ECONOMICS

The IMF said the the quiet part out loud today (admittedly wrapped in 100s of pages of PhD-ese) in their benchmark Fiscal Monitor this morning: pointing out that America's recent economic performance is partially the result of the country's unsustainable borrowing, and that the US' massive fiscal deficits have stoked inflation and pose "significant risks" for the global economy.

The IMF said the US had exhibited “remarkably large fiscal slippages”, with the (more…)

There was something odd about the latest Beige book (which was prepared based on information collected on or before April 8, 2024, so before the latest CPI print): if accurate, it would suggest that the rosy economic picture painted by the White House is woefully incorrect, whether on purpose or not (spoiler alert: it is on purpose).

Reading the Beige Book, we find that contrary to the official GDP print which claims the economy is cruising at a brisk 3%, ten out of twelve Districts (more…)

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

We recently wrote Japan’s Lost Decades to appreciate better why Japan’s GDP is smaller than it was in 1995 and why it took 35 years for its stock market to set its recent record high.

Many pundits claim the U.S. is following Japan’s path. The path includes a stagnant economy, massive government debt, and a central bank that must dominate financial markets to keep the economy and financial markets afloat.

There is merit to that opinion. The U.S. government has excessive debt and is increasingly negligent in managing its budget. Also, the nation’s economic growth rate has been trending lower for thirty years, and fiscal dominance is becoming the norm, not the exception.

While we may be on a similar path as Japan, we are not nearly as far along. There are many differences between Japan and the United States worth considering.

All Asset Bubbles Are Not Alike

At the heart of Japan’s current problems were its massive real estate and stock bubbles that popped in 1989.

To appreciate the enormity of their bubbles, consider the following from Ben Carlson’s article The Biggest Asset Bubble In History.

The aftershock could have been dealt with in many ways, but at its core, it came down to whether to pay a dear price over a short period or draw out the costs over decades. They elected the latter, saving their banks and relying on massive government spending to insulate the economy.

Over the last 25 years, the U.S. dot com and subprime bubbles have popped. While economically costly, the bubbles were minor compared to Japan’s. Accordingly, when they popped, the economic and financial consequences paled compared to Japan’s.

Banking Sector

The real estate and stock bubbles were supported with massive leverage via bank loans. When the asset values plummeted, the debt supporting them was often worthless. The banking system would have collapsed if the banks had written off the ba (more…)