#5. But--with the current ephemeral Shinzo Abe episode excepted--why can't they summon the political will? I would say it's mostly a combination of (A) the electorate's age demographics, and (B) the East Asian culture over there that stresses "relationship" banking rather than a more arms-length Anglo-Saxon approach.
With respect to (A), in some sense the Japanese electorate can be viewed as having rationally adopted a voting preference for economic suicide because what it really desires is strong purchasing power for the pension income of older persons. In other words, the old fogeys are just keeping the unsustainable game going for as long as they can, because whenever it finally hits with full force, they'll all be dead and their children will have to clean up the mess, which is just viewed as somebody else's problem. That's a crude and cynical way to put things of course, but isn't that effectively what Japan did, and what the U.S. appears to be choosing to do now? (See, for example, the recent comments of legendary hedge fund manager Stan Druckenmiller in Bloomberg: " Druckenmiller Sees Storm Worse Than ’08 as Seniors Steal
With respect to (B), this is what I have always viewed as the key difference between Japan and the U.S., citing it as the reason why I thought that what occurred in Japan with its two lost decades could never happen in America. The South Koreans have their chaebol
system of business conglomerates, and the Japanese have their keiretsu
system of business conglomerates. (See also Italy's spaghetti-like system of banking cross-ownership
relationships, but I really wouldn't even know how to begin to describe all that.) Effectively, what the Japanese have is a system of managed capitalism
, which was once lauded as a bold "Third Way" between the clashing rocks of ideological socialism and free market capitalism, but which is now widely seen as the authoritarian crony capitalist dead end that it really is.
Now it may very well be that such state-managed capitalist models are optimal for certain stages and periods of economic development, but as far as being the optimal system for managing an advanced economy, it is woefully inadequate and dangerously unstable.
The main problem is the phenomenon known as zombie capitalism, when banks are politically directed to lend to zombie industrial corporations, such that new loans are provided at absurdly cheap rates in order to create an accounting trick by which older loans do not go into default. The cycle seems like it can continue almost indefinitely, but at some point the game has to end--both for Japan and
China by the way, which will soon face its own economic reckoning.
In the U.S. with TARP, we faced something where we temporarily had zombie banks, but that's a whole lot better than having zombie corporations to which those banks are lending, as was the case with Japan, and is the case with China today (which is part of the reason why I love those guys at Muddy Waters LLC
so damn much).
So don't get me wrong here--I'm not saying that the U.S. will ever get as bad as Japan, either demographically or economically, but hot damn, if America isn't falling straight into the same ZIRP trap that Japan fell into. It won't be as bad as Japan because the U.S. has a much more arms-length financial system, but make no mistake about it, the U.S. has moved a huge distance toward the Japanese model over the past several years.
... and finally, there is...
#6. Why would Japan pursuing a strong yen + ZIRP policy be any different than the U.S. pursuing a strong dollar + ZIRP policy? I mean, the dynamics for why this is occurring may be somewhat different in the two cases--with the yen being supported a good bit by the carry trade (as I posted here
) while the dollar is being supported a good bit by the international "fear" trade and continuing global economic recession--but in terms of the peculiar monetary situation we are witnessing, the end result looks pretty damn similar, does it not?
Both produce low inflation. Both load up more state debt, going ever higher toward historically dangerous levels. Both seek to keep an unsustainable economic structure going for a few more decades for the sake of propping up politically important entitlements for aging demographics. Both result in the typically symptomatic poor growth performance that comes with the moral and systemic economic rot that defines state-managed capitalism. What's the difference then?
The way I see it, the primary differences are the culturally ingrained economic business and lending practices, along with the resulting legal structure that goes with that, and the differences in population growth and openness to free trade and immigration.
Lack of natural resources no doubt affects the situation, but in terms of relative importance, I just don't see it as being very high on the list in terms of explaining what differentiates Japanese ZIRP from American ZIRP.