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Why Japan Is Doomed (oftwominds.com)
111 points by startuprules on Aug 4, 2010 | hide | past | web | favorite | 89 comments

Here, I'll turn on the Patio11 signal:


I love you guys, but a) it is 4:50 in the morning and I am scarcely coherent and b) there are several dozen HNers in Japan.

Do they have signals? Do their signals work so effectively (4:50? Yoiks)?

I think we need a signal-tweet-feed, so someone can set up an alarm system for when their signal is activated. For great justice!

I believe I invented that :)

Did you copyright that ;) Anyway, took your word for it, so upvoted you, since I got a good laugh.

almost 2am in japan - waiting till the morning.

Something I would never expect Bruce Wayne to say!

Even Bruce Wayne has to sleep sometime.

No he doesn't; when he sleeps, he's actually lying in wait for his enemies.

Actually, I think that's Chuck Norris.

The original article title is "Why Japan is Doomed (and the U.S. and the E.U. too)". The Greek debt crises seems to be looming in the future for Japan, the U.S., and the E.U. as well. There doesn't seem to be very many serious plans to stop the accruing debt, and those who think that the debt is no problem are addressed in the article:

Those in denial about Japan's reliance on ballooning debt to fund its status quo (and on America's exact same reliance) basically claim that "It can't happen because it hasn't happened."

If the US, EU, and Japan are doomed, who isn't? I don't think the answer is China and India. China's plan seems to be to lurch full steam ahead (no pun intended) into our style of entirely non-sustainable petroleum and coal fueled over-consumption.

Will someone be able to exploit this for profit? I haven't enough macro-economy knowledge to evaluate this, but looks likely. Sadly, i haven't seen yet any article on future scenarios in case of a global crisis caused by multiple nations going to default... any interesting link about this will be highly appreciated.

George Soros seems to do really well in shorting dollars, yen, and euro in the last 3 years or so. Timing is key there, though, so if you can't you shouldn't.

He's lately had his chips all-in on Asia, particularly stock exchanges in India and buying up yuan and sgd. Of course, because of these times of uncertainty, he's also long on gold bullion.

Credit Default Swaps could be purchased on the relevant sovereign debt.

Given the success that various hedge funds had with this strategy during the crash of mortgage backed CDOs a couple of years back I would have thought that there must be a lot of speculation of this kind going on.

Assuming that there are still sellers of CDSs out there...

And remember: timing is everything. Japan has been obviously fked for a long, long time now, but hasn't paid much of a price for it in the bond market. Now that they are going to have to finance their debt externally, maybe reality will assert itself.

But maybe not.

Cheers, Carson

You're exactly right, many people have lost a lot of money trying to bet against the Japanese debt situation.

"Markets can remain irrational longer than you can remain solvent." -Keynes

CDSs are being sold, but generally aren't available to small retail investors. An investor who is not accredited would need to hedge some other way.

We're borrowing 43% of our budget? Talk about unsustainable.

I would seriously make plans for when the US is forced to stop this destructive pattern. Its going to be ugly.

I can't see how it won't end up looking like a massive cut in entitlement spending, probably along the lines of Paul Ryan's most recent doomed proposal:


This isn't to cheerlead Republican strategies (after all, I think the heart of Ryan's proposal is decidedly anti-Republican, since Republicans and Democrats alike seem to have based their party orthodoxy on not cutting spending, be that in the form of tax cuts or increased entitlements, respectively), merely to offer an example of the kind of cutting that will, but necessity, have to happen.

Of course, there's always the "collapse of the US" scenario.

Optimists, therefore, will prepare for the painful years of budget-cutting by refusing to rely on entitlements in their later years.

Pessimists? Well, I suppose joining a survivalist encampment doesn't sound that bad...

Don't worry about it. Krugman says deficits are ok.

Krugman says that we're in a depression and that the one economic climate where you should run a temporary deficit is in severe recession or depression.

Now, you can say that after 8 years of castigating Bush for deficits, he's all of a sudden ok with them under Obama. And you'd be right.

But it's also true that Bush took inherited a surplus and doubled the national debt in a "boom" economy, while Obama inherited an already-massive deficit while in the most severe economic crisis we've seen in decades.

