The United States of Japan
By Conor | February 4, 2008
It is quite clear that the current US economy is in trouble. While people are definitely worried about the short term issues, I think the longer term is much less negative. Speaking to people in general, very few are worried that the economy will stagnant for a long period of time and most expect the US to return to growth at some point in the next couple of years.
What some people do not understand is that Japan has been through this exact economic downturn before and it took them almost 15 years to come out of that recession. And whether Japan has turned into a growing economy still remains to be seen. Japan is one of the worst performing markets so far in 2008, so investors are obviously quick to sell on any worries there. It could possibly rebound this year, but there is a chance it takes several years still to really start booming again.
In my opinion, the US is still too bullish longer term on the economy. Americans are so used to a growing economy, with hard, fast corrections, that we do not know what its like to see slow or no growth for a longer period of time. Everyone I speak with that is not holding real estate is currently watching the market like a hawk and trying to figure out how to catch the falling knife. What if the market bottoms out, but does not rebound? Yes, if you buy (real estate or stocks) at the bottom and the market just stays there, you will not necessarily lose money. But what about the opportunities you are missing out by not buying foreign real estate or stocks?
To gain a better understanding of what happened in Japan and why the Fed reaction of lowering interest rates so quickly, please read “Is US entering Japan’s nightmare?“, sent to me by my boss this morning. It provides some very clear reasoning that echoes entirely what I mentioned. The large overreactions of the Fed to try and save the banks this quickly, will only backfire in the longer term as inflation grows and the banks still have write off further debt. When the US banks really enter the troubled times (even with the writedowns they all still had profits last year), they will have less support from the government as the Fed has used all their bullets. Many traders and global economists do see the correlation to Japan’s economic history, yet it seems few truly believe it could happen to the US.
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February 4th, 2008 at 1:34 pm
Conor,
Great post… it really gets you thinking. A lot of us are worried about the economic standpoint of the United States now and in the future. Me and a couple buddies were just having this conversation a couple days ago… who knows what the future holds.. The article you posted was a great read and really got me thinking. Looks like I’m going to have to forward them to your site!
Going to do a little more searching on Japanese economics