US Economy Following Japan into Deflationary Slump

Do you remember what practically everyone said after the Japanese stock market began falling apart in January 1990?

“Don’t worry,” they said. “Japan has the most dynamic economy in the world…it’s just a temporary pull-back.”

Well, that was 17 years ago. Japanese stocks pulled back…and kept pulling back for more than a decade. Only recently have they begun to move forward again…and they’re still far cheaper than they were at the end of the Reagan years.

And do you remember how American economists and pundits criticised the Japanese? They refused to let their big banks fail, said the critics…and thus stretched out the pain of a correction.

“We wouldn’t do something that stupid,” they seemed to say.

And do you remember how here at Markets and Money we predicted that the United States would follow Japan into a long, deflationary slump? You do? Well, forget it…we were obviously wrong. Or, at least seven years too early…because we made that prediction back in 1999!

Still, we were right in predicting that when the water started coming over the gunwales, English-speaking financial authorities would race to the pumps at least as fast as their Japanese counterparts.

Today comes word that the feds are bailing out the big banks as fast as their buckets allow. It is the biggest bailout in five years, say the reports…with big banks averaging about US$2.7 billion per day in loans from the Fed. These injections of cash are said to be ‘forced’ by the Fed itself…rather that the result of desperation on the part of member banks. Still, recent estimates put the increase in US money at nearly 50%, annualised.

Bill Bonner
Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.
Bill Bonner

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Coffee Addict
Bill Blue chip bank shares, purchased during a major recession are impossible to beat as an investment. The gold and tangible asset investments which are much loved at Daily Reckoning don’t come close as they lack any form of central bank insurance for bad decision making. OK, like everyone else on this board I am sounding like a broken record restating the Privatisation of Profits / Socialisation of Losses issue in a thousand different ways. Consequently, I would like to say something new. There is a view held by many investors and advisors that they cannot be hit by the… Read more »
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