> "he's all of a sudden ok with them under Obama. And you'd be right." No, you wouldn't.

For eight years he castigated Bush for not paying down the debt. Krugman's advice is: borrow your way out of the bad days, pay it back on the good ones.

There's plenty of policy there to disagree about. There's no reason or benefit to misrepresenting people's positions.

Finish reading :) I said exactly that.

My mistake. I swear I read that twice; apparently I should have gone for a third pass.

> But it's also true that Bush took inherited a surplus and doubled the national debt in a "boom" economy

The deficit under the last Repub congress was $100B/year and the trend was downwards. That changed when the Dems took congress for Bush's last two years. The current deficit is $100B/month.

Note that Congress didn't pass a budget in 2008 - they held back until after Obama became president.

Ok, so based on fiscal-year technicalities and on the GIANT ECONOMIC DISASTER that Bush and supply-side economics presided over, Obama's increased the deficit a lot. True.

He still didn't inherit a surplus and double the national debt.

Bush had 9/11.

Bush also did a prescription drug plan that was a financial disaster. However, the Dems wanted something even more expensive so ....

In fact, that's generally true; Repubs overspent, but Dems wanted more. The Repubs weren't fiscally conservative in absolute terms, but they were significantly more so than Dems. Since the alternative to Repubs isn't perfection, but Dems, that's relevant.

As to the financial disaster, it's due to Dems pushing "affordable" housing. The Repub's contribution is that they didn't try very hard to oppose it. (When McCain suggested looking at Fannie and Freddie in 2005/6, he got his teeth kicked in.)

Tax revenues increased under Bush. And fewer paid income taxes. (The poor get a decent return on SS while the rest of us are hosed. The rich don't care because both "contributions" and payouts are capped.)

Assertion, assertion, assertion. What was the vote count on that prescription drug plan disaster, again? How many of those same people, institutions and editorial pages are huge deficit hawks now? What happened to "deficits don't matter"?

You opened this thread saying "yeah but if we figure the calendar this way i can put all of the 2008 stuff on Obama". You advertised that you don't give a crap about reasoned conclusions, you're just going to attempt to twist the facts. You said out loud, "I'm doing this". Deficits don't matter in 2003, they're the most important thing ever in 2010. Whatever.

It's your right, freedom of speech and all that. But I'm not going to take you seriously.

> What was the vote count on that prescription drug plan disaster, again?

It was mostly repubs for and mostly dems against on final passage. The vote to substitute the Dem proposal, which was more expensive, it was mostly Dems for and mostly Repubs against.

Yes, the Repubs passed a monstrosity. The Dems tried to pass something worse. It's unclear how these two facts make the Dems look better than the Repubs.

> How many of those same people, institutions and editorial pages are huge deficit hawks now? What happened to "deficits don't matter"?

One might argue that there's a difference between $100B/year and $100B/month. You're claiming that it's wrong to be concerned about $100B/month yet be okay with $100B/year....

More to the point, I'm not claiming that the Repubs were/are correct. I'm saying that they're bad, but better than Dems on this.

> yeah but if we figure the calendar this way i can put all of the 2008 stuff on Obama

It's a fact that the 2008 budget wasn't passed until after Obama took office. Congressional Dems said that Obama had significant input into that budget. Do you really want to argue that they were lying?

> you're just going to attempt to twist the facts.

Some actual examples would be nice.

> You said out loud, "I'm doing this".

Oh really? Where?

The US is in a somewhat unique position - as the de facto reserve currency, it can inflate its debts away.

Like Monopoly's "Get Out Of Jail Free" it's a card you can only play once, though.

BECOMING the reserve currency is very beneficial. The US printed over 4 trillion bucks and it just went into vaults somewhere in exchange for $4 trillion bucks worth of stuff.

But when we blow it and are deep in debt with declining ability to borrow cheaply, we could also lose this special status. and $4 trillion will come back and make goods more expensive for everybody stuck with no far-less-desirable paper.

Am sure Japan can do that also since they have their own currency and can print plenty of money.

One person mentioned some numbers however, such as 2500 Yuan per hour. I am sure that figure one day was 25 Youan, but inflate and inflate, some zeros have been added.

