Where is the Japanese economy headed?

With deflation continuing despite long-term zero interest rate policy, how does the new Japanese government plan to expand its efforts to revive economic growth and lower unemployment?

Is this our future?

Japan paints a very sobering picture of what the future of the United States may be facing in the future should this loose monetary policy continue unabated. Zombie banks, real estate bubbles, deflation and stock market collapses are all themes very familiar to the Japanese economy in the 1990s.

Unfortunately the circumstances are all too similar here at home. Adding to that Japan also has a large aging population that will soon outnumber its workers, akin to the situation we face in the United States. All of these reasons and more are why it’s important to pay attention to where the Japanese economy is heading.

Severe economic routs have no easy cure

Every time a massive speculative bubble implodes it leaves behind a tremendous amount of credit destruction, which in turn absorbs liquidity and pressures equities, corporate bonds and derivatives like credit default swaps. All of these circumstances potentially create deflationary forces that can shrink the capital base of a country and even create a banking panic. After all, debt is money in many modern economies. As that monetary base shrinks each unit becomes more valuable.

Mitigating the risk of severe economic contraction requires an innovative and careful approach to the underlying cause with attention to stimulating the next catalyst. Green energy is one of many appropriate catalysts for a non-speculative sustainable global economic evolution. Others include technology, infrastructure, education and health system improvements.

Japan must lead or become obsolete

For many years Japan has enjoyed the status of second biggest economy in the world, but that status is quickly fading as Japan’s export-based economy contracts in the face of a global recession and slumping industrial production.

The new government in Japan has an opportunity to reverse policy mistakes of the previous ruling party and create a sustainable economic model that is more focused on durable growth rather than speculation. This would prove to be a model for the rest of Asia if Japan can take the lead.

If Japan’s economy can not evolve and take the next step forward, China and other neighbors will gobble up the industrial production for exports that was once taken for granted.

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