Thursday, September 29, 2005

Land of the Rising Sun

In this State Department post, they are talking about Japan finally emerging from the banking crising that ensued from the popping of their asset bubbles, in the 1980's. Again the 1980's! it seems like when banks give out bad loans, to people who can't really afford them, in a rising asset price environment (bubble), it only takes 15 years or so to clean up the mess.
When people realised that their assets (real estate/stocks) were not worth what they thought, they stopped spending. Furthermore, when the banks tried to foreclose on collateral that is now 20% of previously appraised values, it killed their balance sheets. Deflationary forces evidently still exist in Japan, however they may finally be emerging from their morass. It makes me think that if the housing bubble pops in 2006-2007, the US economy will be in the toilet until around 2025.



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