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Tuesday, February 27, 2024



Courtesy of The Pragmatic Capitalist

Busy City Street, Japan

We here at TPC aren’t the only ones concerned about the parallels with Japan.  There appears to be an increasingly loud drumbeat over the shocking similarities between Japan in the 90’s and the U.S.   This morning, Hong Kong’s leader Donald Tsang had some rather alarming comments:

I’m scared and leaders should look out.  America is doing exactly what Japan did last time.”

As opposed to dealing with our issues here at home, Tsang believes the Fed has created a dollar carry trade that is simply reflating bubbles all over the world:

“We have a U.S. dollar carry trade at the moment.  Where is the money going — it’s where the problem’s going to be: Asia.  You can see asset prices going up, not only in Korea, in Taiwan, in Singapore and in Hong Kong, going up to levels that are incompatible or inconsistent with the economic fundamentals.”

As we’ve previously mentioned, the parallels between the current deleveraging cycle here in the U.S. and Japan’s deleveraging cycle of the 90’s, are numerous. Credit Writedowns recently posted this excellent video from Fox Business which succinctly touches on many of these similarities.   I highly recommend readers take a look (attached below).

Wild grasses and Mount Fuji, Fuji-Hakone-Izu National Park, Honshu, Japan

One of the most interesting takeaways from the video is the current tax situation in the U.S. In Japan, the credit crisis was prolonged mainly because Japan attempted to bail their way out of their sinking ship.  Rather than deal with the problems directly (IT’S THE DEBT STUPID!) they attempted to circumvent the problem by creating an environment where the government spent hordes of money to prop up failing institutions.  Here in the U.S., we have not only bailed out failing institutions to the tune of several trillion dollars, but we have also continued to promote fiscal irresponsibility via government programs such as cash for clunkers and the first time homebuyers tax credit. Making matters worse, we have a Federal Reserve and Treasury which have agreed to double team the ailing dollar as they print money to no end and effectively punish the prudent while rewarding the speculators (the same bastards that helped create this mess to begin with).  Our tax issues have not yet reared their ugly head, but trust me, they are coming.

What we haven’t quite dealt with is how the government is going to overcome their massive revenue shortfalls and ever expanding debt. As Jim Jubak recently described, they are going to come back to the consumer for another blow to the knees.  No, the bailouts weren’t enough.  Destroying the dollars in your pockets isn’t enough.  Because of their fiscal irresponsibility they are going to raise your taxes in 2010.  And don’t be fooled.  The income tax may not spike, but they will get you in every other way they can.  Sales tax, real estate taxes, etc etc.   You are paying for their mistakes. Whether you were prudent or not.

Richard Koo is convinced that we can spend our way out of this mess.  I am not so sure.  There’s only one way to deal with a debt problem.  Attack it head on and force those that made bad decisions to restructure and get their house in order or pay down that debt.  Injecting a bloated system with more debt does nothing but kick the can down the road (no matter what the stock market does in the near-term). The video is attached:



The Vapors Turning Japanese


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