Japan

[superfrank]

good discussion on Newsnight last night with the delightful (and insightful) Gillian Tett...

http://www.bbc.co.uk/iplayer/episode/b0 ... /?t=37m31s

the guy argues that the lost decades story is a myth and that Japan is successful despite it's GDP (which is not comparable to western GBP measures - overstated and reliant on debt and population growth).

the only reason western economists don't like Japan is because its property and share prices have fallen for the last 20 years. on any other measure Japan is very successful (economically and socially).

after their crash Japan didn't try to reflate, they concentrated on what worked and recognised that ponzi financial schemes based on forever rising asset prices is a doomed strategy (that's what the west has failed to learn).

[mulberryhawk]

I was under the impression that Japan was the first country to adopt QE and in fact it was the loosening of fiscal and monetary policy which enabled the country to continue growing, albeit at a relatively anaemic rate. The trade off being the increase in the govt debt burden. Richard Koo seems to back up this view.

Japan managed to avoid a depression, however, because the government borrowed and spent In spite of a massive loss of wealth and private sector deleveraging reaching over 10 percent of GDP per year, Japan managed to keep its GDP above the bubble peak throughout the post-1990 era , and the unemployment rate never climbed above 5.5 percent.

This government action maintained incomes in the private sector and allowed businesses and households to pay down debt. By 2005 the private sector had completed its balance sheet repairs.

Although this fiscal action increased government debt by 460 trillion yen or 92 percent of GDP during the 1990–2005 period, the amount of GDP preserved by fiscal action compared with a depression scenario was far greater.

[superfrank]

but there's a big difference between emergency support designed to prevent contagion to an otherwise successful economy, and support designed to reflate economies based on the things that caused the problems in the first place (asset price bubbles and debt-based consumption).

it's no surprise that the purchasing power of the £ to the Yen has almost halved in recent years. the fact that Japan still manages to run big trade surpluses despite a very strong currency is a credit to them.

[Euler]

Japan went down the Kenysian route if I am remember correctly. Yhey spent a fortune on infrastructure projects but it has failed to kick start the economy. Which is why government debt levels are so high.

Demographics have been against the Japanese for some time. But ultimately if you can't pay down debt then the domestic economy is always going to struggle under the weight of servicing those debts.