Friday, Nov 14, 2008
Could the UK repeat Japan’s 1990s experience
FT: The next lost decade?
Could the UK repeat Japan’s 1990s experience of minimal growth, falling asset prices and deflation?Both countries share similar characteristics prior to the initial downturn. Unemployment was low and inflation was under control, but just starting to rise. Asset prices soared, driven by increased borrowing. While there are similarities, there are also some important differences. The UK does not suffer from Japan’s excess capacity created by overinvestment. Unfortunately, the UK also has some less favourable characteristics. It starts the downturn with a weaker fiscal position than Japan and a very low household saving rate.
Posted by jack c @ 04:19 PM (1070 views) Add Comment
20 Comments
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1. drewster said...
I've been drawing comparisons to Japan for the last couple of years now; so have several other bloggers on here. How has it taken this long for the FT to spot the parallels?
2. drewster said...
"Crucially, the UK has a symmetrical inflation target. As inflation falls, we think interest rates will be cut even faster, reaching 2 per cent by the middle of next year. If this fails to stabilize the economy, then rates could fall further, perhaps to 1 per cent. Even if rates drop to zero, ....."
If rates drop any further the pound will be toast, which will force inflation (of consumer goods) up wildly. The only way we could get away with it is if the rest of the world cuts rates in lock-step. Luckily that's what seems to be happening so far.
3. richc said...
The comparison with Japan is overly optimistic. Japan has generally run trade surpluses and has strong internal savings that funded the fiscal stimulus provided by government deficits. The UK must attract outside capital on an on-going basis to fund it's deficits. If the UK tries to do what Japan did to fix the property crash there, the pound will plummet, foreign investors will revolt, and living standards in the UK will collapse (along with any hope of property prices recovering). Commercial property in urban areas in Japan lost 80% of its value, and that was in a country that was well-positioned to deal with a crash.
4. japanese uncle said...
Both countries are islands surrounded by sea in all directions, and that is where 'similar characteristics' end at least in economic sense. Japan as of 1990 had unprecedented level of personal savings, and highly value-adding world class manufacturing, plus moderate but not significant number of BTLers while UK in 2008 has unprecedented level of personal debt with nearly extinct manufacturing except in a few sectors such as pharmaceuticals, plus hundreds of thousands of daredevil BTLers.
5. malct said...
jack c - I hope you realise the you, mark and mountain goat have already used up your individual quotas for today
kindly refrain from posting any more articles until after midnight and don't try to be crafty by posting them inside other articles comments.
you don't want to upset that little policeman in your head now do you?
QIC (Quota Imposition Council)
6. malct said...
from yesterday
41. mountain goat said...
I agree 3 posts a day max would be good. I personally try not post more than one a day, helps me be more selective about what I post. But I think this should be done out of respect for others rather than imposed by the webmaster.
Friday, November 14, 2008 09:46AM
7. mountain goat said...
I tried and tried to control myself but failed today
8. malct said...
mg, I'd call that success - but there's more
,,,,,
1. little professor said...
Enough now, Mark.
Thursday, November 13, 2008 11:25AM Report Comment
2. mark said...
enough what?
Thursday, November 13, 2008 11:31AM Report Comment
3. little professor said...
8 posts in the past half hour is more than enough.
Thursday, November 13, 2008 11:34AM Report Comment
4. mark said...
ooh you dont want posts then...
Thursday, November 13, 2008 11:40AM Report Comment
5. malct said...
Mark, when HPC webmasters want you to stop you won't be able to post.
little proff sometimes thinks he's a policeman
Thursday, November 13, 2008 01:08PM Report Comment
6. mark said...
yes little P and Bellweather seem to have it in for me...
Thursday, November 13, 2008 01:17PM Report Comment
LOL a lot
9. malct said...
how about pelethar, james and p.doff get a quota for moaning, with penalty points for not posting on topic articles
I suggest once a year, starting in 2013 provided they post at least one sensible article each before midday daily or two before 6pm.
10. 51ck-6-51x said...
Answering the question posed. YES.
Even with the dramatic reaction to the crisis compared with Japan, the precursor was worse and the UK are not such an exporter of real goods as Japan is and was, so it could end up being far worse here. The thing we have less of is cross holdings of debt, this could help us claw our way out. (On this note I read in last week's Economist that over 20% of shares on the Tokyo Stock Exchange are held by Japanese companies - and specifically that most are not simply held as investments, but rather as a 'cementing of business relationships' - i.e. in support of each other - I imagine that one day one large company will need to raise cash and will sell out of such positions prompting a house-of-cards effect - scary stuff.)
11. mountain goat said...
JU - daredevil BTL'ers, nice one. Definitely add their value to the hpc. The credit crunch better thaw pretty quickly because we only seem to be world-class in pushing money backwards and forwards around the globe.
12. jack c said...
@malct - (serious reply coming here) I cant personally see a problem with individuals posting several articles during the course of the day so long as they are relevant to HPC. What is relevant and interlinked is obviously a matter of opinion but I'd like to think the vast majority of what I post is seen as relevant and makes a positive contribution to what is (IMO) an absolutely excellent site. It's an education being on here (in more ways than one)
13. Fjcruiser said...
asset prices need to come back down to when they become affordable again.painful but necessary.
14. malct said...
jack c - also on a serious note, I completely agree with and endorse what you say
this is an absolutely unique website and we should all treasure the experience and be greatful for being (in my case allowed to be ) a part of it.
Given the stakes, it is inevitable that censorship will be a contentious issue. The public have been and are being xxxxxxxxxx. Even Bremner Bird and Fortune have set limits on what they can expose. Can you imagine them telling the great british public "when they create the debt based money supply, they don't create the interest" and still getting exposure on CH4? no me neither. oops now what have I said
15. malct said...
oh my dog - that was the 13th comment - uh oh!
16. malct said...
which reminds me WHERE IS NOONEO?
17. drewster said...
JU:
I don't understand the personal savings bit. If everyone was saving then how was there a debt bubble? Or was the country evenly divided between savers and borrowers?
Either way it's a big difference with the UK, where everyone is borrowing and overseas investors are lending. Means we'll have to save twice as hard as the Japanese did just to stay in the same place.
You might be interested to know that in April 2008, there were over 1m outstanding buy-to-let mortgages in the UK accounting for 11pc of the market. That doesn't include unofficial BTL mortgages where the investor hasn't told the bank; you could easily add 25% to that number.
18. Cheekie Charlie said...
There is a difference between UK and Japan: Sony, Honda, Toyota, etc. etc. etc. etc.
19. malct said...
with regard to censorship and p4ac - I remember being that age (with difficulty, apart from the juicy bits)
zero tolerance, change must be NOW etc
Jesus Christ apparently had a similar problem
he threw the money lenders out of the temple (at a similar age)
and just look what they did to him - sorry Him or is it Hymn? dog I don't know
but I hope you see my point p4ac JC = same thing ref. money and debt (interest) (ursury) (semaj)
20. japanese uncle said...
drewster
Japan's property/credit bubble was not purely a housing bubble, but more like a commercial property bubble, and that concentrated to large cities, which is why financial distress experienced by households was not that grave and reposessions of private dwelling was hardly an issue, but the banks lending recklessly on commercial property and land were in serious trouble. I should say UK housing bubble 1998-2008 (including of course commercial property bubble) has been much more ubiquitous, thus serious.