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Just who are the Japanese?

by Will

This isn’t particularly new or exciting, but I recently stumbled across this fascinating article from Jared Diamond on Japan’s enthnographic history.

December 18, 2009   1 Comment

Quote of the Day

by Will

George H. W. Bush on his own infamous bow in Japan: [Read more →]

November 18, 2009   8 Comments

Balance Sheet Recession

by E.D. Kain

So I was listening to NPR this morning and a Japanese economist was talking about their “lost decade” and chalked it up to what he termed “balance sheet recession.”   Basically, too many people had too much debt, and when all these bad assets appeared,  everyone scrambled to get their balance sheets in order rather than spending and borrowing.  The Japanese tried everything, including 0% interest rates, and in the end none of it worked.  Private capital was not flowing.  The only thing that did finally work was the temporary introduction of public capital into the system – government spending, essentially, to ride out the recession while all those private balance sheets were righted.

After commercial property value fell 87% in the nineties, Japan entered into a period of slow growth, but not quite recession.

Like Japan in the 1990s, the U.S. is suffering what Koo calls a “balance sheet recession.” When asset prices collapse, the people who bought those assets with borrowed money are left with balance sheets underwater, and all they want to do is pay down debt.

“People are no longer maximizing profits the way it’s assumed in economics. They’re minimizing debt. The invisible hand of [economist and philosopher] Adam Smith works in the opposite direction,” he says.

With private borrowing and spending frozen, the Japanese government stepped in, spending on highways, bridges and other infrastructure, and running up big deficits. Where the Japanese government erred, Koo says, was in worrying about those deficits. It cut back prematurely on the stimulus. The economy faltered, and the government had to resume spending.

Still, by 2005, companies had repaired their balance sheets and the Japanese economy was marching forward — until the latest crisis.

This does seem very similar to today’s recession, though we are obviously in the midst of a more globally widespread problem.  I’m curious as to what others think on this matter.  Can liquidity be restored through government spending?  Is it important to keep that spending restricted to short term projects?  Long term?  Is there a good middle-ground?  (What does short term or long term really mean, in any case?  Who determines the terms?)

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February 24, 2009   7 Comments

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