Japan will see recession in 2012

by Wes Bridel on February 20, 2012

in Economic Updates

It has taken long for details of our Recession in Japan prediction to start to come in. Japan has been sucking fumes for over 2 decades now.  Today, we’ll continue the series on economic predictions for 2012 and beyond…

In the 1970’s and 1980’s the growth story of the Japanese economy was unreal.  People across the US thought that soon Japan would buy up this entire country.  Japan was on fire.  Of course, this meant that they were experiencing a bubble and the mal-investment that often comes with it.

The Japanese government should have allowed the bubble to burst and allowed the market to clean out the excesses.  Allow those who acted foolishly and took too much risk to go bankrupt.  Allow some banks that funded the whole episode to go under.  Allow the system to clean itself.  What happens when you allow this natural process to happen is that everyone learns something.  All companies and individuals get smarter.  Those who were wise and prudent get rewarded with excellent opportunities.  The young up and comers see new opportunities in the market and are allowed to take advantage.  After a short recession, the economy grows again stronger than ever.

This is what should have happened.  This is what works.  What does not work is what Japan tried…

The Japanese are extremely concerned with “Saving Face”.  They couldn’t allow all these banks and corporations to suffer.  So the government started borrowing unprecedented amounts of money to try and bail them out.  The problem is that by doing this, they rewarded the weak & undeserving while punishing the strong and prudent.

Thus, Japan entered the lost decades.  For 20 years now, Japan has been in a deflationary depression.  The stock market is still much lower than it was at the peak two decades ago.  The economy has been in a funk because the government continues to borrow money to try to prop up failing institutions instead of allowing failures to fail and winners to rise from the ashes.  Instead, they’ve created a system where failures rule and potential winners without the government connections don’t have an even playing field.

If this sounds like the exact road the US has been walking down for the last few years, you are correct. The US has decided that experiencing a little bit of short term (albeit severe) pain, is not acceptable.  Instead, we’ve decided to enter a fairy tale world where no bank or large corporation is allowed to go under and the people themselves are suffocated by the effects of money printing and non-existent interest rates to pay for it.

Back to Japan… Into this environment, last year’s typhoon and subsequent nuclear disasters came.  This is all too much for an economy which has been on life support for too long as it is.  Japan decided to shut down its nuclear capacity which has severely hampered the ability of energy intensive corporations to continue to produce in Japan.  Today, Sony, Honda, & Nissan are doing more and more of their manufacturing abroad.

One big consequence of this is for the Japanese Yen itself, but that’s a story for Wednesday.  But for the local economy, it means less jobs and less money flowing through the economy.  We’re predicting increasing recession is under way in Japan.  And since we first wrote this, economic reports are already coming out confirming it.

Japanese economy slipped twice as much as analysts expected in the fourth quarter of 2011.  We expect this trend to continue.  Wednesday, we’ll look at the bigger issue facing Japan.

This is the tenth post in a series.  You should read the initial thoughts on these forecasts here. and the Overall Prediction Page here.  Here are the rest of the posts:  3) Ben Bernanke’s Dollar Devaluation Plan, 4) The Coming US Dollar Devaluation, 5) Stock Market Volatility, & 6) Stocks to Fall in 2012, 7) The European Crises, & 8) European Options, 9) European Prediction, 10) Recession in Japan, & 11) Japanese Yen Crash.

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Economic Forecasts of 2012 & beyond | Kingdom Calling
02.23.12 at 2:58 pm

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Satsugai 02.21.12 at 4:23 pm

I stopped reading when you said that the Japanese economy was on fire in the 1970’s, it had two oil crises and a recession, hardly on fire is it?

Wes Bridel 02.21.12 at 5:36 pm

Japan averaged double digit growth during the 1970’s! That’s a rate of growth that is beyond the dreams of Japan any time over the last 20 years as well as anywhere in the “developed” West today. Yes, there were a couple of “crashes” where growth slowed. Most drmatically when it slowed from above 20% annual growth to the low double digit growth rate (10%+). So, yes, if you lived there in that time, I’m sure it felt like a difficult adjustment….but 10% growth is fantastic!

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