in Western importers and quantitative controls on products. It hollowed itself out in order to swamp the world with volume following its overcapacity binge in the 1980s funded with Equity Warrants. It was then that Sony became larger than Matsushita in Audio-Visual and essentially produced for volume instead of profit or cashflow.

The Japanese let Samsung and LG become leaders in flat-panel displays and memory and businesses like Sony stuck with CRT too long. It is not simply demographics,. it is the attempt to stay as global suppliers at every price point that has destroyed their advantage and substituted cheap Chinese production for quality Japanese goods. They have destroyed their brands by subcontracting to Chinese producers and becoming wrapper businesses rather than going upmarket and leaving the volume business.



fuu's picture

Stagnant like puddles of irradiated rain water in the Fukushima parking lot.

alstry's picture


as technology replaces the need for industrial jobs, people become industrial zombies in a world where we starting milking each other

Gene Parmesan's picture

In other words, The future of America is not Japan, but the TPTB are mistakenly thinking that it will be?

adr's picture

Japan was able to get its own people to buy trillions worth of the government's debt. The USA, not so much.

That is how Japan has existed for the past 20 years. The latest crash caused an unbelievable surge in the Yen, which has just about put every Japanese company out of business unless the Yen can be devalued.

That is why Japan has tried unsuccessfully for the past three years to drive the Yen down. 90 Yen per dollar is not ideal, but sustainable to make profit off US business. 78 Yen per dollar is not. Japan would like 100 Yen per dollar and is really ideal for both sides.

tip e. canoe's picture

no, the USA got its TBTF banks (and their golem the FED) to buy it all up instead.

odatruf's picture

"TBTF banks (and their golem the FED)" = awesome on so many levels.

Dr. Engali's picture

The U.S. will differ from Japan in the long term for three reasons. 1) we don't have the savings rate that Japan has. 2) Our debt issuance to support the economy dwarfs Japan's...there simply aren't enough buyers. 3) We produce almost nothing but consume everything. The world will not be as kind to feed our consumption in the coming years.

LawsofPhysics's picture

Right, now how did we "get out" of that funk?  We raised interest rates.  Go ahead motherfucker, raise treasury rates now, come on, I double dog dare you - FAIL.

Everybodys All American's picture

Bernanke will leave the next Fed chairman a mess. It will take raising interest rates at some point otherwise we all just become totally irrelevant as everything will be made up by the central planners. Everything.

Dr. Engali's picture

They can never ever raise rates....ever. Look at how much damage just raising rates did when they moved up .25 bps per quarter. Now we have more derivatives and more government debt that will be impossible to service.


Edit....not to mention if they raise rates it will blow up the fed's balance sheet, especially since they are lengthening duration.

Everybodys All American's picture

I understand the balance sheet issue but in order to combat future inflation the Fed will have no choice but to begin icremental raising of rates. Volker had to and so will the next chaiman whenever the inflation nightmare comes knocking. It will force severe cutbacks in US gdp forecasts and government services but it's coming and there is no other outcome possible.  Unless everything becomes fake. Everything.

Btw all of you Ron Paul guys needs to ask Mr. Paul why he doesn't grill Bernanke on this very point when he sits before him.

pods's picture

The FED is in the coffin corner. They cannot raise rates now because the US cannot service the ever increasing debt load with higher rates.  The US is still deficit spending about $1 TRILLION or more per year.  They cannot service existing debt at higher rates, nevermind issuing more debt.

Inflation is something that is reported, is it not?

That is your answer right there.  Sort of like how someday they will be raising our chocolate rations to 20 grams from 30 grams.

The only answer is slow ahead hoping that somehow the private sector can take the reins on debt issuance.  That is the only play or the whole nation, ie the FEDs protector goes kaboom.


Dr. Engali's picture

Inflation is the Bernank's stated policy...they will not and can not raise rates. There is no other way out of this except though inflation.

ItsDanger's picture

I've said this for quite a while.  The difference is that US will likely be short term while Japan has been in a malaise for an extended period.  A key factor that will help is inflation (incr in wages, rise of middle class) in the so called developing world.

imapopulistnow's picture

Good stuff.  It is in the demographic cards.  We will follow Japan's approach for there is no other way to counter the demographic-caused slower growth rates - unless we ramp up immigration.

Monedas's picture

Even negative interest rates won't discourage the Randian filth from buying bonds and bailing out the "Nigger Prince" of Honolulu !  Question of the day:  Was the American ambassador to Libya gay ?  He had that look, was single (Have any idea of how generous family allowances are for ambassadors ?), kept a "diary" (which the attackers left for all to see), loved Libya, "roughed it" in Benghazi and shunned the straight night life of Tripoli, openly advertised for partners of same sex couples to work at the embassy ? There's a lot to this story we'll never be told ! 

SWIFT 760's picture

Totally bizarre if your info has merit. What's your opinion why he got whacked?