"Japanization" Isn't Always as Bad as it Seems: The Ticker

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By William Pesek

Nothing worries U.S. and European economic policy makers more than "Japanization." The prospect of unending malaise, deflation and waning global relevance has officials pulling out all the stops to avoid the "lost decade" scenario.

Yet such fears aren't without irony. Western economies, the U.S. in particular, couldn't become Japan if they wanted to. And there are indeed ways in which America wishes it could.

The U.S. is displaying some Japan-like qualities. Massive debt, falling wages, short-term interest rates stuck at zero, a central bank under pressure to try another round of quantitative easing, politicians preoccupied by petty turf battles while the economy burns. Japanization, indeed.

The thing about Japan's funk is its genteel quality. Asset prices plunged, recession became the norm, companies morphed into zombies, banks went insolvent -- and yet Japan never unraveled.

Crime never surged, homelessness didn't explode, London-like protests never materialized. Households merely adjusted and lived off their savings. Japan muddled along, even after the March 11 earthquake.

Could the U.S. pull off such a feat? No economic growth for 20 years without mass social instability? I doubt it.

For all its troubles, and there are many, Japan has roughly $15 trillion of household savings sitting under tatami mats to cushion its 127 million people from a dismal economy. Highly indebted Americans couldn't survive two months without a paycheck.

Until recently, Japan relied on robust overseas demand to offset weak consumption. Exports won't support the U.S. no matter how much the dollar slides. Europe's woes are deepening and China is slowing. Without any obvious growth engines, the U.S. may slide back into a deeper recession.

Japan is a tale of two nations. On one hand, it's incredibly safe and efficient, boasting long life-spans, universal literacy, good air quality and solid healthcare. On the other hand, it continually disappoints investors waiting for a rebound. For all its troubles, though, Japan works.

So, is America about to mimic Japan if its economy falls and can't get up? If it could, it would. It's doubtful it can.

(William Pesek is a Bloomberg View columnist.)

-0- Aug/23/2011 20:59 GMT