Power Breakfast: Will U.S. economy follow Japanese path, record foreclosures, failed banks, CEO pay, GM

More people are starting to worry if we’re going to follow the Japanese economic path of long-term malaise.

There are some troubling similarities, AJC reporter Michael Kanell writes.

As the Japanese economy staggered in the early 1990s, the Bank of Japan had to prevent collapse of the banking system. So officials poured money into the financial sector, Kanell writes.

In the U.S. crisis, the Federal Reserve and government bailed out the big banks.

The Bank of Japan dropped short-term interest rates to zero. Ditto the Fed here.

If you track Japanese home prices from 1977 to 1995, they match up nicely with U.S. prices from 1992 to the present, Kanell reports.

There are differences.

We don’t have deflation like Japan. But we are getting closer to it, and that is what really worries economists. Because deflation is a dangerous malady, a lot harder to deal with than its opposite, Kanell writes.

Also in the AJC:

In other media:

For instant updates, follow me on Twitter.

21 comments Add your comment

Gary Moss

November 15th, 2010
6:21 am

At the time the stimulus passed Paul Krugman said the Democrats had tried to be too bipartisan, with too little spending and too many tax cuts. Events have proven him exactly right. If deflation happens it will be largely because Republicans have it backwards, running up record deficits during the boom times and then resisting spending when the economy tanks. When will this country ever learn?

curious

November 15th, 2010
6:36 am

People want to work, but can’t go to the places where there are jobs, because the recession and housing bust have left their homes way undervalued — we’re upside down in mortgages where 30% was put down, and the remaining mortgage balance now is only 1/3 of the building costs. Market valuation comes in at 50% of building cost, five years ago. I keep reading in The Economist and other mainstream media — this idea that banks really need to write down the value of these mortgages because they are truly overstating the value of their assets at this point. When, and how, can this happen, that banks take this approach? We taxpayers bailed them out — when will they help us out?

A.S.Mathew

November 15th, 2010
7:19 am

According ABC, 20 millions jobs have gone to China. 1/3 of the socks consumption in the world
is being supplied from China. Years back, Ft. Payne in Alabama was called the socks capital
of the world, now that place is a bygone history.

If job situation is not improved (who knows, how to fix it) we are heading towards more problems.
Temporary hiring for the Christmas sales is not the solution. Now the political equation has
changed in Washington, and hardly any politician knows the pain of lack and paying the past due
bills, then notices from the lawyers. So, we will be watching another political drama in a new
arena.

A.S.Mathew

November 15th, 2010
7:36 am

Curious: I don’t want to reveal the name of the bank, which is one of the largest in the nation.
My wife has never failed to pay any payment on time. As a small carpet business person , my business is
dead. We have tried many times asking their help to reduce our interest rate through re-financing.

At first their response was my credit was bad, but gave us promise to help us. They charged
$ 400.00 to apprise the property, and now they are telling us that since my income is low, they can’t
help us.

Had they reduced our interest in the current rate or a little bit higher, we could have paid off the loan two years earlier while paying less
amount than we pay now. About $ 20000.00 we have saved, but they like to have that money.

Let the government suffocate the tax-payers to help the banks, and let the bank finally kick all the
tax-payers from their homes.

For the greed and mistakes of the banks, the innocent tax-payers are punished. This is like
the Shakspearn drama of ” Merchant of Venice”.

Rod

November 15th, 2010
7:40 am

Who are we gonna blame next year when we don’t have jobs?We have a REPUBLICAN everything I’m waiting for results the party for buisness is in charge now lets see when the hiring signs come out we are waiting?

Voters Did It!

November 15th, 2010
8:12 am

The country has to suffer because the voters, particularly seniors, can’t let go of the past so the country can move forward.

The Republicans are great at making a certain segment of the electorate believe they are the predators when they are actually the prey. Bitter, mean, cold, racist, neo-fascist types keep electing those who send them code that they will go after the undesrving, the monirities, and all those that aren’t true in their opinion.

But the fact is that over the past 30 years, working people have become more productive but they haven’t gotten wages that reflect the work done. Instead, almost all of the benefit has gone to the richest 5% and people still believe those same people should receive even more benefit.

At this point, tax cuts redistribute the working persons wages upward. Now there is no internet or housing bubble to sustain the illusion. The only way out of this mess is to spend money on creating public and private sector jobs, while making sure big corporations and the others who have been over compensated, pay up.

That is the only way to address the deficit, by putting more tax payers back into the system. Cutting the social safety net will not work. Blaming Obama will not work either. Time to do the right thing and put people back to work. Stop waiting for the private sector to do it all because it can’t due to low demand. Anything else is just delay and increases the chances of serious social disorder.

