From Larry Kummer, editor of the Fabius Maximus website, via wolfstreet.com:
Although the economic circumstances in the US and Japan differ, we’re following in Japan’s tracks – and Japan just entered a technical recession.
As Richard Koo predicted, during the Great Recession America repeated Japan’s mistakes during its “lost decade”. That’s the bad news. The good news is that America climbed into a slow recovery after the worst downturn since the 1930s. The worse news is that another recession lies ahead. Potentially a bad one, with both the world economy and many domestic sectors weak. The government will deploy powerful tools to fight this downturn. How well will they work?
Look to Japan for answers
Japan crashed in 1989 and never got up again — despite repeated massive rounds of stimulus, and during a period of rapid world real economic growth: 1990-2003 at 3.3%, 2004-07 at 5.3% (probably the fastest since the invention of agriculture). Deflation and a shrinking population cushioned the decline, but by 2005 they were getting desperate. Between 2006 and 2011 Japan had 6 prime ministers in 5 years; none of the last 4 able to remain in office a full year.
Shinzō Abe became prime minister on 26 December 2012. He quickly announced the bold program known as “Abenomics”, consisting of three “arrows” — each a bold policy action.
• More fiscal stimulus, increasing the government’s deficit by 2% of GDP (to 13%).
• More monetary stimulus: doubling the money supply in 2 years to create 2% inflation.
• Structural reform — broad, deep, and powerful.
Financial and investment gurus in Japan and American were euphoric at these precedent-breaking measures. The first arrow was easily and successfully fired. The second started well, with inflation rising almost to 2% in 2014 — but has collapsing back into deflation. The third arrow remains missing in action (Abe made weak proposals in June 2014).
To continue reading: What Will the US Do in a Recession?
