I drove over the Benicia Bridge today, passing over ships unloading Toyotas from Japan. The company’s entire product line was there, from Lexus to Prius to Corolla, baking in the sun, still wrapped in plastic, and unsold by the thousands, the victims of a 40 percent YOY sales drop.
So it was no surprise when the Bank of Japan informed us that wholesale prices in June fell a gob smacking 6.6 percent YOY, confirming the most dire forecasts that the country is still in the grips of a nearly 20 year economic ice age. This is why the US is not headed for the same big freeze, as many Cassandras are predicting.
Japan’s bail out of its banks was a slow motion affair stretched out over eight years. Treasury Secretary Hank Paulson pulled the trigger on a much bigger bazooka with the TARP, a month after Lehman went bust, and Secretary Tim Geithner and the Fed’s Ben Bernanke followed up with their 155 mm howitzer. Tokyo’s insiders made sure well connected “zombie” borrowers have stayed alive to this day. The truly great strength of the US is that creative destruction is a constant, unrelenting, and unstoppable force, enabling the economy to bury its mistakes quickly and move on to the next game. Look at GM.
Japan’s fiscal stimulus was an impotent, irregular drip of inadequate packages financing bridges to nowhere. Obama’s hurricane of a $2 trillion budget in his first month provided more stimulus than Japan did in ten years in GDP terms, and now there is the threat of a second package. The bottom line is that Japan never understood the true debacle they got into until it was too late to do anything about it. The US realized in September we were on the precipice of a Great Depression II, and have thrown in everything, including the kitchen sink, to stop it. The US recession may be long and brutal, and the recovery subpar, but we are definitely not looking at Japan’s two lost decades.
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