Realist

November 15th, 2010
8:20 am

Let’s be clear. Food prices are up, fuel prices are up, housing prices are up, clothing prices are up, airfares are up, taxes are up, interest rates are up. Virtually everything us NORMAL people buy is up in price yet the same tired old fearmongering about “deflation” is being thrown around.

What is deflation? Deflation is a decrease in the quantity of money. Since 2008 the Fed has printed an additional 1.7 trillion dollars and now they are printing another 600 billion. Where is the decrease in the money supply? As it applies to prices, monetary deflation generally leads to lower prices. Of course this isn’t happening and WON’T with all the money recently printed. But if it did, so what? This is a recession/depression and the consumer has less money to spend. Deflation helps the rest of us deal with the reduced funds while still maintaining an ok standard of living. Even businesses who will experience a lower price for the goods they wish to sell will also be able to buy raw materials at lower cost so it all works out.

The only thing seriously affected by deflation is the debt the government must pay back. By inflating the money supply, they get to pay their creditors (China, etc.) with money that is worth less than what they borrowed. With deflation, just the opposite.

So now you know why Deflation is wonderful for the consumer and bad for government. Now you know why the Fed is printing money like its going out of style. Now you know why government IS THE PROBLEM.

End the Fed.

confussedd

November 15th, 2010
8:21 am

We ran up record deficits in boom times and then set new records with higher deficits)(new record highs) since 2008. They all have it wrong spending borrowed money is not an answer.

Waiting......

November 15th, 2010
8:28 am

We’ve all seen the election results and now we’ll have to sit back and see what happens. It’s obvious that what we had was not working. Now that the finger pointers are in, lets see some action. I’ve heard your lips move, but now I want to see you get up off of your over privaledged self serving butt and follow through on your campaign promises. This is not about you, but what you promised. I’m not tied to any political party, but if our political and corporate “royalty” don’t start looking out for the best of the people, we’ll continue to see more problems and will look back favorably to the good ole days of 2007-2010. We have to keep our elected officials and their staff out of the bedrooms of corporate management and their lobbyists! That’ll be a start!!

TnGelding

November 15th, 2010
8:28 am

Gary Moss

November 15th, 2010
6:21 am

Good points. The answer to your question is probably never.

Realist

November 15th, 2010
8:20 am

Housing prices, taxes and interest rates are down.

TnGelding

November 15th, 2010
8:33 am

Well, lets hope not. But drastic changes in our households and lifestyles might be in order; fewer people seeking work outside of the home and frugality. But we senior citizens have to lead the way by purchasing goods and services we need instead of doing it ourslves, especially those of us that have been frugal all of our lives and can afford it. It’s time to pass the torch and the prosperity. Let’s stop being so self-centered and selfish and share the bounty more.

TnGelding

November 15th, 2010
8:36 am

I wish the media would stop using the term bail out and accurately report that the federal government invested in us and our country when the private sector wouldn’t or couldn’t. and still refuses to when they have ample resources to do so..

Gooddawg

November 15th, 2010
8:44 am

I am a conservative Republican so the following may sound a little unusual.

I think we should pull back all the troop deployments that we have in dozens and dozens of countries aroung world and reduce our defense spending. Maybe rely more on technology and less on manpower. No country on the planet has a defense budget as large as the U.S. Oh that’s right, we don’t have a budget. Nor have the books of the U.S. government been audited in over two years. Our total national nut right now including entitlements is around $124 tillion and that is the government’s own number. What’s to understand? WE ARE TOAST!!!

Gooddawg

November 15th, 2010
8:47 am

Sorry, I meant $124 trillion. My fingers shake when I type a number that large.

shadow7071

November 15th, 2010
9:54 am

As I’ve commented here over the past couple of years the problem with America’s economy is with jobs. Jobs produce wages that are used to pay debts and buy more goods and services. Right now we have upward of 20,000,000 Americans either unemployed or under-employed. And, they have little or no prospect of getting a job (or better job). These people do not have the wages to buy goods and services and pay their debts. So, it’s no wonder why foreclosures are still high and going higher. It’s no wonder that banks are continuing to fail because of bad loans. It’s no wonder why retailers are already scrambling for every “Holiday” dollar that they can get. It’s no wonder why we still see businesses failing. We are in an economic crisis that has been caused by jobs or more specifically, job loss.

