The Christian Science Monitor recently published an interesting article on Japan’s exploding debt bubble and the similarities to the current American economy were frightening. Unless the American government and political establishment immediately begin to make the difficult and long overdue decisions related to its own long-term economic health, the United States economy will assuredly face a similar fate.
In reading some of the following paragraphs from the article, all one has to do is replace the years in the Japanese example, and insert the years the stock market, housing and credit bubbles all exploded in America over the last few years.
The prelude to Japan's current crisis began in the early 1990s when its housing and stock market bubbles popped, leading to recession. For the next 20 years, using flashy names like Fiscal Structural Reform Act, and Emergency Employment Measures, and Policy Measures of Economic Rebirth, the government cut taxes, increased spending, and borrowed money to finance itself. Once or twice the government found fiscal religion and raised taxes; however, the economy stuttered and taxes again were lowered and the stimulus story continued.
Today, 20 years into endless stimuli, the Japanese economy is beset by the same rot it was then, except that its debt has tripled – the ratio of debt to gross domestic product (GDP) stands at almost 200 percent, double those of the United States and Germany, and second only to Zimbabwe.
Washington should take heed, because the current US course is disturbingly similar to Japan's. There are several key lessons from Japan's decline, but the most important one is this: We must stop looking for government to be the source of sustainable growth.
What the report by the Christian Science Monitor and nearly every other mainstream media news report always exclude is the amount of U.S. taxpayer dollars that have been pumped into the Japanese economy since the end of the Cold War. The article fails to mention that a large portion of our current national debt is the result of military spending. Instead of getting a peace dividend for all the over priced and unneeded weapons systems the American taxpayer has bought from the military industrial complex during the Cold War, all America has gotten in return are economic contraction and a lower standard of living. The current Great Recession is a brilliant example of how out of control military spending continues to hurt the American economy.
First begun by Ronald Reagan in the 1980s and then by George H.W. Bush, the national debt in America really began to explode under George Bush and Dick Cheney. Over three trillion dollars of America’s debt is a direct result of Bush’s ill advised and disastrous adventure in nation building. Instead of rebuilding Detroit and Buffalo, the Bush administration and the entire political establishment in Washington D.C. decided to rebuild Baghdad and Kabul with high priced military contractors working for politically connected firms like Halliburton, DynCorp, and Blackwater.
At least in Japan its citizens will have their high-speed trains as a legacy of their national debt. What will America and her citizens have to show for its debt?