Researchers in Japan have recently revealed something unpleasant. Something the previous Japanese government had kept purposefully hidden. Something our western governments might also wish had stayed secret.
What the previous government knew but never published, is that Japan’s POVERTY rate has DOUBLED since the nation’s real estate and stock markets collapsed in the early 1990s. The number of families living below the same poverty level we use, has doubled. Why? Why has this financial and industrial titan let 15.3% of its people sink into poverty that shames it?
The answer, I believe, stands as a clear and grim warning to us.
Our financial crisis began in 08. Theirs began in the 90’s. From the beginning Japan has followed the policy we are now. Japan had an epic property bubble. It burst. Most of its banks were swamped by a tsunami of bad debts. The government had a moment to make a clear choice. The Japanese banks thundered, as ours have done, that they could not be allowed to collapse. If they did, the government was told, Japan would would be crippled, industry would would shrivel and die, and ordinary people would be impoverished. The government stepped in and poured trillion upon trillion of Yen into its banks. Twenty years later it is still pouring more trillions into the same bottomless chasm.
The policy, they believed, as our experts now do, would re-inflate the economy. Pumping money into the banks would increase lending, people would spend, industry would produce and grow and pour money back into the revived banks who would repay their debt.
But it DID NOT HAPPEN. The research, based on official Japanese government figures shows, without argument, that this policy created two decades of wage stagnation, and for many people year on year wage decreases. The banks did not lend. They did not ‘help’. The Japanese stock market is still a shadow of what it once was. People did not spend and take on debt and industry and retail did not open their doors to new employees. The banks remained and still are, festering and rotting mouths sucking on the body of Japanese society.
But wait, you might object, Japan did not collapse. It’s giant companies are still giant. Toyota and Sony are still monstrous. And of course it’s true. And there is the rub. The government saved the banks and has allowed them to parasitise the country. Japans debt is astronomically large. The largest companies are still large, but the people have been forgotten. They have believe if they saved the ‘economy’ then it would save them. Only is didn’t. It left them behind. There are two economies. One for the elite. Another for the poor.
There has been no prosperity for working people in Japan. The same researchers found, “lower paid and precarious forms of employment have increase in a steady pace, in the last ten years, subtly replacing stable with no further guarantees, creating a new form of ‘working poor’, likely to be excluded form public assistance benefits by reason of ‘their capacity to work'”.
And how they come to a crunch. Twice so far this year Fitch and Moodys have ‘warned’ Japan that its debt level are now so large that tis sovereign rating may have to be cut. Japanese debt is now over 200% of even Japan’s massive GDP. So why such warnings now?
The new government has started to spend money of people, on their unemployment and on their poverty. And suddenly come the warnings. Decades of limitless spending on banks and one failed ‘stimulus’ after another which created this vast debt and not a word was heard. The first sips of spending on the poverty of people and now the insistent warnings are of the need for ‘fiscal consolidation’.
Does any of that sound at all familiar? That is the future awaiting us. The future we and our children are being purposefully herded towards.
Yes, it is frightening. But Japan has a very different culture in that the populace are avid savers and they have a huge mountain of cash in the banks (I would guess). Of course the end result will in all probability be exactly the same I agree.
Where to now? Is gold a good idea? Will my savings evaporate? Did that happen in Japan? This is a multi-dimensional problem. I am reading 'Fooled by Randomness' by Nassim Nicholas Taleb, some good observations in there.
IanG,
I think you touch one of the saddest parts of it. The Japanese are, as you say avid savers. Over the last twenty years the Japanese have chosen to invest the vast bilk of those savings in government bonds. It has meant that until now the Japanese despite their vast 200% of GDP debt have hardly had to sell any of it outside Japan. The Japanese people have bought it, their pension funds have bought it and the company pension funds have bought it.
All that money, all those hopes for the future, that the Japanese saved has already been spent by their government bailing out a debt riddled financial system.
Should the Japanese debt ever collapse it will wipe away every last vestige of their post war endeavour and wealth. It is all sunk in the same pit.
Part of why the Ratings agencies are now warning Japan about its debt is because that aquifer of savings has now run dry. Japan now does have to start selling its debt on the open market.
The fear is that once Japan has to start selling its debt on the open market then suddenly its 200% debt to GDP will matter and the rate they will have to pay will start to go up. If it does then the almost zero percent interest rates Japan has used to keep its never ending stimulus going will be unsustainable.
I have wondered for a time if Japan might be a wild card that people are not looking at.
Would you consider writing to let us know what you think of Taleb's book?
Thank you Golem for putting this so clearly. Another stark warning from recent history goes unlearned.
My Pleasure.