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Is a global lost decade on the cards?

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By Henry Hilton

Suddenly Japan's dismal post-bubble era is top news. Economists and politicians everywhere are eager to learn how Tokyo got into its mess. Even more importantly they want to know why it took ages and ages for Japan Inc to escape from low growth, deflation and a total stock market collapse. The parallels are never going to be exact but the West and developing economies alike are hoping that they might grab clues from Japan's lost decade on how not to fester for so long.

Already, voices in Tokyo are reckoning that the United States' economic future might be far worse than the misery that hit Japan once its speculative boom fed by property speculation burst so catastrophically after 1990. Memories of the collapse of Hokkaido Takushoku Bank and Yamaichi Securities are being rekindled, though no one so far in the West appears to be so brave or foolhardy to actually say much by way of an apology. Fear of litigation makes it certain that few of those massive bonuses are ever going to be returned to the banks and corporations that handed them out like candy until recently.

Graphs are now available contrasting the size of the Japanese government's intervention in the 1990s with the bailouts that are ongoing in the United States, Britain, the Eurozone and beyond. It isn't a pretty picture and there may well be more partial nationalizations to come in the West. Even bigger bills are possible as the financial instability now begins to work on the "real" economy and the world has to confront a global recession, though politicians being politicians prefer to dub this a mere "contraction."

It is going to be little consolation for Americans and Europeans to be told that the Japanese taxpayer shelled out billions and billions of yen to aid the nation's sick financial sector. The fact that it was only after a very lengthy process that these huge state interventions finally worked to shore up the economy and revive Japan's banking sector suggests that the West too is in for a protracted period of economic and possibly social trouble.

The position of the Tokyo stock exchange after a decade plus of slumping prices is even more dire. The markets have dipped and dipped for so long that it is impossible to imagine if there will ever be a return to the pre-bubble boom. Those who put their life savings into the exchange in the late 1980s will have taken massive hits on their investments, though in the last decade even capitalism Japanese-style has started to distribute more generous dividend income than the miserable crumbs that were once the norm.

After this autumn's debacle, money-back predictions for the next decade are surely in order. First, major governmental interventions are now guaranteed to continue as old ideologies are consigned to the bonfire and everyone starts quoting Lord Keynes and invokes counter-cyclical stances. All the G-8 states are determined to bring the financial system back from the dead with British Premier Gordon Brown instructing the world on market capitalization and the urgent need for global economic and financial reforms. Politicians such as Mr Brown, who was widely unpopular only a month ago, are bidding to restore calm. His government is now eagerly anticipating electoral favors for having rescued millions of savers with categorical assurances that their money is really safe.

Yet at some time in the next two to three years, all these mega-spending programs from the British, Italian and French states will come due and the bills will have to be paid. Huge budget deficits would then leave the public facing a round of fresh tax increases to shore up their hated banks. If unemployment were also to remain stubbornly high, then many G-8 leaders and their ruling parties, including Japan's Liberal Democratic coalition led by Taro Aso, could well take a tumble.

It is also likely that the economic, social and environmental costs for what is going to be a period of stagflation will be considerable. Electorates that can only recall the good years are going to have to accept that it is downhill from now on. Falling house prices, bank disruptions and rising unemployment will test each and every democratic government to the hilt. European politicians are already telling immigrants to go home and aid to the developing world is likely to be cut as nations look increasingly to protect their citizens' livelihoods at all costs.

The Japanese experience during its long decade plus of low growth and faltering banks could become the way of the world. Some states can put an ax to their bank rates but it has to be underlined that not even near zero interest rates did very much to get Tokyo moving again in the 1990s.

In an international system that appears at present to be largely bereft of effective leadership, it's difficult to spot much good news. It might be better to accept that the noughty decade of the early 21st century is in the process of being replaced by a nasty one. The lights are all flashing red.

© Japan Today

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15 Comments
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We can learn from history as well. The dark economic nightmare of the late 1920's-30's gave power to the rise of fascism in Europe and helped usher in the second world war.

Under economic and employment pressure nations often shift to some form of instability. They swing right or left as people demand change and opportunists leverage that for their own political agenda.

