25 June 2010

But I Don't Want Japan Disease

Commentary at HuffPo by Henry Blodget, CEO of Business Insider: Actually, It's Starting to Look More and More Like We Have "Japan Disease"

The big fear that occasionally wakes even die-hard bulls up screaming is that the US is en route to becoming Japan.

If we're Japan, any recovery in the economy and market will likely be temporary. In the case of the market, any recovery will also be followed by a plunge to lower lows. For another decade, at best.

Japan's economy has basically gone nowhere for the past decade, and its stock market is trading at about one-quarter of its level of 20 years ago. If the US were to suffer the same fate, the DOW will be trading at 4,000 in 2020.

So be afraid, very afraid.

At least for now, we're both in the midst of a deflationary deleveraging, in which money supply growth is miniscule and bank credit continues to contract.

Paul Kasriel of Northern Trust has put together a series of charts that show this comparison, and it's not encouraging. Despite the Fed offering unlimited free credit to the banking system, banks continue to shrink the amount they're lending (except to the Federal government). Thus, this free money is not making its way into the economy, the money supply is barely growing, and credit continues to shrink (for the first time in 60 years).

If you prefer your bad news straight up, click here (or at the link in the story) for some dispiriting charts and graphs.

But if you can't take it, can't face it, and would rather stay in your happy place, then click here.

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