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United States and Japanese ‘Forests’ Appear as Mirror Images

Posted by Larry Doyle on August 31, 2009 8:57 AM |

Japan’s election results yesterday, in which the Japanese LDP party was routed, is a clear case of resoundingly ‘throwing the bums out’ in an attempt to ‘clean house’ and set the nation on a new track. What direction is that track headed? East, as in measures of increased protectionism within Japan itself and a closer relationship with the BRIC nations, primarily China.

Sense on Cents provided a hint of this on July 13th in writing, “Will Japan Take a Samurai to the U.S. Dollar?”:

Is the economic influence of the BRIC nations (Brazil, Russia, India, and China) gaining momentum and a huge ally in the assault on the U.S. dollar? It would appear so. What country is also questioning the validity of the greenback as the international reserve currency? Our second largest creditor, that being Japan.

Japan remains mired in a longstanding run of economic stagnation. This stagnation not only encompassed The Lost Decade of the 1990s, but to a large extent continues today. Japan, much like China, has largely been an export based economy dependent on American consumers. With the American consumer now pulling in his purse strings, what does the future hold for Japan? Let’s review the platform of the victorious Democratic Party of Japan (DPJ). The Wall Street Journal provides insightful analysis this morning, The Audacity of Yuai, in detailing the DPJ’s premise and platform, which includes the following:

> Yesterday’s election represents only the second time that the LDP has lost office in 54 years, and Mr. Hatoyama succeeded brilliantly by campaigning on the audacity of ambiguous “change.”

Interesting . . . “change,” sound familiar?

> Like the LDP, the DPJ wants to protect the politically powerful agricultural lobby, reshuffle public handouts, raise taxes in the name of environmentalism, and protect workers and small- and medium-sized businesses from competition. On the campaign trial, Mr. Hatoyama sold these old ideas as a new vision of government focused on yuai, or friendship and love.

Could we categorize these components as ‘the more things change, the more they stay the same?’ Are we experiencing much of this in Washington as well?

> Japan’s public-debt-to-GDP is about 180% and the fiscal deficit is projected to approach 8% by year end. Mr. Hatoyama promises to trim the budget to pay for his 16.8 trillion yen ($177 billion) in spending promises. But that ignores the gaping debt hole that must be serviced eventually.

What other country has a massive debt problem and is going into deeper debt to dig its way out?

> He suggests that China’s rise to economic dominance in Asia is inevitable and that Japan should do more to redistribute the wealth it currently has.

Redistribute? Sound familiar?

> On foreign affairs, Mr. Hatoyama wants the U.S. to remain the main guarantor of Japan’s security, but with fewer troops and bases in Japan. He is strong on human rights but supports international institutions like the United Nations that coddle rogue regimes.

How gracious of them. We get to protect them with a lessened physical presence. Might he also dare to negotiate with certain ‘rogue regimes?’

The simple fact is the Japanese public is fed up with economic stagnation. However, the Japanese may care to review the foundations of that stagnation. Within that foundation is a culture which has never been willing to recognize losses within its banking institutions. That unwillingness to acknowledge losses has left an overhang of bad debt on its economy.

If you see many similarities in the platform of the newly elected DPJ, look beyond the trees and I think you may see a forest in the United States which, in many respects, is the mirror image of that in Japan.

LD






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