Last Updated Dec 17, 2009 11:17 AM EST
I built a business in Japan for three years. When I arrived, Japan was on the cusp of world domination. By the time I left it was in the permafrost of recession. I like to think I made a difference. The similarities between what they faced then and what we face now are uncannily similar:
- A massive property and asset boom ($1 million golf club memberships, anyone?) stoked illusory wealth and a spending boom.
- The subsequent property bust wiped out banks which became bankrupt, in all but name.
- The government poured billions into the banks in the hope that the bad loans would eventually disappear.
- The government reduced interest rates to zero in a further attempt to help the banks, stimulate the economy and stave off recession.
- It will take fifteen years of anaemic, spluttering growth before the banks become relatively sound and the economy can start to recover.
- The government will become increasingly indebted, leaving a more or less impossible debt mountain as its legacy to future generations.
- The stock market will fluctuate widely, but be far lower in fifteen years time than it is today: zero interest rates will feed speculation leading to the yo-yo effect on prices.
- Investors will no longer ask about return on capital: they will be more interested in achieving a return of capital.
- Housing will no longer be a free retirement plan: prices will steadily go down. Welcome to poverty in old age.
Happy Japanese Christmas!