I guess however having prices go up also, such that say bread is 1000 Yuan you do not get real inflation if you print slowly. But, I doubt anyone want to take a chance.

I would think also that it is not so easy and it is not really a get out of jail card. Money have value as long as they have power. They can print as much as they like, as it seems to be the case with Japan, but if prices go up accordingly, they would need to print more, and prices go up and print more and Germany 1930s or Zimbabwe 2007.

Paying off debt is a good policy, whether be it a country or individual. Saving is a good policy too.

The US can inflate ultimately because the USD is what oil and other major commodities is traded in. Anyone who needs to convert their currency into another to trade doesn't have that luxury. Not even the CHF, the EUR or the GBP.

What they can't just start trading in Euro? Do they have some sort of contract or is there some sort of law which says you can trade oil only in dollars?

I think if the dollar became a fonny currency people would switch quickly. It would for example not make any sense for a British man to trade in dollars if he gets say one pence for every dollar. Especially if by the next day it is worth 0.5 pence.

Well there is a conspiracy theory that Iraq was invaded because it was on the verge of switching to EUR, and if it had OPEC would have followed and the dollar would have collapsed, taking the US economy with it.

at the risk of sounding crazy, has there been a more rational explanation for our actions?

If there was, I haven't heard it. The idea it was about securing access to oil is laughable. The oil isn't in Baghdad, the oilfields are out in the middle of nowhere. They could have been taken and held without going anywhere near the cities.

Plus there is the small matter that we already know how to get oil from Middle Eastern countries... We buy it.

The part I don't understand is why Japanese citizens would accept such low returns on their investment for so many years, when so many investments outside of Japanese government debt would give them higher yields.

Is it a cultural thing? Is it just pure altruism? Do they want to support their government that much that they're willing to ignore better investments for their savings?

Seems like a version of this:


I don't know why US savers don't invest in Australian dollar accounts either. They pay about 6 times as much as US term deposits.


I just checked two of those term deposits and they both require Australian residency. Can I get one of those without living in Australia?

In Australia HSBC offers foreign currency bank accounts, but I can't see that on the US site.

I work for a fund manager not a bank. Would an ETF for high yield, first world, countries fixed income products work?


Currency risk. Lots of Japanese do try to invest abroad (the famous 'Mrs Watanabe'), many of whom have been hurt badly by the recent currency fluctuations.

I think they are used to banks giving them next to nothing on interest for their savings.

The older Japanese population are pretty nationalistic. However, the Japanese corporations, not so much.

What does it look like when a nation becomes insolvient? How does it affect its citizens? Its public services?

It looks a lot like how Greece was looking a few weeks back. (Probably still is looking in all likely-hood)

Most of the national debt is written off, public services are cut or re-financed through printing money which has the nasty side effect of inflation and then eventually hyperinflation.

Here's some examples: http://en.wikipedia.org/wiki/Hyperinflation#Examples_of_hype...

Interestingly, Eurozone members like Greece can't hyperinflate their currency, since members share common currency, but can't simply print it on their own. The worst they can do is default, which would still have a nasty financial domino effect, but it does leave open the possibility of kicking Greece out of the Euro and taking the hit.

Anybody with personal accounts from Iceland?

Yes. And since I lived in the UK my government impounded Icelandic owned assets up to their value[1] to pay me back my money. Yay for international relations!

[1] http://www.telegraph.co.uk/finance/businesslatestnews/318519...

Yeah. Those were strange times. The PM had the decency to threaten to use anti-terrorism laws against Iceland!

I lived in a country with 600-3000% inflation for a few years. The way we stashed was by converting assets to U.S. dollars.

Hope it helps.

People might start bartering, i.e., doing business without involving government-backed currency.

That might happen in a severe deflation. In a (hyper-)inflation I'd expect people to use foreign currencies.

I think Russia went bankrupt in the 90s when communism collapsed. So The IMF forced them to sell of their assets, like gas companies, oil, energy, whatever else. People bought them really cheap and are now billionaires, or as the media is free to call them Russian oligarchs.

It has taken two decades for Russia once again to at least try and act like a super power in the world stage.

