I think we're turning Japanese, I really think so
For everyone who thinks "it can't happen here" - get on a plane to Japan and see what a housing crash looks like.
14 years later, homes still 50% below their peak price, at best. A speculative bubble that took a generation to clear through. Devastated homedebtors. Ruined lives.
Get ready America - we're turning Japanese, I really think so...
Take It From Japan: Bubbles Hurt
With housing prices in the United States looking wobbly after years of spectacular gains, it may be helpful to look at the last major economy to have a real estate bubble pop: Japan.
Since 1991, Japan has spent 11 years sliding in and out of recession. It is only now showing meaningful signs of recovering, with the World Bank forecasting that Japan's economy will grow by a solid 2.2 percent this year
Despite the differences, Professor Noguchi said he also saw parallels between Japan then and America now. Last year, as a visiting professor at Stanford, he said he read real estate articles in local newspapers that sounded eerily familiar. Houses were routinely selling for $10 million or more, he said, with buyers saying they felt that they had no choice but to buy now, before prices rose even further.
"It was déjà vu," Professor Noguchi said. "People were in a rush to buy, and at extraordinary prices. I saw this same haste psychology in Japan" in the 1980's. "The classic definition of a bubble," he added, "is people buying on false expectations about future prices, and buying with the hope of selling in the future."
October 21, 2006
Take it From Japan - Bubbles Hurt
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17 comments:
nah, can't happen here! USA! USA!
yeah, right.
Hey everybody. Here is the full story Keith refers to in this post. Very interesting, "but I think this time will be different."
Who knows.
Salt Lake real estate is up 3rd quarter.
OH! It can happen here! The Japanese are savers, so they can take a hit on real estate and make their payments because of their savings. Plus they have the "honor" not to default on loans. They keep paying eventhough they are under water.
Americans have no savings, and many will back out and refuse to pay if they have no equity. They will be the victim and blame the government for their misfortune. Look at the Savings and Loan deadbeats from the 80's.
So the Americans won't turn Japanese, they'll walk, and the down turn will look like a financial disaster zone!
The US is not as dependant on foreign investment and exports as Japan was. So, when our Fed prints money, it gets spent here. When Japan printed money, it got spent outside the country. Major difference.
hey keith what happened to my japanese post from last night? I promise to play nice now.
>The jist of it was that history might be repeating itself. Japan's economy started w/ a stock market boom to bust followed by a real estate market boom to bust and has languished in deflation for 15 years since. I blog about this as the japanese used all tactics that a central bank & government could do. However none of it worked and Japan stuck in a deflationary mode. I have only heard the d-word mentioned on this blog and Mish's blog. I am not saying that deflation is going to happen, but we have to monitor it & consider it....
Don't forget another key difference between the U.S. and Japan is America's ability to start a war.
While there are many tragic consequences to a war, history has shown war is good for the American economy.
The turn around in the American economy as a whole, not just housing, didn't start until after Baghdad was invaded.
I turn Japanese at least twice, maybe three times a day!! ;)
It Will NEVER happen here in the good ole USA!
What?
Oh!
Forget I said that,
Sincerely D.Lereah
"While there are many tragic consequences to a war, history has shown war is good for the American economy."
WINNING wars (e.g., WWII) may be good for the economy, but Vietnam didn't work out so well. When you print money to have your guns (a losing war) and butter (social programs) you end up with the stagflation of the 70's. Got bell bottoms? Got gold?
"The US is not as dependant on foreign investment and exports as Japan was. So, when our Fed prints money, it gets spent here. When Japan printed money, it got spent outside the country. Major difference."
With its gargantuan trade deficit, the US is extremely dependent on IMPORTS, and very much dependent on foreign investment to keep the dollar from collapsing on the foreign exchange market. If the Fed gets a little too carried away with the money printing and foreigners lose confidence in the dollar as a store of value, what do you think will happen? Nothing good, I reckon.
It is also interesting to note that many leading export-dependent Japanese companies (like Toyota) did great during the difficult (for the Japanese economy) times of the 90's. The domestic economy in Japan was damaged, but the manufacturing/exporting sector did fine.
God I love that song.
The Vapors roxors
"WINNING wars (e.g., WWII) may be good for the economy, but Vietnam didn't work out so well."
The government still spent a ton of money in Vietnam which benefited large U.S. companies, GM, GE, Exxon, etc.
America doesn't need to win wars to be successful economically, it just needs to start them.
"WINNING wars (e.g., WWII) may be good for the economy, but Vietnam didn't work out so well."
