In the media there is a great deal of discussion by various talking heads trying to compare Japan in the 1990’s and the United States in 2010. A variety of economists as well as reporters have expressed their opinions on this topic.
Listening to all these people, it is very easy to become confused. I have always found that FACTS, when collected and analyzed, often make confusing situations much clearer.
There are a lot of things that are comparable between Japan and what it has experienced economically since 1990 and what the United States is experiencing today. You can go through the whole litany of low interest rates creating a real estate bubble, a financial services bubble, a financial panic and then a subsequent economic crash.
The list continues because the Japanese central bank and the American central bank both have followed similar courses of action – offering exceptionally low interest rates while helping banks earn their way out of the situation as opposed to simply cleaning the debris off their books. Additionally, both had a variety of bailouts by the respective governments who preferred the pain and agony of a long recession to an abrupt pain from cleansing the economy of the excess.
When you are in a position of leadership, one of your goals is to minimize the pain for your constituents, especially those who supported you. It is understandable but as misguided as a parent not disciplining their child.
However, in all the discussion by all of the “experts” there is one enormous fact that the “experts” have all ignored – demographics.
The demographic trend of Japan is simple – there are not enough babies being born to replace the population of Japan. Hence, the population of Japan is aging and the number of Japanese is declining.
Contrast that to the United States where our population has been growing. In fact, the generation known as Gen-Y, which is today between the ages of 10 and 29, is estimated to be the largest generation of Americans ever at approximately 87M.
That means that the cohort known as Gen-Y is almost 50% bigger than Gen-X, the generation immediately in front of it, and 10% larger than the Boomers were at their peak. Let me rephrase that information.
Currently, there are more than 4 million Americans reaching the age of 22 every year. In fact, that will occur each year for at least the next 22 years.
The significance of this is that in order to house them, and assuming that they paired up, we would need to generate at least 2 million housing units per year each year for the next 22 years to meet the demand. In 2010, America is going to build something around 300,000 housing units. Expressed otherwise, that is about 1.7 million housing units less than demand.
Now, demand may be deferred and there is no doubt that jobs for these young Americans are important so that they have the financial ability to lease an apartment or buy a house. However, unemployment is 10%, not 100%.
So to the question “is the United States going to have a lost decade suffering deflation like Japan?” …the answer is NO. The demand is in place…they have been born each year for the last 22 years.
Our current situation is simply a lack of a functioning financial market and a lack of confidence. Once those two are resolved, the economy will grow.
If we can help you invest in land to benefit from the coming boom, give us a call.