Skip to content


Is America Today In Worse Shape Than Japan During Its Lost Decade?

As I noted last year:

Our savings is … dramatically lower than Japan’s when that country entered into its Lost Decade. So the Japanese were much better prepared than we are.

(I also noted that we’re in worse shape than America was going into the Great Depression … but that’s another story).

Now, BIS – the central banks’ central bank – agrees that Americans are in worse shape than the Japanese.

Specifically, a new BIS paper written by Shinobu Nakagawa (Director, Head of Investment and Market Research, International Department, Bank of Japan) and Yosuke Yasui (International Department, Bank of Japan) concludes that Japan was better able to weather the Lost Decade than the U.S. is able to weather our current economic woes, given three differences between the two cultures:

This paper aims to show the difference in vulnerability to financial shocks between Japan’s household sector and its banking sector and between the Japanese and US household sectors.

***

The average Japanese household has a financial balance sheet that is far more conservative than that of the representative household in other industrialised countries: in the case of Japan, cash and deposits represent half of total financial assets…. In contrast, the ratio for US households is only 16%, while Europeans hold about one fourth to one third of financial assets in these safe and liquid products.

***

Japanese households did not rely much on mortgage funding in the bubble period around 1990 …. The representative Japanese household accumulated the large down payment required for purchasing a home on credit and, unlike many homeowners in the United States, did not subsequently extract equity from the house through additional bank loans.

***

The conservative approach to debt taken by Japanese households mitigated the effects of the decade-long economic slump. Indeed, household bankruptcies were not widely recorded in that period because the quantity of safe and liquid buffer assets, such as bank deposits and postal savings, was always greater than debt on the average household balance sheet.

***

Credit risks are eventually concentrated in the Japanese banking system, which has
not changed fundamentally in decades.

Securitisation markets are, in contrast, well developed in the United Kingdom and the United States. UK and US banks are eager to transfer credit risks to a variety of investors in the financial system, including life insurers, pension funds and hedge funds…. Particularly for the markets in which off-balance sheet securitisation has deeply penetrated the credit markets – once credit, liquidity or other shocks occur, they could trigger the onset of risk contagion across a wide range of economic agents, including households.

***

The difference between the highest and lowest income groups [in the U.S.] is far greater than in Japan…. Net worth is much more evenly distributed in Japan [than in the U.S.]

***

The differences we found can be summarised as follows:

(1) Household leverage, relative to both safe and liquid assets and to GDP, is smaller in Japan than in other industrialised countries, and was so even during Japan’s bubble period.

(2) The finances of Japanese households were not severely damaged by the mid-1990s
bursting of the bubble. Banks, however, with their large accumulation of household
deposits on the liability side of their balance sheets, were a victim of their large
holdings of defaulted corporate loans and the resulting capital deterioration during
the bust; in response, banks tightened credit significantly during this period.

(3) Household net worth in Japan is not highly concentrated. Thus, regardless of income level, Japanese households are in general resilient to shocks thanks to a sizeable buffer of assets and moderate leverage. The situation is quite different in the United States, where the distribution of net worth among households is highly skewed in favour of the highest-income cohorts. With only a thin buffer of assets, low-income families in the United States – the subprime cohorts – could be vulnerable to market shocks.

On the other hand, U.S. age demographics aren’t quite as horrible as Japan’s.

As I noted last year:

The following chart shows that Japan has the worst demographics of all, with a staggering percentage of elderly who need to be taken care of by the young:

Chart 2: Old Age Dependency Ratios for Selected Countries

clip_image002[5]

Source: http://data.un.org/

The chief economist for Standard and Poor’s is now confirming the importance of national demographics:

But I don’t think [a lost decade in the U.S. is] as likely over here. For one thing, one of the problems in Japan was the demographics. And we don’t have the problem of a declining population to deal with, although the labor force is going to slow down considerably as soon as the baby boomers retire.

Similarly, CNN Money reported last month:

Some economists think there is a very important difference between Japan and the United States that can’t be overlooked. And it could keep the U.S. from plunging into a long-term deflationary spiral. Demographics.

