Headed for a Japanese-style deflationary period?

[eridani]

http://www.truth-out.org/lost-stagnation-japans-dismal-tale62909

As economic recovery in the United States continues to languish, some economists are warning of the increasing possibility of a "Japan-style" period of deflation — a downward spiral of low prices that can be difficult to reverse once it starts.

Behind these fears lies compelling data.

In a report released Aug. 9, Goldman Sachs lowered its growth estimate for Japan from 1.7 percent to 1.4 percent and for the United States from 2.5 percent to 1.9 percent.

In both cases Goldman cited reduced government stimulus spending as the main reason for the downgraded outlook. Other reports have shown dips in consumer spending, home sales, factory orders in both countries and, in Japan, a reduction in industrial output and an increase in the unemployment rate.

While deflationary fears are relatively new to the United States, Japan has been struggling with stagnant growth for almost two decades — long enough that an entire generation has no memory of a thriving economy, and Japanese society and culture are beginning to change.

[madrchsod]

1. yes we are...

[bemildred]

4. ... if we're lucky. nt

[econoclast]

2. Demographics are destiny, as the saying goes

While not exact, the US population/age distribution is similar today to that of Japan 10 or 15 years ago. Our birth rates are a bit better and immigration much better, but they save more. In general, the US today looks similar to Japan 15 years ago.

Want to know what we might look like 15 years hence? Look at Japan today. And remember, in the past 15 years Japan has had near zero interest rates and several rounds of stimulus. There were some years when through infracture spending they poured more concrete than almost anyone else on the planet. But yet here they are.

[Art_from_Ark]

6. I don't know where you get your information

but I was living in Japan 15 years ago, and Japan of that time did not look like anything like the US of today. If anything, Japan is lagging behind the US by 15 years.

[econoclast]

9. Here is the comparison...

Note. Much of the following is drawn from David Goldman at AsiaTimes

America’s demographic profile has a disturbing resemblance to Japan’s at the beginning of the 1990s,the beginning of its famous “lost decade.” Japan's real estate and stock markets both peaked in 1990 and have lost half their value or more since then. Its population had just began to age dramatically. Over the decade, the elderly dependency ratio rose from 17 percent to 25 percent. As the Japanese aged, their appetite for savings naturally and rationally grew, and they had to save more and more as their stock portfolios and home values crashed. But the more they saved, the worse the economy did. The government lowered interest rates to 0.25 percent or less and ran up spectacular government deficits and couldn’t change the aging population’s desire to save as much as they could. The result was deflation: falling asset values.

Demographics drive deflation, and Japan's demographics are not good. An aging population saves, and savings CAN be deflationary. As people near retirement, they must substitute future goods (savings instruments entitling them to consumer in the future) for present goods (consumption)—so the price of present goods falls.

The government may attempt to substitute its own spending for household spending but it never quite works, no matter how many public works projects the government sponsors. Japan poured more cement than anyone else—and the decade was still lost.

Fast forward to America in 2000. The dot com bubble peaked in March 2000 and the Nasdaq has fallem by more than half since. Real estate peaked in 2005 2006 and the rest of the stock market cratered in 2008. America's elderly dependency ratio is currently 19 percent, a little higher than Japan’s in 1990. By 2020, it will rise to 25 percent, almost as fast as Japan’s. Americans also have seen their stock prices and home values plunge, and—again, naturally and rationally—have suddenly shown an insatiable appetite to save rather than spend.

There’s a second reason aging drives deflation. Old people tend to be creditors, young people debtors. Inflation transfers wealth to debtors from creditors, because the debtors pay back their debt in cheaper dollars. A country with a preponderance of old people will show strong political pressures against inflation.

So, yes, from a demographic standpoint and the economics that implies, America in 2010 resembles Japan in the 1990's. Past is prologue.

[Art_from_Ark]

10. There is no comparison

In 1990, big box stores were very uncommon in Japan, while in the US they had all but demolished downtown areas. Today, Japana has all sorts of big box stores, which have driven prices down (and mom-and-pop shops out of business)

Sure, there was a real estate bust, but unemployment in Japan has never risen much above 5%.

