Sunday, July 24, 2011

Japan (4): An Asian Relative

At last:

Japan's equivalent of the Non-Federal Relative: from over 6 to less than 2
This graph lacks the "random walk" appearance of the U.S. debt-relative. Rapid rise to a (rounded) peak, followed by an interminable decline that has been euphemistically called a lost decade.

By no coincidence, the trend line peaks in 1989-1990, and Japan has been in its grand funk ever since.

This graph is hard for me to read because I don't know the highlights of Japanese economic history. Did they have a "golden age"? Did they have a "macroeconomic miracle" like ours of the latter 1990s? Did they have a "Reaganomics"? I don't know. So my analysis of the graph is somewhat limited.

And then, there's no hint or wiggle of recession anywhere on the graph. Maybe that indicates real structural differences between the Japanese and U.S. economies. Or maybe it indicates that the debt numbers are not to be trusted. (For now, I'm assuming the numbers are good and the structural differences are real. And I'm not one to use the word "structural" lightly.)

But clearly, like the U.S., in Japan they use credit for growth. The Non-government debt-relative increases during the boom -- until around 1990 -- and decreases in the decline.

Two questions occur to me.

1. How does what this graph shows fit with what I said before about the debt-relative?

The trend line rises while the economy is good, and declines while the economy is not good. In addition, a high level of the debt-relative is correlated with the onset of hard times, as it is in the U.S. economy.

2. What do I have to reconsider?

It seems that the non-government debt relative can go quite low, and that the low level alone is insufficient to create an economy bursting with vitality.

But I have a thought about that. Maybe the quantity of money in circulation is still low in Japan, and this is preventing recovery. Remember, in mine of 14 July I showed that the "macroeconomic miracle" occurred after two things happened: There was an unusual slowdown in the growth rate of debt. And there was an unusual acceleration in the growth rate of money in circulation.

1 comment:

jim said...

Hi Art
There are several things different about Japan. For one thing it is a net exporter, but it is hugely dependent on importing from the rest of the world its raw materials and resources. The US imports much more than it exports but is not so dependent of the rest of the world for resources.

Second The composition of the private debt is different. In the US the largest chunk of debt is the financial sector, then household then business. In Japan it is business at top then financial then household.

Japan grew very fast from 1960's to 1990 and it was the business sector borrowing that created a real estate bubble that burst. From the point of view of the Japanese citizen what followed was not all that bad. People didn't lose their jobs and incomes continued to grow. It is the business sector that experienced the lost decade.