SocGen's Albert Edwards reflects that we have a lot to learn from Japan's Lost Decade as a prequel to the current chaos the global macro-economy is undergoing. Drawing on work by Peter Tasker [6], Edwards notes the similar-to-current-Euro-thinking consensus view in Japan was that their banks were at the center of the economic woes and hence bank recaps were the turning point. Critically Tasker and Edwards disagreed, as "although the banking sector was indeed damaging the economy via a credit crunch, the banks were not the problem but a symptom of the problem: the true problem was deflation and the lack of stimulative policies. Indeed, Japanese banks did not start underperforming the overall market until 1997 as they became the victims of the economic weakness; they were not the origin of that malaise. And so it is in the eurozone. The Spanish banking sector is a victim of deflationary policies enacted at the behest of German economic orthodoxy. A bailout will solve nothing."
[7]
Edwards notes the lesson from Japan was that:
...overly focusing on the banks as "the problem" is misguided and until or unless deeply deflationary policies are altered, the Spanish banks will be back for another bailout before too long.