Simply put, the United States is not faced with as big of a percentage of people getting older and retiring as was the case in Japan during its Lost Decade.

According to research from Brockhouse Cooper, a brokerage firm based in Montreal, the percentage of people aged 65 or older nearly doubled in Japan between 1990 and 2008. Meanwhile, that percentage has stayed roughly the same in the U.S.

So even though there are a lot more people in the U.S. that are retiring as the Baby Boomer generation gets older, total population growth is rising due to high fertility rates and increased immigration. That’s key since younger consumers tend to spend more.

“Demographics are the main difference between Japan and the United States. Aging in Japan was a huge issue that led to stagnation,” said Alex Bellefleur, a financial economist with Brockhouse Cooper. “Senior citizens tend to have consumption patterns that are a lot different than their younger counterparts. They’re not buying as many homes, cars and other durable goods.”

There’s also the issue of what governments have to do in order to support their aging populations. With a greater percentage of older retirees, that puts a bigger strain on fiscal budgets, which could contribute to deflationary pressure and economic sluggishness.

Along those lines, Japan currently has only 2.9 workers supporting retirees, said Tom Higgins, chief economist with Payden & Rygel, a Los Angeles-based money management firm. By way of comparison, there are 5 workers for each retired person in the United States.

For that reason, Higgins said it is an “overly simplistic generalization” to suggest that the United States is destined for its own Lost Decade just because the U.S. and Japan both experienced a nasty downturn following an asset bubble.

Simply put, the strain on the U.S. government by an aging population shouldn’t be as severe as it was in Japan.

Indeed, as the following chart from Japan’s Ministry of Internal Affairs clearly shows, the aging of Japan’s population from 1990 onward has far outstripped the projected aging of the American population (trace Japan from 1990 onward with your finger; then do the same for the U.S. starting in 2010):

Figure 2.4 Proportion of Elderly Population by Country (Aged 65 years and over)

(America’s demographics are still horrible compared to those of countries like India, but still better than Japan’s).

Moreover, as I’ve previously pointed out, the peak spending years are younger in Japan than in the U.S.:

The peak Japanese spending range has been estimated to be comprised of 39-43 year olds. The more 39-43 year olds Japan has at any given time, the more consumer spending there will be, as these are the folks who are the big spenders in Japan. Dent argues that the Japanese economy will tend to grow when the number of 39-43 year olds grows, and to shrink when it shrinks.

***
In the U.S., Dent says, 46-50 year olds are the biggest spenders, because that is when – on average – they are paying for their kids’ college, paying mortgage on the biggest house they will own during their life, and making other big-ticket purchases.

In other words, aging hurts Japan more than it hurts the U.S., because the peak earning years are 7 years younger in Japan than in the U.S.

Of course, if unemployment doesn’t decline, this point may be moot … unemployed 46-50 year olds are not going to be peak earners.

Hat tip Tyler Durden.

View the original article at Washingtons Blog

Related Posts with Thumbnails

Posted in Finance & Economics, Politics.

Tagged with , , , , .


0 Responses

Stay in touch with the conversation, subscribe to the RSS feed for comments on this post.



Some HTML is OK

or, reply to this post via trackback.

Support #altnews & keep Dark Politricks alive

Remember I told you over 5 years ago that they would be trying to shut down sites and YouTube channels that are not promoting the "Official" view. Well it's all happening now big time. Peoples Channels get no money from YouTube any more and Google is being fishy with their AdSense giving money for some clicks but not others. The time is here, it's not "Obama's Internet Cut Off Switch" it's "Trumps Sell Everyones Internet Dirty Laundry Garage Sale". This site must be on some list at GCHQ/NSA as my AdSense revenue which I rely on has gone down by a third. Either people are not helping out by visiting sponsors sanymore or I am being blackballed like many YouTube sites.

