Doug Kass: US Is Not Japan Debate

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Subject:	US Is Not Japan Debate -- RE: interesting summary from Doug Kass
Date:	Thu, 19 Aug 2010 10:35:18 -0700
From:	Jas Jain

From: Dean
Subject: FW: interesting summary from Doug Kass
Date: Thu, 19 Aug 2010 10:10:35 -0700

 

What is the probability that a born-and-bred American would conclude that US is in far worse shape than Japan was in 1990s? There is no greater disability in understanding America's future than being a born-and-bred "I am an optimist" American. For Americans there are more than 100 flavors of economic and political propaganda, conducted by thousands of propagandists, to choose from to suit every prejudice.

Jas
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Subject: interesting summary from dougie

Run, don't walk, to read Credit Suisse's take on the 'U.S. is like Japan' debate.

This morning Credit Suisse directly addresses the "U.S. is like Japan" debate:

The U.S. is not Japan 15 years ago. We find many more differences than similarities between the U.S. today and Japan 15 years ago:

The U.S. has had far more proactive fiscal/monetary policy. (Japanese monetary conditions were tight until 1995. Unlike the U.S. today, Japan fiscal easing was small.)

Japan had falling wages since 1997 and negative inflation expectations since 1993. (U.S. wage growth and inflation expectations are >2%.) Falling wages creates sustained deflation.

Asset deflation was more acute in Japan, with house prices declining by almost 80% in the big cities.

The U.S. moved to recapitalize banks quickly and has already written down 85% of their estimated losses (Japan needed 13 years.)

Japan was very slow to deregulate, and hence the price of labor fell as opposes to the quantity. With companies having little incentive to maximize return on equity, the return on capital is one-third that of the U.S.

Deflation became economically and politically acceptable because Japanese households have net financial assets of 41% of GDP, so they benefit from deflation.