As we forecast decades ago, Japan was the first developed country to go off the demographic cliff. Their massive baby boom and the real estate and stock bubbles that came with it, all burst.
Japan has already gone through what the rest of the developed world has since or will go through shortly… but nobody gets it. Japan didn’t see it coming, and neither will Germany, Europe, or the U.S. ahead.
I just spoke in South Korea at the World Knowledge Forum and my message was that they’re Japan on a 22-year lag for the peak in their two baby booms.
They actually seem to get it more than most.
Never has an emerging country rose to wealth and developed country status as fast as Japan, in just three decades from the 1960s through the 1980s. And never has such a major economic and military power fallen so rapidly.
Japan’s steep demographic slide was so strong that, even while the rest of the world saw the greatest global boom in history (as we also forecast), everything crashed.
Japanese stocks went down 60% in the early 1990s and real estate followed the same amount. Stocks eventually went down 80% in 2003, and real estate has never bounced – still down 60% today in residential, and 80% in commercial.
But Abe Shinzo, Japan’s prime minister, and Haruhiko Kuroda, its central bank head, still think they can just stimulate their way out of the endless demographic landslide. They’re convinced this is just a monetary problem of not enough inflation to get consumers to spend.
Hate to break it to them, but not only do aging consumers spend less and less, especially on real estate – they die.
How do you get them to spend then?
In early 2013 this dynamic duo declared war on deflation (which is laughable) and aggressively increased QE, to more than double that of the Fed and the ECB at their peak rates. But then, they increased it another 60% in late 2014 to triple.
And sure, their stock market doubled – as pumping up stocks seems to be about the only thing QE’s capable of – but their debt has risen to the highest in the world at 246% GDP, and 680% for total private and governrnment!
Look at some stats since the tripling of QE in early 2013, compared to growth in private consumption and GDP.
The Bank of Japan’s balance sheet has increased by 120%, which just blows my mind. No governrnment has ever come close to these extremes. And yet, inflation has only risen 2% in this time frame of just over 2 years. How could this be with such massive money creation?
The answer is that they’re fighting massive deflationary forces from aging and record debt levels.
Private consumption from consumers has actually fallen 2%, or just less than 1% a year. Economists blame this on the rise in sales taxes from 5% to 8% in early 2014 to help offset their huge governrnment deficits and debt. That’s when they upped QE another 60%. That didn’t work either, as aging and demographics is the real problem.
And through this massive Abenomics program, GDP has only grown 1% over 2.25 years, or about 0.4% a year. This makes Europe look strong!
Make no mistake: Japan’s efforts have been an abysmal failure. They’re mortgaging their future with QE and rising debt as their population and workforce ages predictably, even decades into the future. And it gets worse. After their millennials end their upswing from 2003 to 2020, their demographics worsen forever!
We’ve witnessed a great country rise in three decades, and fall in three decades… and they’ll continue to fall as far as the eye can see.
That’s the power of demographics, and they just don’t see it. They think that as long as they get inflation up to 2% – which they haven’t even come close to – consumers will spend more.
How little could you understand about your economy?
The final judgment is coming. Japan just entered an official recession with 0.8% declines in GDP in each of the last two quarters. The worst sector, business investment, is down 5% in Q3 and Q2. No wonder, considering businesses never fully supported QE in the first place! Now, they’ve lost confidence in their economy.
I would too!
This is the best evidence that artificial stimulus cannot create a sustainable recovery – not against rising debt levels and falling demographics.
We continue to not learnrn from Japan’s lead. We’re following them into a coma economy with similar policies of denial, instead of restructuring our debt and deleveraging it.
Only that would clear the decks for a more sustainable recovery.
Follow me on Twitter @harrydentjr