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Instead of allowing the economy to rid itself of bad investments and heal, Japan has continued to prop-up failed business models — creating zombie banks and an equally zombie-like economy.

14 Comments

Michael Pento, president of Pento Portfolio Strategies (CNBC)

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In addition, the fact that Citibank, GM and others have revived their oligopoly or whatever the heck you want to call it, means that the startups that you mentioned have all been crushed anew by these obese giants and innovation in such industries is now even farther off.

Reckless -- huh? The start-ups I'm talking about are all the high-tech companies in the U.S. that are springing up everyday -- Facebook, Twitter, LinkedIn, Groupon, etc, etc. But since you mention GM, did you miss Tesla? Japan has no such track record of incubating companies that have truly invented whole new categories. And part of the reason is because all that 0% money you are talking about is simply going to the zombies so they can roll-over all their debt.

then I do wonder whether the economy wouldn't be better off, more dynamic, with a more fluid labour market, even if it did mean a higher rate of unemployment (?)

fxgai -- agree completely, but that is much too much of a free-market/capiltailistic idea for Japan to swallow.

-2 ( +1 / -3 )

One point Japan is the top creditor of the world for the last 23 years with 325 trillion yen in credit which had grown 9.7% from the past year.

Failed business models?

Please give me a break.

0 ( +2 / -2 )

I'm reading a book on the History off the Yakuza in Japan. It's quite interesting. They have a lot to do with the economic problems in Japan because many banks provide them with loans, and are never repaid. This has been going on for many years.

1 ( +1 / -0 )

The biggest zombie of them all is the Japanese government, "putting aside" money that it doesn't have in the first place for more useless "stimulus" spending etc.

Low unemployment on the surface looks good, but if it's because people aren't let go from unprofitable zombie companies and therefore stuck on crappy wages for their whole working lives but without the animal spirits or culture to go out and get into something better, then I do wonder whether the economy wouldn't be better off, more dynamic, with a more fluid labour market, even if it did mean a higher rate of unemployment (?)

0 ( +0 / -0 )

True but some of the consequences (e.g. low unemployment) have been fine. Eventually this will become an untenable policy and is likely to do so far quicker in the West where we see the US and Europe trying the same approach.

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This has been going on since the 80s one of the reasons Japan has been treading water at best for over 20yrs.

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@Jerseyboy: "Unfortunately, the Japanese zombies just keep going further and further in the whole, tying up capital that should be going to start-up and/or growth companies."

Your points are well taken however interest rates in the US and Japan are at record lows, but noone wants a loan, that is the problem.

In addition, the fact that Citibank, GM and others have revived their oligopoly or whatever the heck you want to call it, means that the startups that you mentioned have all been crushed anew by these obese giants and innovation in such industries is now even farther off.

-1 ( +0 / -1 )

Japan might be better at creating zombie businesses and inefficient, needless jobs but there are several upsides to it. First of all unemployment in Japan is lower than other growing economies about 4% to America's or Australia's 6%. In addition to that Japan's gini coefficient (the measure of equality of wealth) is better than just about everyone else being dark green to Australia, France and the UK's light green and America's light red. In other words the gap between the rich and the poor is small and the middle class is still over 90% of the population. Far as I can tell the gap is not widening like it is everywhere else. And despite that the Japanese economy is like a wave shifting between recession and growth admittedly not a upward curve that most would like but certainly not a download spiral either. The point is Japan didn't collapse, it's still no.3. This might actually have long term benefits as at least they're keeping their middle class alive from which most of the economy flows. It's also just humane to keep more people paid. And private debt is low so the Japanese public still have real cash whereas others use entirely credit which can count for a lot. Total private debt (that's the debt you and me might hold) in the US is now 3.5 times the economy (over 50 trillion), in Australia it's 2 times. In Japan it's 1/3. Most other growing nations are in fact growing on over-consumption fueled by credit cards and housing loans. Should the house of cards the world has become ever collapse Japan may be one of the few nations outside of China hit the least and public unrest and riots will more than likely not happen.

3 ( +5 / -2 )

He predicted Japan would collapse once the institutions/funds stopped buying Japanese bonds. The shift away from bonds then occurred but Japan didn't collapse.

He was wrong then... and he's wrong now. Why is he still on TV?

0 ( +3 / -3 )

Another Kyle Bass type who went short on Japan. Lol.

0 ( +3 / -3 )

Yes very true. and being repeated worldwide now. Have gotten poor betting against it but i believe the end is nigh.

1 ( +2 / -1 )

Instead of allowing the economy to rid itself of bad investments and heal, Japan has continued to prop-up failed business models — creating zombie banks and an equally zombie-like economy.

Michael -- did you just realize this? This has been the way things are in Japan for about two decades now.

Zombie economics is the de facto system we live in. Including Bank of America, GM, Citibank, and many others. All should have been laid to rest.

And, Reckless, your attempt to do the usual "but everyone is doing it" fails miserably. Mainly because all the companies you mention have paid back every dollar that was used to bail them out, and are now producing record profits -- within about 5 years. Unfortunately, the Japanese zombies just keep going further and further in the whole, tying up capital that should be going to start-up and/or growth companies. And that has been the case for about 20 years now, which is just one reason Japan's domestic efficiency is among the worst in the industrialized world.

-1 ( +6 / -7 )

Zombie economics is the de facto system we live in. Including Bank of America, GM, Citibank, and many others. All should have been laid to rest. But, the zombie companies are no worse than the zombie governments who are running on fumes and voodoo and will never be able to provide for all the past promises made. Enjoy viewing the house of cards while it lasts.

1 ( +4 / -3 )

It's the American way.

1 ( +4 / -3 )

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