Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24
US House Prices Trend Forecast 2024 to 2026 - 11th Oct 24
US Housing Market Analysis - Immigration Drives House Prices Higher - 30th Sep 24
Stock Market October Correction - 30th Sep 24
The Folly of Tariffs and Trade Wars - 30th Sep 24
Gold: 5 principles to help you stay ahead of price turns - 30th Sep 24
The Everything Rally will Spark multi year Bull Market - 30th Sep 24
US FIXED MORTGAGES LIMITING SUPPLY - 23rd Sep 24
US Housing Market Free Equity - 23rd Sep 24
US Rate Cut FOMO In Stock Market Correction Window - 22nd Sep 24
US State Demographics - 22nd Sep 24
Gold and Silver Shine as the Fed Cuts Rates: What’s Next? - 22nd Sep 24
Stock Market Sentiment Speaks:Nothing Can Topple This Market - 22nd Sep 24
US Population Growth Rate - 17th Sep 24
Are Stocks Overheating? - 17th Sep 24
Sentiment Speaks: Silver Is At A Major Turning Point - 17th Sep 24
If The Stock Market Turn Quickly, How Bad Can Things Get? - 17th Sep 24
IMMIGRATION DRIVES HOUSE PRICES HIGHER - 12th Sep 24
Global Debt Bubble - 12th Sep 24
Gold’s Outlook CPI Data - 12th Sep 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

United States Following Japans Deflation Footsteps

Economics / Deflation Sep 24, 2009 - 02:56 AM GMT

By: Mike_Shedlock

Economics

Best Financial Markets Analysis ArticleThe US is following the footsteps of Japan. It is now undeniable. Please consider the following chart.

Japanese GDE from the 1989 peak to Present
US GDP 1999 peak to Present


Offset is 10 Years

The above chart is from my friend "BC" who writes:

The rate shown is the trend rate of growth of GDP at any point from the secular peak rate.

For example, for the US, the real GDP trend rate in the '90s was 3-4%, whereas since the '99-'00 peak the trend rate has fallen to the 1.5-2.5% range for the '00s (1.6% today).

For Japan, the real GDE trend rate in the '80s was 4-6%, with the trend rate since the '89-'90 secular peak falling to 1-1.5% to 2% (0.91% today).

A chart of the trend rate since '97 or '00 in Japan would show an even slower trend rate of real GDP at 0.4-0.5%. Similarly for the US, the trend real GDP rate since '04 and '05 is barely 1% to 0.6% respectively.

I suspect we will see a further deceleration of the trend real GDP rate hereafter from ~1.5% to 1% or less through the late '10s, including 2-3 more recessions, i.e., "multiple dips", along the way.

It is repeatedly said that we're not Japan; however, in some respects we might be worse this time around, i.e., the depth of our recession today vs. that of Japan in '97-'98 (Asian Crisis).

To get back to a trend of 3.3% real growth from '00, the US would have to grow at an average real rate of 5.5% through '14-'15.

For a 2.5% trend rate from '00 (the current average trend rate since '80), average real growth would have to be 3.5-4% for the next 5-6 years.

Japan's real GDE grew at just 0.4-0.6% from '97 to '01-'03, with ~1% price deflation, QE, and ongoing bailouts and government spending.

So, in the context of the likely secular trend, double dips and "recovery" will tend to be moot issues. We are more likely to have multiple dips, little or no growth, and the only recovery will have been from 10% real GDP contractions along the way.

We will have recovered from nearly having falling off the ledge into the abyss; but our climb from the ledge will be steep, long, and yield little progress.

Psychology of Deflation Revisited

In January 2007, someone on the Motley Fool told me "Too even compare the citizens of Japan to the US is stupid, stupid, stupid Forest Gump!"

I was also told "Fannie Mae can revive the housing bubble" and that I "ignore an enormous amount of 1990s monetary theory by Bernanke and co about how they would have dealt with Japans deflation."

Inquiring minds can read Q&A on the Psychology of Deflation to see my replies.

It now seems that Things That "Can't" Happen, did happen.

Deflation Japanese Style

Some still argue that Japan never went through deflation. One basis for that argument is that "money supply" never contracted over a sustained period. The other argument is that prices as measured by the CPI never fell much. Those are flawed arguments.

Although Japan was rapidly printing money, a destruction of credit was happening at a far greater pace. There was an overall contraction of credit in Japan for close to 5 consecutive years. Property values plunged for 18 consecutive years. The stock market plunged from 40,000 to 7,000. Cash was hoarded and the velocity of money collapsed. Those are classic symptoms of deflation that a proper definition incorporating both money supply and credit would readily catch. Those looking at consumer prices or monetary injections by the bank of Japan were far off the mark.

Is Bernanke a Wizard?

If Bernanke was such as wizard, why is the US in such miserable shape, and why is Bernanke's Deflation Preventing Scorecard a big fat zero?

Bernanke is not a wizard and neither is Greenspan. The difference is Greenspan had the wind of consumption blowing briskly at his back. Bernanke is on the backside of Peak Credit with a breeze of frugality blowing briskly in his face.

Attitudes make all the difference in the world.

By Mike "Mish" Shedlock

http://globaleconomicanalysis.blogspot.com

Click Here To Scroll Thru My Recent Post List

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

Visit Sitka Pacific's Account Management Page to learn more about wealth management and capital preservation strategies of Sitka Pacific.

I do weekly podcasts every Thursday on HoweStreet and a brief 7 minute segment on Saturday on CKNW AM 980 in Vancouver.

When not writing about stocks or the economy I spends a great deal of time on photography and in the garden. I have over 80 magazine and book cover credits. Some of my Wisconsin and gardening images can be seen at MichaelShedlock.com .

© 2009 Mike Shedlock, All Rights Reserved

Mike Shedlock Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in