If China slips under the waves of economic downturn as her best customers stop importing goods and investing, there will almost certainly be social and political upheaval there. Europe will swing right with anti-immigrant and protectionist views. The US is already right, but could see a period of balance if Obama is elected. Though his success will hinge upon keeping people in their jobs.

Japan will not be immune. It may be the chance that the right has been dreaming of.

Worst worry, is that the nations realize the economic motor that war can bring. Russia and the West could renew their cold war now that Russia has the money and resources leveraged to keep pace with the flaggin western states. There are still wars to be invented with Iran and expansion of the Afghan conflict. And then there are the new cold war battle grounds of Central Asia to consider.

Bad economic times often lead to war and conflict. I fear that is the future the next phase of the 21st century could hold if we do not keep our wits as we move through this time.

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Right now, leaders from the U.S.A. and Russia are meeting secretly to decide who the pawns will be that they will pretend to fight over to revive their respective economies. I'd hate to be a country with oil now, the big boys are coming for you.

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Makes perfect sense. Prolong useless war with Iraq in order to establish permanent military presence, then use it as the command center for war.

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I meant command center for war in neighboring regions.
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Its all about one thing, GREED.

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"It is going to be little consolation for Americans and Europeans to be told that the Japanese taxpayer shelled out billions and billions of yen to aid the nation’s sick financial sector" ....at least in Europe I would find that scenario rare as little or nothing has or probably will be mentioned on TV/communication to the majority about previous bailouts in Japan ( where that?.. don't see much about them on tv, unless it some wacky video). Instead it will be broadcast that is all the the doing and new ideas of certain European "leaders"... the public will mostly be non the wiser.

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..add to that Japan ignorance in previous post.. maybe alot of Japanese might(but maybe not if they really know about the outside world and not the normal foreign country, nice neh, rose tinted view) be surprised to find out that alot of Europeans are surprised that Japan is the "number 2 economy".. not too difficult to find alot of people that are surprised when they learn this.

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The US and European economies are going to sink, dragging the exporters of Asia and South America with them. I think the effect on Japan will be worse than the recession years of the 90s.

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So, we did the subprime thing, and everyone got really mad at us. But what they didn't realize is that while they were looking here, we went around and left the lights and the bathtub on.

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This is just another crisis in capital, only a more impacting one. For the past several decades, the tendency towards over-accumulation has been "avoided" by the global spread of capital and by faster turn-over time. These mechanisms which have helped to avoid a long recession or depression (when capital and labour both sit idle) may no longer be as effective in the future. Fukuyama's "end of history" may be over.

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Let me be one to say that I would welcome a lost decade. Im a little tired of reading about young westerners running amuck on boozey overseas trips, or people going on spending binges beyond their limit. While Im not a flag waving "back-to-basics" conservative, I think the consumerism tsunami certainly needs this kind of check. Perhaps with a little less money in the economy, the "Buy Local" conscience will spread further, with more focus being placed on what local producers, and the local scene in general, have to offer.

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The problem, a car labeled made in Japan is not. The componenets come from all over the world. Most engines are tooled in Mexico, electronics come from Singapore, Taiwan, and China, the tires come from the Philippines or Vietnam (no matter the name brand), and the electrical wire is tooled, spun, and spindled in Ireland. Same for a car with made in the USA. Globalization has created the myth of "Made in..." It does not mean what it did 20 years ago. Even the engineering software comes from Germany or the USA. The finished product was slapped together in a factory, but the individual parts come from just about every country.

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Let me tell you, the economy is really bad. Today I saw a teller rob a bank robber, that's how bad things are.

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Japan tried to soften the blow by not going through the pain of restructuring their bank system. After the IMF crisis, S. Korea restructured and came away quite rapidly. And there wasn't any sudden right wing nationalism outbreak after the financial crisis.

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There wasnt any sudden right wing nationalism outbreak after the financial crisis because it is always here in Japan - look around you. The way Japanese people look at us gaijin, for example, and the way we are discrimninated against. Also, the neo fascists in the LDP trying to re-write history and indoctrinate kids with "love of Country" and how wonderful and unique it is to be Japanese. Oh yes - no rigt wing resurgence here!

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