The government still spent a ton of money in Vietnam which benefited large U.S. companies, GM, GE, Exxon, etc.
America doesn't need to win wars to be successful economically, it just needs to start them.
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Individual companies may have gained, but the economy as a whole lost in the 1970's. Now history is repeating itself. Sure Halliburton is making obscene profits on their corrupt no-bid contracts, but the economy is already in stagflation, and it's only going to get worse as the housing bubble continues to deflate and the Fed cranks up liquidity to keep the housing recession from turning into a depression.
Comparing the USA to Japan is like comparing apples with lemons. Japan had a duel bubble, and if the 1990 bubbles were adjusted for todays world economy it would stlil be astounding in comparison.
When the value of the Imperial palace grounds in Tokyo in 1990 was worth more than all the real estate in Californai (and the palace sits on something like 300 acres) that is a bubble. I imagine today you could sell all the real estate in California at todays prices and still not buy Japan.
And for prices to have fallen up to 60% Tokyo remains one of the three most expensive cities in the world. What does that tell you about their bubble?
This comparison is as bad as Muslims crying genocide in Palestine. You and them both confuse the real meaning of words. Get a grip.
Comparing the USA to Japan is like comparing apples with lemons. Japan had a duel bubble, and if the 1990 bubbles were adjusted for todays world economy it would stlil be astounding in comparison.
When the value of the Imperial palace grounds in Tokyo in 1990 was worth more than all the real estate in Californai (and the palace sits on something like 300 acres) that is a bubble. I imagine today you could sell all the real estate in California at todays prices and still not buy Japan.
And for prices to have fallen up to 60% Tokyo remains one of the three most expensive cities in the world. What does that tell you about their bubble?
This comparison is as bad as Muslims crying genocide in Palestine. You and them both confuse the real meaning of words. Get a grip.
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Well, we did get a stock market bubble in the late 90's, and who's to say that it's fully deflated?
As regards real estate, instead of considering an extreme example like the Imperial Palace, why not consider the typical middle class home in Japan vs. the typical middle class home in a bubble area like Craplifornia. Which became more overvalued?
The other thing about Japan is that when their financial bubbles burst, they still had a world-beating manufacturing base so they could make stuff to sell to other countries in order to be able to buy other stuff that they don't have enough of like food and oil. What does the US have to offer in trade to the rest of the world when they stop accepting unbacked FRNs in exchange for actual goods and services? About the only things that readily come to mind are agriculture and tourism. Sounds like a banana republic to me. We've already got a banana republic corrupt and incompetent government. Soon we'll have a banana republic standard of living as the middle class is destroyed by the magic of globalization. I wish I could see a more cheerful (but realistic) scenario, but I don't...
Well Japan has the world's highest national debt, all in yen, which means Japanese have to pay it back. We have too have enormous debt but in dollars, which is a world reserve currency, so others are taking our debt. When the value of the yen drops it is the Japanese who pay, when the dollar drops it is foreigners who pay.
Second, homes in Japan are shoddy built, usually last only 24 years, which adds to their bubble crisis. Many people owe more than the house is worth because the house is worth nothing after 20 years as it is a tear down. At least, for now, most, but not all, houses here should last more than the 30 year notes. Also, compare the typical house in Japan to the USA, an hour or two outside Tokyo you can buy for maybe $300,000 and get a small house or apartment vs double that or triple in Tokyo even today after their bubble collapse. An hour or two outside say SF? You can still buy a house, say 2000 sq ft for maybe $350,000 depending on where you go. I think I read once that if California was an independent country it would have the worlds second highest GDP so comparing Japan and California is like comparing apples with apples.
California is more dynamic, has more venture capital invested, more patents produced, and a very diversified economy. California is also growing. Japan is dying. Anyone can buy in California, Japan severely restricts outsiders from buying homes in Japan, let alone immigrate.
Still, given the size of the USA, our bubble compared to theirs in 1990 has a very long way to go.
Saying that doesn't mean that I think we have issues, but when the wealth of the upper .01% has gone up 5-600% vs costs up 60% over the past 20 years I think the biggest issue still remains that corporations and the super rich keep forgetting the lessons of history that only a prosperous and strong middle class can prevent revolution.
I am a Canadian who has lived in Japan for 11 years. . .the house I live in now I bought 3 years ago for $18,000(US) in Kobe. While it was a 'fixer-upper' it has three bedrooms, and a small yard. This price was off from around $140,000 (according to the real estate agent) at the peak of the market. The bubble here still has an effect on the housing prices-they are still way way down off of the peak.
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