Masaaki Shirakawa, Governor of the BOJ, spoke at the Second International Journal of Central Banking last week. Mr. Shirakawa made a presentation that succinctly compares and contrasts the many problems confronted by the Japanese over the last few decades with the current global credit crisis. It is my opinion that Japan remains the model we should most closely study in order to understand the current environment (this is an opinion I have held for several years and well before it was a popular opinion). This is not to imply that we are exactly like Japan – there are very real differences between the two crises, however, as a historical reference point Japan remains a very good case study in private sector debt bubbles.
I’ve included a few charts from the presentation, however, I would recommend reading it in its entirety (see here). Such papers should be required reading for all member of Congress.
CPI trending perfectly in-line with Japan’s
Japan’s downturn was actually less severe
The Central Bank’s balance sheet ballooned – to no avail
The problem was not the banks, but DEMAND for loans
Massive expansion in the monetary base was NOT inflationary
Wages remained very weak as the private sector de-levered
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.