Japan Voting to Throw the Bums Out and Empower the Consumer
Posted by Michael A. Kamperman on August 28, 2009
Japan just reported unemployment in the country has risen to 5.7%. While this is low by our standards, it represents a post World War II high for the Japanese economy. Additionally, Japan also reported that their core CPI for the last 12 months was -2.2%, which is also a post World War II low for deflation. It is widely expected that the Japanese people will vote out the ruling Liberal Democratic Party and change leadership. The Democratic Party of Japan is led by Yukio Hatoyama, who will become the Prime Minister should his party win. Mr. Hatoyama is promising to not raise taxes, cut wasteful government spending, and reign in the bureaucracy. Basically, Mr. Hatoyama wants Japan to revitalize its consumers to generate internal demand. He envisions Japan’s economy being less dependent on exports to the U.S. This is great news for Japan and for the world economy if the Democratic Party wins and Mr. Hatoyama is successful in implementing his vision. Japan will have a much healthier economy if it strengthens internal demand and is less dependent on exports. The people of Japan are voting to make their economy function more like the economy functions in the U.S.
Ironically, the let them eat cake leadership in Washington is looking to go in the opposite direction. The Obama Administration has decided to adopt the economic strategies of the very soon to be thrown out Liberal Democratic Party. Rather than fix the broken credit markets so that consumers and business can have easier access to credit, President Obama’s economic team has chosen to have Zombie banks that make loans only to the most credit worthy borrowers while leaving most others left out in the cold. Furthermore, rather than looking to stimulate internal consumer demand as the key solution to our economic woes, the Obama team is preaching a strategy of higher savings for U.S. consumers and more of a reliance on an export driven economy. Never mind that the Obama economists have yet to answer the crucial question export to whom?
The Obama Administration needs to take their cue from the Democratic Party in Japan. Empower the consumer and focus on an economy primarily dependent on internal demand rather than exports. To do this the Obama administration will need to get serious about fixing the broken credit markets. Unemployment will keep rising and deflation will keep going lower until the average U.S. consumer can obtain a loan to buy a new car or a home. Right now if your credit score is under 700 it is very difficult to obtain a loan. Many people cannot obtain loans that still have jobs and have credit scores over 700. Over half of the country has a credit score under 690. How can we sell all of the houses we need to sell when we have a supply of single family homes for 70% of our population and only about 40% of our population can qualify for a mortgage right now? To demonstrate the fallacy of the Zombie bank policy now over 9% of prime mortgages are 30 days delinquent, which is way above the normal average of 2%. Prime mortgages are made to people with good credit scores above 700. But a bunch of these people have lost their jobs because we no longer build houses or cars for the average American. Japan has learned that the traditional U.S. economic model is the best one available. So why are we trying to abandon it to develop a production based export economy?