Demographics are not the only thing that drive deflation-- another is a strengthening currency, which makes the price of imports cheaper (the Japanese yen has gone from around 131 per dollar in 1990 to 83 per dollar today, with some severe fluctuations in-between).

Also, Japan's naturally high savings rate meant that Japanese banks do not have to offer anything in the way of interest rates to attract deposits. Even at essentially 0% interest on savings, Japanese banks are awash in money.

Old people = creditors, young people = debtors is too simplistic to explain deflation within the Japanese context.

[fasttense]

3. Goldman Sucks cited REDUCED government Stimulus Spending??????

Goldman Sucks gets their lobbyists and boughten politicians to fight like hell to ensure the average Joe gets nothing more than a $3.00 tax cut to help with the 2nd RepubliCON Great Depression, all the while knowing this will ensure the continuation of that economic depression.

There are psychopaths running our corporations and our government.

[Hawkowl]

5. Uhhh. We've already arrived

Deflation is here except where the monopolies and Wall Street banksters have conspired to keep prices on commodities artificially (i.e; unrelated to supply and demand) high.

[Blue Meany]

7. There are two long-term trends leading to a declining economy:

The first is the increasing gap between the rich and everyone else. As money, and thus power, is concentrated at the top, the economy and the laws that regulate it are run only for the short-term interests of the rich. Altering the tax structure, and structuring economic regulations to reward what is in the common interest and punish what is against it could address this, but it will probably take an economic collapse or widespread protests and/or civil unrest to motivate politicians to make the needed changes.

The second issue is not as easily addressed: environmental over-reach. We are running out of oil, and using up renewable resources faster than they can be replenished. Remember that during the Great Depression, the US supplied its own oil to fuel the projects and the war that revived the economy. The lack of oil will put a damper on the economy whenever it gets revved up, because the costs of oil and other resources will go up due to short supplies and increased demand. This, too, can be partially addressed by legal and economic reforms, but may require cultural change as well. Incentives and programs to promote energy efficiency and clean energy can help, but we also need to consume less--not just less energy, but less everything. To do this, we need to change the consumer economy that we are all, to some extent, immersed in. Manufacturers need to start building things to last, as they used to. Products from appliances to shoes will have to be more expensive, making repairing things a more viable option. And we all need to get used to the idea that being middle-class may not be about buying every new toy we see on the shelves.

In other words, we need a "slower," economy, for lack of a better word--one built on careful thought rather than greed and impulse buying. There will, perhaps, be less work to do, but if we abandon the unsustainable quest for continuous economic growth, a more equitable distribution of work and wealth will logically follow. The myth of the potential for unlimited growth, impossible in a finite world, is at its base a rationale for the concentration of wealth at the top. When we realize that there is a limit to wealth, it is obvious that such concentration has an effect on everyone else and the injustice become apparent. Thus, we might construct an economy in which we work few hours but it will take few hours to support a family.

[dixiegrrrrl]

8. Verily.

:applause:

altho an economy built on careful thought, that is a new paradigm for this country.

[ixion]

11. We don't know what a 'thriving' economy is here, either...

the only thing we've seen over the last 50 years are bubbles, which are indicative of an unhealthy economy.

[roamer65]

12. We're heading for hyperinflation.

We are now deep into competitive currency devaluations with other countries. That is why you see gold going through the roof.

Our next step will be massive quantitative easing and the popping of the bond bubble, not the "gold" bubble.

[Art_from_Ark]

13. Japan has been trying to bring its currency down a bit

The gold price in yen has increased by the equivalent of more than $50/oz in just 3 days.

[econoclast]

14. Chart from bank of japan - eye opening

http://1.bp.blogspot.com/_GhUVXaopHNE/TJViZnDrC_I/AAAAAAAAATY/U-fyTCdT8xw/s1600/Shirakawa+Fig+1.jpg

[Taitertots]

15. If we have deflation we have no one to blame but the government for causing it

Pretty much all they (FED) have to do is print more money and/or buy assets.