When Japan’s economy collapsed in the late 1980s, the government chose not to write down bad loans or take the pain of massive restructurings. Instead it launched a massive borrowing program in the hope of stimulating the economy enough to outgrow its rough patch. Government debt grew from 66% of gross domestic product in 1989 to 226% in 2009 — by far the largest percentage of any industrialized nation. (The U.S. figure is 93%.) Despite the spending, Japan’s economy never strengthened, and the country fell into a cycle of increased deficit spending.
Certainly Japan’s woes are no secret. But perhaps paradoxically, because the country has stagnated for so long, many assumed the economy had bottomed out. Sure, a recovery may not be likely — but a collapse? Hard to imagine, or so one might think.
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Sound familiar? This is what some of us have been warning about since the explosion of bailouts and guarantees…and the refusal to value assets (of all kinds) at their real values.
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