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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: sciAticA errAticA who wrote (62564)	6/2/2006 5:22:58 PM
From: mishedlo	Read Replies (1) of 110194

... in my view, attempts to draw inferences from a Japan - US parallel is deeply flawed... I disagree with that statement. One merely needs to account for the differences. The fact that Japan had savings to draw on makes the consumer situation in the US much much worse. With less consumer savings there will likely be far more foreclosures and bankruptcies relatively speaking in the US. That is MORE of a deflation problem in the US. Because of US demand for Japanese goods remained high Japan did not lose jobs like we will with an economy tied to housing and retail spending. Again that should make the deflationary period in the US worse. I suppose one has to take into consideration the bankruptcy reform act of 2005. I personally think that is similar to Japan's refusal to write off bad debts. IMO Japan prolonged deflation by continually pumping money into the system rather than declare insolvency on their banks. That legislatiuon is attempting to do the same to US consumers - refuse to alllow writeoffs of debts. That could prolong the agony here. On the other side of the equation, Japan (and Europe) have a bigger demographic problem than we do. All of the above things I mentioned make our situation worse, but demographics makes it better here. My take is that if you balance everything out, the plusses and minuses might cancel and thus the actual effect might be very similar even if individual pieces are dramatically different between the US and Japan as are demographics. Rather than saying they can't be compared as plenty of people here asserted, I believe I just proved they can be compared and one can make judgements about which is worse here vs. there and what is likely to happen as a result. Most here look at one aspect (savings) ignoring all of the other implications and in my mind even come to the wrong conclusions about the affect of that savings (it allowed Japan to pump more than it will allow us - unless of course we become a nation of savers again - which is not out of the question). We were a nation of savers and that was a mere 10 years ago or so. So you see, comparison to Japan as well as understanding the differences is a VERY VALID thing to do. What is wrong is to say that the US can not follow the deflationary path of Japan because of the differences, when one makes no effort to understand the COMBINED effects of all of those differences. Mish

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