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John B. Helmers, hedge fund principal at Swiftwater Capital Management, found three reasons why the U.S is not heading for a Japanese recession:
“1) Magnitude: In 1989 Japan had massive twin bubbles — both real estate and equity. The Japanese stock market was in the stratosphere with an earnings multiple well north of 100.
Japan’s real estate bubble was so ludicrous that the Imperial Palace in central Tokyo (only about 5 miles in circumference) was deemed to have the same value as the entire state of California. Now that is a bubble!
The 2007 property bubble in the U.S., by comparison, was residential-focused and less dramatic. While it is true that aspects of this bubble had ripple effects into other markets (commercial real estate, credit markets and equities), the magnitude of overpricing was nothing like Japan of 1989.
2) Demographics: Japan’s demographics are abysmal when compared to the U.S. As a primarily mono-cultural society, Japan cannot easily use the immigration lever to counteract the natural graying of a wealthy society.
The U.S., on the other hand, has a lower average age, a higher birth rate and a history of embracing immigration. All these factors should keep U.S. demographics from having the same deflationary impact as Japan’s did.
3) Monetary Policy: Japan suffered from severe policy error. The Bank of Japan (BOJ), understandably, did not appreciate the magnitude of the economic and financial problems it faced as the twin bubbles burst.
Monetary policy was clearly not aggressive enough.”
Get the detailed arguments on CNBC here: Three Reasons Why We Are Not Going to Become Japan.
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Tags: Asia, Bank of Japan, Commercial property, Economy of Japan, Federal Reserve System, Great Depression, Japan, Monetary policy, Real Estate, Stock Market, United States
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