[quote=Rt.66]
You make a good point about Japan; they were in a better position than us, post RE bubble bursting. From what I have read, we are following Japan’s model in dealing with this crisis. [/quote]
Recall, however, that Japan’s bubble was 2 1/2 times the size of our bubble relative to GDP. Anecdotally, at the peak of Japan’s property bubble, the land surrounding the Imperial Palace in Tokyo was worth more than all of the real estate in California. Amazing but true.
My point is that while we have a shitty savings rate and a LOT of debt to pay down, the Japanese were in worse relative shape because the sheer size of the bubble was so large and 95% of the debt was domestically held (only 74% of our debt is held domestically).
An analogy. Who is worse off… A guy that has a mortgage of $800K on a property worth $250K, but he’s got $50K in the bank, OR
A guy that has a mortgage of $350K on a property worth $250K, but he’s got $10K in the bank?
The first instance is Japan in 1995. HUGE deflating bubble but plenty of savings (relative to the U.S.). The second instance is the U.S. right now – smaller (but still big) deflating bubble with much lower savings. From a systemic standpoint, the size of the Japan’s bubble – with all that entails – trumps its larger savings rate by a FACTOR vis-a-vis our crappy situation here in the US.
So, yeah, we’re mildly screwed. We’re deflating a big ass bubble and we don’t have much in the way of savings. But, the Japanese, despite a higher savings rate, were in MUCH worse shape than we are right now purely due to the size and dispersion of their bubble and the amount of bad debt relative to GDP that they had to eat.
