Japan's Stimulus Disaster

Another interesting insight from Bill Bonner:

We live in a world run by simpletons. In this morning’s paper is a front-page article describing how Japan “wasted trillions” on its various stimulus programs.

The International Herald Tribune : “Japan’s rural areas have been paved over and filled in with roads, dams, and other big infrastructure projects, the legacy of trillions of dollars spent to lift the economy from a severe downturn caused by the bursting of a real estate bubble in the late 1980s.”

Public spending was so aggressive, it boosted Japan’s government debt to 180% of GDP – more than two times the current U.S. level. But did all that cement buy Japan out of its slump? You be the judge. Housing prices in Japan are now back down to where they were in 1975 – nearly 90% below the late-’80s peak. And stocks? The Nikkei index is back down to where it was a quarter century ago. Stocks sell for half their book value – and they’re still considered too expensive for beaten-down, hyper-fearful Japanese investors. The downturn began in 1990. Over the following 19 years, it did more property damage than the Great Tokyo Fire of ’23 and the Enola Gay combined, wiping out wealth equal to three times the country’s GDP. This was despite interest rates at zero...and a heroic effort at Keynesian stimulation.

If America were to follow Japan’s example, it would have to leave its interest rates near zero for the next decade...and add about $10 TRILLION to its public debt. And if it got the same results, you’ll be able to sell your house in 2026 for the same price you paid in 1992.

But the simpletons have no other idea. “In a nutshell,” continues the IHT report, “Japan’s experience suggests that infrastructure spending, while a blunt instrument, can help revive a developed economy, say many economists.” Are these, perhaps, the same economists who thought America’s super-consumption, eternal-debt economy would never fail? The same economists who thought the bankers were providing a public service, by offering so many people so much credit...and then planting their debt bombs all over the planet? The same economists who forecast rising stock prices in 2008?

Probably.