I'm turning Japanese, I think I'm turning Japanese, I really think so - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

I’m turning Japanese, I think I’m turning Japanese, I really think so

I’m turning Japanese
I think I’m turning Japanese
I really think so
Turning Japanese
I think I’m turning Japanese
I really think so
I’m turning Japanese
I think I’m turning Japanese
I really think so
Turning Japanese
I think I’m turning Japanese
I really think so

-The Vapors

lost-decade-japan_artais fund

Sound familiar:

  • The Bank of Japan cut its discount rate from 9% in 1980 to 4.5% by 1986. At the behest of the U.S. government, to comply with the Louvre Accord of 1987, they reduced the discount rate to 2.5% and kept it there for three years. This lax monetary policy created a bubble in the stock market and the real estate market. The monetary supply grew at a 9% rate for the entire 1980’s. The stock market jumped from 15,000 to 39,000 in the space of three years, a 160% gain. A speculative frenzy took hold of the Japanese public.
  • With interest rates at historic lows, Japanese banks provided cheap and easy credit to companies and consumers. Consumer debt grew 700% from 1980 to 1990. Japanese corporations took advantage of the soaring stock market to raise $638 billion through stock offerings. Consumers and corporations were incentivized by the low rates to take on more risk to get a positive return. This easy money policy, along with deregulation, tax incentives, and zoning regulations, led to the biggest real estate bubble in history. Mass hysteria that real estate could only go up gripped the nation. Prices reached such heights that intergenerational mortgage loans were required to buy a home. The land around the Royal Palace was said to be worth more than the State of California.
  • When it became clear that there was an out of control speculative frenzy, the Bank of Japan raised rates to 6% in five steps from 1989 into 1990. This is given as the cause for the collapse of the stock and real estate bubbles. Both the stock market and land values are 80% below their peak 1989 levels. They are currently at levels seen in the early 1980’s. The scary part of the Japanese experience is that their government did not sit by idly. They used all the tools at their disposal and made the conditions much worse. Government actions caused the crisis and then exasperated the situation. (source: Mike Shedlock)

Richard Koo, chief economist at Nomura Research Institute, gave his opinion about the outlook for the U.S. economy and Federal Reserve policy. Koo speaks with Deirdre Bolton on Bloomberg Television’s “InsideTrack.” (Source: Bloomberg):

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