As for normal people, well I would suppose they got a bit richer because well they were starving in 1989 when communism collapsed so really things could only get better. But if it happened to a rich country like America then it would probably turn to a second rate country like poor India or Mexico. There would be no cleaner to clean your street to start with...

In Poland before the communism fall there were big inflation - it made all savings worth nothing in a course of a few months (people were saving for kids flats for 10 years, then these savings on bank account were worth 10 times less after a few months - many people still didn't get that money from "flat savings acounts" (ksiazeczka mieszkaniowa) - that money nowadays is less than a few days of work.

But some people had luck - I know family, that bought one family home for credit in 1986, credit was for 30 years. Then, after a few years father went abroad to work a few months for $ (on the farm), then paid the whole credit back for these $.

Of course country had to default eventually, but many people paid their credits that otherways would be paying to this day. So that's one way of profiting from hyperinflation.

All in all it wasn't so bad, people just were using $ or Deutche Marks (it was illegal to own them then, but it was legal to change your $ to polish currency, only change rate was were unjust). So many Polish businessmans started as people illegaly trading $ to zlotys. Crazy times that were, millions laying in the streets.

You're asking about countries that suffered from hyperinflation (US had a hyperinflation before also during the civil war)

here's a popular blog from a citizen currently living in Argentina http://ferfal.blogspot.com/

"Millions of Japanese aged 25 to 34 toil as temps or contract employees-- up from 1.5 million 10 years ago, according to the Ministry of Internal Affairs. These workers tend to earn about one-third the typical "salaryman" wages that their fathers earned"

I lived in Tokyo last year in a cheap apartment with alot of young Japanese people, and I was very surprised by their lack of work ethic/prospect from my first time in Japan. They would bounce from temp work (typing) to temp work (waiter) to temp work (salesperson walking everywhere in tokyo door to door), quitting every 2-3 weeks. They would sometimes sleep in and not show up for interview, and wouldn't even call to reschedule. The way they would quit a job they didn't like is by....not showing up anymore. Keep in mind these are people that went to pretty decent universities in Japan, and speak ok english. And when they do get a full time job offer, they would have to wait almost half a year to a year to start working (which I would think depress their morale).

> and I was very surprised by their lack of work ethic/prospect from my first time in Japan

Why would you be surprised by their "lack of work ethics"? They got fucked hard, so it's understandable that they aren't going to care much for "the man" anymore: they were told their contract was to work like mad in their studies, get to a good university and end up landing a good job in a multinational where they'd work their whole life slowly climbing up the hierarchy and pretty much guaranteed they'd be there for life.

Instead, at the end of their studies they found an utterly slaughtered job market and a crappy economy in which Japan has been stuck for 20 years (especially those who got out during the Lost Decade of the 90s).

They don't have "good work ethics" because they've managed not to be stockholm syndrome victims, and because reality showed them strong work ethics didn't matter, and promises were there to be broken.

Oh bullshit - I'm surprised you got as many upvotes given that this is supposed to be the entrepreneurial bunch (and our previous mega-thread involving Scott the useless college grad).

Boo hoo, so the economic sucks and you were lied to your whole life about how your employment situation was going to work. So? This does not excuse laziness and a crappy work ethic.

Perhaps their chronic unemployment stems from the fact that they meander through life rather than actively fighting for what they want. Japan isn't some third-world backwater, there are opportunities abound for people who are willing to work and fight for it - just like it still is in the US. The ones that sit and pout all day (like Scott, from the NYT article) are the ones who will never get out.

If you are implying that the opportunities in Japan are equal to those available in the US, then I wholeheartedly disagree. Both in terms of startup culture or slogging through a corporate job, Japan is vastly different from the US.

Opportunities exist everywhere, and a poor economy is certainly no excuse for apathy. However, discounting the challenges the economy posed to the rising generation of Japanese is pretty unfair IMO. The 90's really really sucked.

I did not mean to make light of Japan's economic challenges in the past two decades - nor do I mean to imply that Japanese opportunities are equal to that of the US.

What I mean is, Japan is still an industrial power, and far from a decrepit backwater - while opportunities were not what they once were, they are still there for those who seek it.

If anything, a shitty economy and hard times should create people who fight harder and take less bullshit, not the other way around as the poster had indicated.