I’ve tried to research the number of jobs we’ve lost to overseas but there is no verifiable number. But, I imagine the number is in the millions. And the irony is that corporations are continuing to lay-off people here in America and give their jobs to someone in China, India, and else where. What’s even more ironic these same corporations expect the people they’ve laid off to continue to buy their goods and services. What’s most ironic is that these fools that manage these corporations don’t understand why they can’t sell their goods in the American marketplace. They ain’t made the connection, yet.

Since this recession began all the talk has been about the dumb suckers who took out mortgages and now can’t afford to pay. All the blame has been placed on them. The discussion about the economy always ends with them being the scapegoat. NO ONE EVER BOTHERS TO ASK THE QUESTION “WHY CAN’T THEY PAY?” The answer is that their job(s) have been sent overseas. Now they don’t have job (or the have less of a job) so they have no (or less) wages.

The problem is jobs.

TnGelding

November 15th, 2010
10:09 am

The lack of jobs is only one of the problems. There are many, many more that the pols have been using to divide us for decades. Congress was content to let the jobs go overseas, thinking they could be replaced by higher paying high-tech ones. It worked to some degree, as we continue to lead the world in poduction measured in dollars despite losing millins of jobs. Many of the homeowners in foreclosure could pay, but the homes aren’t worth what they owe on them. Unscrupulous loan originators were the root of the problem, aided by greed and fraud. Not to mention clueless home buyers.

Waiting......

November 15th, 2010
10:09 am

Agree, lack of jobs is the root of our problem right now. Corporations are not expanding and anyone wanting to start a business right now (which is the only option for most), can’t get money from the banks to get started. The banks screwed themselves and the tax payers bailed them out. Now, they sit on “our money”. Yes, our money, because they lost theirs through bad lending decisions. Also, the small business owner doesn’t receive the same concessions from the government that corporations do. Typically, there isn’t enough profit in a small business to also line the pockets of elected officials, so all of the tax concessions and benefits go to corporations. This recovery will begin when jobs are available, and that will come from small businesses. Give them the breaks they need to start, grow, survive, and thrive and we’ll see a turn around. But lets also not forget to hold our elected officials feet to the fire. Remember, they work for us, not the other way around!

TnGelding

November 15th, 2010
10:20 am

Our money was never used. We barely pay enough in taxes to cover 2/3 of expenditures, if that. The Fed and Treasury have been doing the heavy lifting backed by our credit rating. The small business spiel is a myth. Most of them barely provide for the owners, much less any employees. See the economic censuses of 2002 and 2007. And very few of them provide their owners with income of $250k, contrary to what some would have you believe. That said, I’m not one of the tax the rich crowd. We all have to kick in as much as we can in these trying times.

TnGelding

November 15th, 2010
10:36 am

When all is said and done, the ivestments will have produced a small profit for our balance sheet.

shadow7071

November 15th, 2010
10:52 am

TnGelding,

About thirty years ago (or more) the government initiated a new savings program called 401k. The idea was that American workers would automatically save money through payroll deductions into a tax delayed savings account. These savings/investment accounts would be managed by fund managers who would invest and grow your savings. The program worked. American corporations got on board, set up the systems, enabled and encouraged workers to participate in 401k programs.

What happened was that a slow, methodical, stodgy Wall Street was suddenly flooded with cash to invest. Suddenly fund managers had tons of cash (from the American workforce) to invest but at the same time they had to ensure a positive return on investment. Soon, very soon, they were in a cycle where they were required to grow investments and that in return required corporations to grow revenues and profits. The need to produce profits every quarter forced corporation to reduce costs. The need to reduce cost required that corporations look elsewhere for cheaper resources and labor. Without going into the whole NAFTA and trade agreement thing the net result of all of this the government and Wall street enable business to move jobs overseas (to benefit from cheaper labor).

The bottom line of this comment is that… yes, they did use our money. They use of our money enabled Wall St. and investment banks to engage in things like we’ve not seen since the 1920’s.

TnGelding

November 16th, 2010
3:58 am

…and shortly thereafter Congress approved Thrift Savings Accounts for federal government workers that flooded more assets onto Wall Street. But to blame that for our present woes is a stretch IMHO. Interesting, but still a stretch. The pressure to out produce and out perform has always been there, and corporations have always been looking for ways to reduce costs. I will admit, the entire mess is too complicated for me to understand. It appears the whiz kids didn’t understand the potential consequences of their recklessness either. It also appears to me that with a Republican in the WH, big business runs amok, but that could just be a coincidence.

Root of the problem: D E R I V A T I V E S ! The late Henry Gonzales railed against them nightly from the well of the House. But this scheme is too complicated for my feeble mind, as well.

Derivative (finance), a contract whose value is derived from that of other quantities