Introduction
In “Japan the Model,” Paul Krugman argues that Abenomics, or the Prime Minister’s turn towards monetary and fiscal stimulus to revive Japan’s economy, is the policy that could bolster economic growth, replace the “economic defeatism,” and cure the “policy lethargy” plaguing the developed world. While advocating for Abenomics, however, Krugman left out important context for understanding the dynamics of Abenomics stimulus. Understanding Abenomics for discussion among committee members and future hearings requires a review the context of Abenomics within recent Japanese economic performance, an understanding of the lingering impact of the crisis on the remedies, discussion of the risks associated with these remedies.
Abenomics in the Context of Japan’s Economic Performance
During the last two decades, both Japan and the United States experienced massive growth in real estate prices in conjunction with record stock market values that led to financial crises . In both the Japanese crisis of the late 1980s and the US crisis in the late 2000s, falling asset prices brought financial instability and economic stagnation.
Initial Japanese Financial Crisis
Over two years from 1989-91, Japanese banks lost 36% of their net worth. Banks adapted to this new and uncertain reality through reduced lending and decreased spending, and firms responded by slashing investment and spending. This reduced Japanese GDP by 0.4% annually during the 1990s. Deteriorated balance sheets increased both the moral hazard and the adverse selection problems that are inherent to the banking industry. Banks could not sort credit-worthy borrowers from reckless ones. These crisis conditions reduce both the supply and the demand for new loans, hampering e...
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...Krugman cites shows the risk of relying on investor and consumer confidence for success. Given that Abenomics relies on election outcomes, uncertainty could undermine the policies and lead a future government to repeal the policies.
Conclusion and Take-Away
As Krugman noted, the change in direction against austerity represents a bold move towards stimulating growth in Japan. If this stimulating policy translates to economic optimism and renewed confidence, the momentum could push towards further economic growth. The challenge of overcoming doubts will remain until commitment to the policy solidifies or Japan experiences substantial signs of economic growth. In a sound bite, Abe needs to generate support for his “renewed Japan” to retain confidence and optimistic growth prospects. His political future and prospects for economic renewal in Japan seem to depend on it.
Just as the great depression, a booming economy had been experienced before the global financial crisis. The economy was growing at a faster rtae bwteen 2001 and 2007 than in any other period in the last 30 years (wade 2008 p23). An vast amount of subprime mortgages were the backbone to the financial collapse, among several other underlying issues. As with the great depression, there would be a number of factors that caused such a devastating economic
Over the past fifty years Japan has seen significant changes in all aspects of its society and the way it interacts with the outside world. For example, despite suffering a defeat in World War II, Japan soon became one of Asia’s greatest economic powers. In Japan in Transformation, 1952 - 2000, Jeffrey Kingston focuses on various aspects of change in Japanese society and politics in the period after World War II. These include the effect of the US occupation, analysis of postwar politics, the economic boom, changes in demographics, the treatment of women, and foreign policy and security issues. Throughout the book, the author tries and often succeeds to explain many of these changes as part of the legacy of the occupation. All in all, Jeffrey Kingston gives a thorough economic, politic and social analysis of this crucial period in Japanese history.
The Great Depression and the Great Recession of the early 21st Century have many things in common. The Great Depression and the Great Recession both experienced good economic times before they crashed. Prior to the Great Depression, (1921-1929) the annual real economic growth was at 4.4 percent. Though less, the annual real economic growth prior to the Great Recession was at 3.2 percent. The banks before both times moved into new business lines. In the 1920s banks increased real estate lending and also increased investment banking. Prior to the Great Recession, (1990s-2000s) banks increased real estate lending and the securitization of mortgages. In both times, they were preceded by the innovations in consumer finances of their times. Prior to the Great Depression, (1920s) installment in consumer credit became more popular this included monthly payments. In the 2000’s prior to the recession, banks increased real estate lending and the securitization of mortgages. Pre Great Depression and the Great Recession they were asset bubbles in both real estate and tech-stock market. During the 1920s there was a surge in the Florida real estate as well as the stock market. The time during the 1990s and 2000s were a little different because of the fact that the tech stock market also took off and that the residential real estate grew.
...ause they, unlike similar contemporary non-western civilizations, focused on balancing new reforms with older, more historical governmental traditions. This profound adjustment was a great change of life from earlier times in Japan, thus proving that the reason that Japan regained its overall stability because it was able to balance the old traditions of the country, along with new ideas, pointing back to Friedman’s, The Lexus and the Olive Tree, showing one of his assertions of there having to be a combination of “Lexuses” and “olive trees”, linking them to one of Friedman’s primary examples.