Japan is still an industrial power, but that does not imply that "opportunities ... are still there for those who seek [them]". It means that there are opportunities. To whom they are available is quite contingent upon social conditions. It is quite common for opportunities to exist, but to still only be available to a tiny group of people.

> a poor economy is certainly no > excuse for apathy.

You are encouraging people to live in denial of reality. If the economy is bad, then a wise investor will take into account the fact that the economy is bad. And, when it comes to our careers, we are all investors. In the face of a bad economy, many investors will go to cash. Cash is a rational option in the face of a bad economy. When we are speaking of individuals, the equivalent of "going to cash" is to focus less on one's career and more on the other parts of one's life.

Japan does not have a culture of innovation (that kind of innovation anyway) and nothing in their life or education ever gave them the tools for this. Not to mention being an entrepreneur is a sure way to socially kill oneself in japan, this idea is still widely shunned and looked down upon.

You're looking at people who grew without arms and are asking how comes they can't tie their shoelace.

And it seems other people understood it.

> Not to mention being an entrepreneur is a sure way to socially kill oneself in japan, this idea is still widely shunned and looked down upon.

I suppose we may be talking about a different age group, but I'm in a theatre circle at a Japanese university, and out of the 7 people who joined this year, 3 aim to start a business (one in Economy, one in Business, me in Engineering). Most people who ask me about it seem to have a reaction of "it sounds so awesome, but I could never do this". I think the way of thinking is slowly changing.

I agree with the rest of your post. I've been especially disappointed by the lack of innovation at research labs in what is supposed to be a top university.

A "good work ethic" is highly overrated. Maybe they just found their version of the "Four Hour WorkWeek". They work enough to get by, and spend the rest of their time doing what pleases them?

> boo hoo, so the economic sucks and you were lied to your whole life about how your employment situation was going to work. So? This does not excuse laziness and a crappy work ethic.

5 bucks says you never had to spend more than few months looking for a job after graduation.

My experience has been that most entrepreneurs, myself included, to be completely honest, are not the best workers when it comes to working for other people.

I know for me, I tend to get tangled up telling the boss that we are going in the wrong direction, rather than working hard on the doomed project. I find working hard in the wrong direction to be very frustrating... and when I'm not hired to set direction, I imagine the boss finds it very frustrating that I'm arguing about direction rather than implementing.

Even when I am working on the thing the boss wants me to work on, I'm not the best employee. I'll never be a 'company man' - an Entrepreneur is never going to believe that the company is a family, or that the company will take care of him.

Perhaps most important of all, even if the Entrepreneur is doing his best to do right by his employer, his dayjob isn't going to be, as pg says, 'the top idea in his mind' - even if I wanted to, I don't think I could make other people's problems the thing I think about in the shower.

So yeah... personally, I think Entrepreneurs usually make pretty shitty employees.

what is the expected outcome if someone fights hard for years and sees no success?

is it never justified for someone to fight hard, see they're not getting anywhere, and then drop their effort level down to match the situation they're in, permanently or temporarily?

This hopelessness shows up in the US as well. It's the people who fall off the unemployment stats and have given up looking for work. Another group of people stay on government assistance because they realize that paying for daycare, rent, etc. would add up to more than they make. So, they live off government assistance as long as possible.

> Another group of people stay on government assistance because they realize that paying for daycare, rent, etc. would add up to more than they make.

FWIW I've seen that happen in France: the social safety net tends to be pretty strong, but the transition from that safety net to its absence is anything but smooth. I'd go as far as to say it's pretty abrupt.

A decade or so ago, my parents started employing a domestic worker to take care of laundry, sweeping, that kind of stuff. First one was a professional, second one was somebody who'd been "on the dole" for a long time and trying to get out of it (single mother, in her 40s, two children). Went swimmingly early on, but a pair of quarters in she realized she had gone above some kind of cut-off, and as a result she didn't qualify for some govt assistance as well as e.g. government-sponsored holidays for her children. That added up to at least twice what she actually earned.

She decided to tough it up and keep trying to climb out, but I'd have understand dropping out: when you start making efforts and all of a sudden your standard of living drops sharply, it's not exactly worth it.

All systems have their problems. Thanks for sharing your experience. Still, I get the feeling I'd rather be poor in France than poor in the US.