It's not just Google/YouTube defunding altenative chanels (mine was shut), but Facebook is also removing content, shutting pages, profiles and groups and removing funds from #altnews that way as well. I was recently kicked off FB and had a page "unpublished" with no reason given. If you don't know already all Facebooks Private Messages and Secret Groups are still analysed and checked for words related to drugs, sex, war etc against their own TOS. Personally I know there are undercover Irish police moving from group to group cloning peoples accounts and getting people booted. Worse than that I know some people in prison now for the content they had on their "secret private group". Use Telegrams secret chat mode to chat on, or if you prefer Wickr. If you really need to, buy a dumb phone with nothing for the NSA/GCHQ to hack into. Ensure it has no GPS tracking on it and that the battery can be removed. These are usually built for old people to get used to technology storing only a set of numbers to call. However they have no games, applications to install or other ways people can exploit the computer tracking device you carry round with you most of the day - your smart phone. If you are paranoid ensure that you can remove the battery when travelling around and do so to prevent GPS tracking or phone mast triangulation. Even with your phone in Flight mode or turned off, it can be turned on remotely and any features like front or back cameras, microphones and keylogging software can be installed to trace you.

So if your not supporting this site already which brings you news from the Left to the Right (really the same war mongering rubbish) then I could REALLY do with some..

Even if it's just £5 or tick the monthly subscription box and throw a few pound my way each month, it will be much appreciated. Read on to find out why.

Why?

Any support to keep this site would be appreciated. You could set up a monthly subscription for £2 like some people do or you could pay a one off donation as a gift.
I am not asking you to pay me for other people's articles, this is a clearing house as well as place to put my own views out into the world. I am asking for help to write more articles like my recent false flag gas attack to get WWIII started in Syria, and Trump away from Putin. Hopefully a few missiles won't mean a WikiLeaks release of that infamous video Trump apparently made in a Russian bedroom with Prostitutes. Also please note that this article was written just an hour after the papers came out, and I always come back and update them.

If you want to read JUST my own articles then use the top menu I have written hundreds of articles for this site and I host numerous amounts of material that has seen me the victim of hacks, DOS plus I have been kicked off multiple hosting companies, free blogging sites, and I have even had threats to cease and desist from the US armed forces. Therefore I have to pay for my own server which is NOT cheap. The more people who read these article on this site the more it costs me so some support would be much appreciated.

I have backups of removed reports shown, then taken down after pressure, that show collusion between nations and the media. I have the full redacted 28/29 pages from the 9.11 commission on the site which seems to have been forgotten about as we help Saudi Arabia bomb Yemeni kids hiding in the rubble with white phosphorus, an illegal weaapon. One that the Israeli's even used when they bombed the UN compound in Gaza during Operation Cast Lead. We complain about Syrian troops (US Controlled ISIS) using chemical weapons to kill "beautiful babies". I suppose all those babies we kill in Iraq, Yemen, Somalia and Syria are just not beautiful enough for Trumps beautiful baby ratio. Plus we kill about 100 times as many as ISIS or the Syrian army have managed by a factor of about 1000 to 1.

I also have a backup of the FOX News series that looked into Israeli connections to 9.11. Obviously FOX removed that as soon as AIPAC, ADL and the rest of the Hasbra brigade protested.

I also have a copy of the the original Liberal Democrats Freedom Bill which was quickly and quietly removed from their site once they enacted and replaced with some watered down rubbish instead once they got into power. No change to police tactics, protesting or our unfair extradition treaty with the USA but we did get a stop to being clamped on private land instead of the mny great ideas in the original.

So ANY support to keep this site running would be much appreciated! I don't have much money after leaving my job and it is a choice between shutting the server or selling the domain or paying a lot of money just so I can show this material.

Material like the FSB Bombings that put Putin in power or the Google no 1 spot when you search for protecting yourself from UK Police with "how to give a no comment interview". If you see any adverts that interest you then please visit them as it helps me without you even needing to give me any money. A few clicks per visit is all it takes to help keep the servers running and tag any tweets with alternative news from the mainstream with the #altnews hashtag I created to keep it alive!

However if you don't want to use the very obvious and cost free ways (to you) to help the site and keep me writing for it then please consider making a small donation. Especially if you have a few quid sitting in your PayPal account doing nothing useful. Why not do a monthly subscription for less money instead. Will you really notice £5 a month?



css.php