A World Recession Until 2018? Just Ask Japan
Posted By thestatedtruth.com on December 12, 2010
Looks like we’re in a real pickle, if we try to borrow our way out of this mess, then the dollar will plunge, and if we go the austerity route-we have another World recession. Who would know better then Japan!  They say “The world is set for a long-term structural slump reminiscent of the 1870s ..The reason for the slowdown? Governments are putting fiscal austerity ahead of restoring stable growth.
This comes from Eisuke Sakakibara, Japan’s former top currency official. He is known as “Mr. Yen†for his ability to move markets. Because Tokyo’s revolving-door politics often sends a new face to each Group of 20 meeting, he is one of the few Japanese constants in market circles. Traders may not know the latest finance minister’s name, but they know Sakakibara.
Japan is the master of muddling along, decade after decade, with little growth to show for it. And Sakakibara was a key player when Japan faced everything from the Asian crisis to Russia’s default to the onset of deflation to a banking collapse that saw the demise of Yamaichi Securities Co.
So, when an economist with Sakakibara’s background says “the world is set for a long-term structural slump reminiscent of the 1870s†when average global annual growth was about 1 percent, I can’t help but listen. The reason for the slowdown? Governments are putting fiscal austerity ahead of restoring stable growth.
Yes, there’s an eye-rolling quality to a former Finance Ministry mandarin giving economic advice. After all, officials there did Japan’s 126 million people a disservice by punting reform far down the road. They just borrowed and borrowed, leaving Japan with the largest public debt among industrialized nations and no exit strategy in sight.
Yet recent data in the U.S. and Japan and financial turbulence in Europe suggest a fresh global recession is a distinct possibility in 2011. If that happens, what levers are realistically available to revive demand? Interest rates are already at, or close to, zero. That leaves increased government spending as the only real way to stabilize things.
The U.S. is starting to rattle bondholders with its borrowing binge. President Barack Obama’s stimulus isn’t working the magic economists hoped. Neither is the Federal Reserve, as it goes the way of Japan with quantitative easing.
1937 Again…..Worse, in the U.S. and other major economies, is the risk that it may be 1937 all over again. It was then that President Franklin Delano Roosevelt got stingy with stimulus, assuming that the Great Depression was over. The next year saw the economy in full retreat.
If Sakakibara is right, the global economy is in deep trouble. He envisions a broad slowdown that might drag on for seven to eight years. China can live a couple of years without U.S. and European growth, but eight?
That so many Treasuries are held in China and elsewhere makes the U.S. highly vulnerable.Â
Japan is a cautionary tale. On the surface, the 4.5 percent annualized increase in third-quarter gross domestic product looked promising. The detail, however, showed that deflation is worsening no matter how many yen the Bank of Japan churns into the economy.
This is anything but a typical recession, and world leaders are too distracted to see it.
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