Some states in the US recognize the transition from public assistance as an issue. My wife used to work for an organization that was consulted by several states. With cutbacks in federal funding and a population resistant to tax increases, states do little more than study the problem.

> I get the feeling I'd rather be poor in France than poor in the US.

Oh so would I, definitely, just saying that the transition back into "productive member of society" often isn't setup/incentivized correctly, and can lead to people not being able to make the transition. And that it would often be a better idea to fix that rather than decide people who stay on aid are lazy fuckers.

Japan isn't some third-world backwater, there are opportunities abound for people who are willing to work and fight for it

Regardless, in any first world country there are plenty of people who are willing to sit on their butts and not try to do better for themselves unless they're pushed through life with social programs and social "contracts" as were mentioned. I don't like it either, but, sadly, I'm not convinced we can get everyone to be eager, enthusiastic, ethical go-getters either.

> This does not excuse laziness and a crappy work ethic.

If it won't make any difference, then… why?

It doesn't excuse, but it does explain -- hence, it shouldn't be surprising. Deplorable, perhaps, but not surprising.

A strong work ethic definitely matters to getting what you want, no matter what it may be, but you need to reorient the ethic to benefit yourself first. When I work for somebody else I work hard and do the best job I can, as long as I am there, for my own benefit. Among other things if you get in the habit of being sloppy or tardy, it tends to spread to other things you do, and they are hard habits to break once you let them get established.

I totally agree. I should add that I was surprised merely because in my head, I had this notion that Japanese people were mostly hard working and true to their crafts, before I had entered Japan.

To add, young Japanese people also don't have the option of being an entrepreneur, because that notion is still widely shunned by society. So they toil in misery for many many years without escape.

So how are new companies created in Japan? Doesn't someone have to stick their neck out and be an entrepreneur? You would think that if some of these young Japanese people started companies and hired some of their contemporaries, you could get around that societal disapproval.

I don't think any society would mind having companies that brought them wealth and employment.

For Japan, it's all about 'tradition'. So society/entranched interests resist changes heavily. For example, the entrepreneur who started 1000-yen haircut chain in Japan (severely undercutting the barbershops) used to get death threats on his life, and had to fight tooth and nail to get spaces in shopping centers.

You should see the blank stare I get, when they ask me about how to be successful in life (I'm a bit older and have my own company) and I tell them to start a business.

seems like this would be an awesome opportunity for someone willing to start a business and dispel some of the apathy by hiring the kids in the trouble situations. a focal point to induce some change. especially if the laws are generally favorable, and its just society that views new businesses unfavorably.

My point exactly.

Maybe they can adopt what the Chinese have started doing by paying a foreign person to appear to be the CEO for publicity purposes, even though the company would actually be owned and run by Japanese people. If the Japanese were made to believe that the company is a foreign one, would they be less opposed to its existence in their country?

Once "tradition" has changed in Japan not to frown on entrepreneurs, they can stop pretending to be foreign-owned.

I'm not particularly familiar with modern Japanese history, but wasn't the culture more amenable to entrepreneurialism in the postwar years?

"Tradition is the enemy of progress."

Unless it's the tradition of entrepreneurship and hard work.

One could say it's a meta tradition; ok.

That is a social phenomenon alright, but freeters are not coextensive with Japanese youth. Japanese companies offering part-time employment frequently offer it on a day-labor basis: you do your day, you get your money, and you and the company are even. The employment relationship is as durable as those struck up with the gentlemen standing outside your local Home Depot in the United States. There are cell phone websites where you can browse jobs and be doing mind-numbing greeter-style work within 20 minutes.

You'd find very, very different professional norms if you either hung around my salaryman buddies or hung around young ladies of my acquaintance who are on the "pink-collar" track.

I think the temp and contract work has increased because the contracting and temp staffing industry has exploded in Japan in the last 15 years. There's also more fluidity in the labor market now, meaning that people can more easily move from job to job without being stigmatized.

For someone in their 20s who can't or doesn't want to depend on their parents for a place to live, then the prospect of making 2500yen/hr as a temp, instead of a paltry 200,000/month (and being overworked) as a salaried employee, is appealing.

For us, there's a music video:


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