Japan: A Future of Stagnation
Take a declining population with declining rates of productivity growth and load it up with debt, and you get a triple-whammy recipe for permanent stagnation.
One of our longtime friends in Japan just sold the family business. The writing was on the wall, and had been for the past decade: fewer customers, with less money, and no end of competition for the shrinking pool of customers and spending.
Our friend is planning to move to another more vibrant economy in Asia. She didn’t want to spend the rest of her life struggling to keep the business afloat. She wanted to have a family and a business with a future. It was the right decision, not only for her but for her family: get out while there’s still some value in the business to sell.
I have written a number of entries on Japan’s economic downward-spiral and its largely hidden social depression over the past decade, most recently: Global Bellwether: Japan’s Social Depression (September 25, 2014)
Lessons from Japan: Decades of Decay, Unavoidable Collapse (April 26, 2016)
The Keynesian Fantasy is that encouraging people to borrow money to replace what they no longer earn is a policy designed to fail, and fail it has. Borrowing money incurs interest payments, which even at low rates of interest eventually crimps disposable earnings.
Banks must loan this money at a profit, so interest rates paid by borrowers can’t fall to zero. If they do, banks can’t earn enough to pay their operating costs, and they will close their doors.
If banks reach for higher income, that requires loaning money to poor credit risks and placing risky bets in financial markets. Once you load them up with enough debt, even businesses and wage earners who were initially good credit risks become poor credit risks.
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