So now we have another $827 Billion, or so, in new BailOut funds (which they don’t call “BailOut” anymore – that is so, so 2008) spread out among tax cuts, “shovel ready” infrastructure projects, a little pork here and there, and a bunch of other life preservers and economic emergency plans to get America back to work. But, will it work?
President Obama told us we are averting a “national catastrophe,” some economists tell us that we are still underestimating how bad this situation really is, and the job loss numbers now put us at 7.6% unemployment nationally, with no figures for those who have fallen off the far end of the statistical train, or are underemployed, or who had to go back to work because they lost all their retirement money. If we are sliding into the next great Depression and real, live Deflation is happening all around us (50/75% off sales abound), are we now officially living in our own Lost Decade, like Japan was in the 90’s?
Japan’s asset price bubble (literal translation from Japanese: “Bubble Economy”) was roughly a four-year run of money-driven madness from 1986 through 1990 during which real estate and stock prices went bananas – not unlike the American Bubble Economy of 2003-2007; a great run, including a 14,000 Dow and real estate that sold via bidding wars, above list prices, the day it was listed, or even before the listing was published – remember that? The former was fuelled by God Knows What, and the latter by NINJA loans (no income, no job, no assets) and real estate brokers, sales agents, sellers and buyers living out their fantasies of wealth beyond dreams of avarice, having once again drunk the Kool Aid of believing that prices would just keep going up, up and away.
It got so nuts in Japan during their Bubble Economy that in 1989, in Tokyo’s fashionable Ginza district (think Rodeo Drive in Beverly Hills), the most desirable real property prices exceeded 100 million yen (a tidy $1 million US) per square meter (an incredible $93,000 per square foot), and not that much cheaper in other areas. At the other end of what they call Japan’s Lost Decade of the 90’s, by 2004, commercial properties were at 1% of those prices and residential properties were at 10% of those high water marks. The twin collapses of both Japan’s stock market and real property values saw literally tens of Trillions of dollars of at least paper wealth wiped out, like erasing figures on a chalk board, and feeling like the sound of fingernails dragging across that chalk board – Ross Perot’s Great Sucking Sound of money vanishing.
To combat their bubble bursting, the Japanese Central Bank set interest rates at approximately absolute zero – like where the Fed has placed the US as of late last year. But, even that failed to stop the deflationary spiral in Japan. The experience of having lived through Japan’s Lost Decade is so now culturally ingrained there that a recent Japanese science fiction comedy movie “Bubble Fiction: Boom or Bust” is about a clever inventor who retrofits a washing machine to become a Time Machine, convincing the heroine of the film that, in order to save her country, she must travel back in time to try to prevent Japan’s Bubble Economy from bursting [“Baburu e go!! Taimu mashin wa doramu-shiki” (2007) directed by Yasuo Baba, available with English sub-titles].
During Japan’s Lost Decade, it got so bad that bank and financial management types could not find profitable investments no matter how hard they searched (remind you of anything?) and resorted to secretly depositing their investment cash as ordinary deposits, in competing banks to get some return on their money, driving bank and financial folks truly nuts. Because there was no credit and no lending (sound familiar?) and no money to be made, the Japanese government was forced to prop up all kinds of failing banks and other businesses, behind the scenes in various creative ways, giving birth to the walking dead, "zombie businesses" which should have crashed and burned long ago, but which will still continue to operate as if healthy solely due to this governmental support – think Citigroup, AIG, GM, and others believed “too big to fail.” Eventually, many bank and financial types just gave up and borrowed money from Japan, but invested it for returns outside Japan and then paid back Japan, the only way traders could find profit.
If the bold new Stimulus Plan propounded by the Obama Administration and basically now accepted by Congress, after the usual fussing and fighting, does not work, then we may well be facing our own Lost Decade here in American (if we haven’t actually started it already), just like Japan in the 90’s – the parallels are increasingly disturbing and we are mighty close to being completely out of tricks now. For me, I’m getting into my Time Machine (please don’t tell my wife that we no longer have a washing machine) and going back to 2005 to try to persuade stockbrokers and real estate people to ‘cool it’ a bit and to avoid those exotic financial instruments of mass destruction which helped the US Economic Bubble burst. Wish me luck.