In conclusion, the current macroeconomic situation in the United States is characterized by moderate growth because of better economic conditions that were brought by the events of 2013. The country has experienced moderate economic growth since the 2008 global recession but has shown real signs of momentum. While the country is not concerned about recession or inflation, the rate of unemployment is still a major challenge despite improved consumer and business confidence. As a result, the Federal Open Market Committee or Federal Reserve System needs to adopt fiscal and monetary policy initiatives that help address the unemployment issue and promote high economic growth.
Nakae Chomin’s Discourse was published in 1887, a period that demarcated a crucial turning point in Japan’s politics and economy. The book itself suggested the great debate that the people of Japan were having in deciding the future of the nation, and draws on Chomin’s studies on Western politics in France and his journalistic and political involvements in Japan.
Krugman, Paul The Age of Diminished Expectations: U.S. Economic Policy in the 1990s. Cambridge: MIT Press, 1990
In the early 2000’s the housing market boomed, real estate was a hot investment and everyone was looking to buy a home. However not everyone can afford a home and a majority of people were forced to take out a mortgage to purchase real estate. During the housing boom banks were supplying subprime loans and upping the risk in the real estate market. These loans were not only risky but irresponsible on the part of the banks’ lending them, and although individuals receiving the loans thought they were being helped at the time, these loans were a major reason why so many people their homes, almost crippling toe U.S economy as a whole.
Moreover, the context in which this book was written demonstrates that Japan is going through the financial affluence as well as the greatest boom since it is during the postwar period, much of the financial affluence had been caused by the consumerism in Japan. The author seem to be biased on this theme, despite the benefits consumerism has had on Japan, Yoshimoto goes ahead to give it a negative
Companies. Retrieved July 4, 2008, from University of Phoenix, MMPBL-501 Web site. University of Phoenix . ( 2008). Economics for Managerial Decision Making
Monetary and fiscal policy and their applications to the third world countries with a huge informal sector
The "subprime crises" was one of the most significant financial events since the Great Depression and definitely left a mark upon the country as we remain upon a steady path towards recovering fully. The financial crisis of 2008, became a defining moment within the infrastructure of the US financial system and its need for restructuring. One of the main moments that alerted the global economy of our declining state was the bankruptcy of Lehman Brothers on Sunday, September 14, 2008 and after this the economy began spreading as companies and individuals were struggling to find a way around this crisis. (Murphy, 2008) The US banking sector was first hit with a crisis amongst liquidity and declining world stock markets as well. The subprime mortgage crisis was characterized by a decrease within the housing market due to excessive individuals and corporate debt along with risky lending and borrowing practices. Over time, the market apparently began displaying more weaknesses as the global financial system was being affected. With this being said, this brings into question about who is actually to assume blame for this financial fiasco. It is extremely hard to just assign blame to one individual party as there were many different factors at work here. This paper will analyze how the stakeholders created a financial disaster and did nothing to prevent it as the credit rating agencies created an amount of turmoil due to their unethical decisions and costly mistakes.
If financial markets are instable, it will lead to sharp contraction of economic activity. For example, in this most recent financial crisis, a deterioration in financial institutions’ balance sheets, along with asset price decline and interest rate hikes increased market uncertainty thus, worsening what is called ‘adverse selection and moral hazard’. This is a serious dilemma created before business transactions occur which information is misleading and promotes doing business with the ‘most undesirable’ clients by a financial institution. In turn, these ‘most undesirable’ clients later engage in undesirable behavior. All of this leads to a decline in economic activity, more adverse selection and moral hazards, a banking crisis and further declining in economic activity. Ultimately, the banking crisis came and unanticipated price level increases and even further declines in economic activity.
The bank failure in Jamaica illustrates how negative mindsets and behaviors can devastate the financial system and disrupt economic growth. The primary role of any bank is to safeguard its customer’s money, offer interest rate on deposits, lend money to creditworthy individuals, and make sound investment decisions to maximize shareholder value. Because of rapid economic growth between the late 1980s and early 1990s in Jamaica, the Central National Bank (CNB) and Worker’s Savings and Loans Bank (WSLB) loosened their monetary policies, provided preferential interest rates and extended credit beyond what was reasonable to members of its own board of directors, managing directors, and officers of the bank. These actions posed significant risks to the bank and its future.
Japan’s rising yen and the decline of the US dollar, East Asia Forum, 2011. Available at: