Investment Contrarians

Why America Will Be the Next Japan

By for Investment Contrarians |

America Will Be the Next JapanThe media is harping on about how the U.S. is well on its way to recovery. Well, I don’t agree—the country’s economy is slowing. In the fourth quarter, gross domestic product (GDP) growth based on the second estimate expanded at 0.1%; this is above the -0.1% reading in the first estimate, but nonetheless, it’s below consensus, which estimated the economy would grow 0.5%. I’m not sure how the 0.5% growth was arrived at, but the concerns of the fiscal cliff in the fourth quarter clearly made consumers think twice about spending. Of course, the government also saw its spending curtailed due to the debt limit and pending sequester.

I’m not going to spin a good story for you to hear; I truly feel the country is in trouble. The sequester deadline last Friday came and went. The two parties have yet to iron out a strategy to cut the deficit, so the country will face a daunting $85.0 billion in annual cuts for a total of $1.2 trillion over the next decade. Of course, this will have a negative impact on economic recovery in America. The cuts will be focused on the defense sector and Medicare, so as an investor, I would stay away from these sectors. If the jobs market also stalls, I would be careful when looking at housing and retail stocks.

The nonpartisan Congressional Budget Office (CBO) estimates the automatic cuts to spending will reduce GDP growth by 0.6% this year and will result in the loss of 750,000 jobs. And while this is not what you want to see during these times, the sequestration is needed; otherwise, the ballooning national debt will continue to spiral out of control, only to hurt future generations.

The irony in all of this is that the situation we are seeing unfold in the United States is eerily similar to what has been happening in Japan for the past two-plus decades.

America may be the next Japan. I advise staying out of Japanese stocks for now and sticking with China, Taiwan, South Korea, and Singapore.

While I feel America will face many difficulties on its way to full recovery, it will not be an easy venture.

Let’s look at some of the similarities between the two countries.

With nominal GDP at around $15.7 trillion in 2012 and the current national debt at around $16.6 trillion, the country’s debt-to-GDP is about 105.7%, making it about the 12th-worst in the world, according to data from the Central Intelligence Agency (CIA). By comparison, Greece’s debt-to-GDP stood near 165.3% in 2011, and Italy’s stood near 120.9% in 2011; so you can see how the situation in the U.S. is not good and why cuts need to be made. Japan’s debt-to-GDP was a horrendous 208.2% in 2011. By this comparison, the U.S. is better than these other countries, but it’s still faced with problems.

I have long been negative on Japan. The country’s GDP growth contracted for the third consecutive quarter in fourth quarter 2012, shrinking by an annualized 0.4%, which was well below the estimates that actually call for growth of 0.4%, according to the Cabinet Office. For 2013, the country’s GDP growth is estimated at an optimistic 2.5%, according to the government. The problem is that while I still feel the estimate is way too high, new Prime Minister Shinzo Abe will be aggressively spending to get the country’s economy back on track. What exactly is the problem with this? The spending will add to an already massive debt load for Japan.

For the U.S., the World Bank is estimating GDP growth of 1.9% in 2013, down from the previous estimate of 2.2%. (Source: Grey, B., “World Bank cuts forecast for global economic growth,” World Socialist Web Site January 17, 2013, last accessed March 1, 2013.) GDP growth in the U.S. is not expected to reach three percent until 2015, which means more issues for the country.

The bottom line is: America will continue to face hardships over the next few years, and if Japan is any indication, it could take many more years to resolve.

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  • Gary Stranyord

    yeah, that's smart. Make our country more vulnerable and pay people to sit at home instead. Good thinking.

  • Gary Stranyord

    I thought your messiah was honest and kind to all the world and would never do such a thing..

  • Tyler Balding

    Much of our debt is owed to China and at the same time it's becoming obvious that they are stealing who knows how much data from our business's and conceivably even from our government. I think it's about time we consider offsetting some of that debt with all the 'free' intellectual property they are taking.

  • Jessie Reynolds

    Oh, you mean he's leaking nastiness?

  • Jessie Reynolds

    So, no-one around to care for all the old people is a good thing?

  • JVR

    Valid point Ms Reynolds. I have frequently wondered about this myself. Let me first crudely state that if you have children (this is almost always, these days, a choice, given birth control and abortion), then you will have descendents who will help you out in your old age. If not, then well, tough luck.

    As I say, this is a crude approximation.

    To refine the discussion, it helps to consider the following points.

    1) America, and much of the Western world, is busy with a vast social experiment in which they import people to fill the vacuum left by the children they did not have. That is, the demographic hole is being filled with immigrants.

    2) Those children Americans cared to have, in particular those in the working class, have been sold out by the previous generation in two ways… (a) by importing millions of illegal migrants, the wages of working class Americans are being suppressed because they come in competition with migrants for working class jobs, and (b) the cultural destabilisation due to massive migration leads to policies which in particular affects working and middle class Americans, AA makes that coveted job in the police force a bit harder to get, or ghetto formation depresses the property values of lower class Americans, etc.

    3) With respect to (2) — the effects of this is to replace the American working class with migrants — conservatives frequently refer to an Elite electing them a new people. This is more or less what is occuring in the USA, but also in much of Europe. Policies pursued by the Upper Castes of the Left amounts to a policy of the Left electing themselves a new supporting proletariate by displacing working class Americans. Given this, I am unsurprised that political discourse in the USA has become this bitter.

    4) For the Left in America, the resulting demographic revolution is a great source of power. It has now virtually locked the senior levels of government for the Democratic Party, and with about 2% decline in WASP Americans as a fraction of the electorate every election cycle, the days of WASPs and of the GOP in America are finished. They will become ever more irrelevant as the USA is redefined by the new demography.

  • laurie66bay

    You have no idea what the article is even about.