Japanification of the developed world
Paul Krugman says we’re witnessing the “Japanification” of the developed world (EFA) (VEA). According to Krugman, global growth is just too low and too slow, and monetary policy is increasingly becoming inefficient. Krugman sees a fundamental demand deficiency in part on account of demography and the slowing of technology.
Krugman: China looks a lot like Japan
On a VOA interview on November 17, Paul Krugman said, “China in 2016 looks a lot like Japan in 1989.” That was the year that preceded “the lost decade” in Japan, a period of prolonged financial crisis in Japan. Krugman pointed to the following similarities between China and Japan (EWJ):
- excessive savings
- insufficient investment opportunities
- a real estate bubble
“It looks a lot qualitatively like [Japan], but with much less of a safety net,” said Krugman. He foresees an economic downturn coming in China (FXI) (ASHR), and he’s worried about the global impact the downturn could have.
China is not too big to fail
Krugman also believes that “China is just too big — not too big to fail, but too big to save.” Though he foresees an economic crisis brewing in China, he doesn’t think that a bank bailout program similar to what the US launched after the financial crisis of 2007–08 could save the Chinese economy. His “too big to save” point rests on the grounds that “China is big enough to have a pretty big knock-on effect on the rest of the world.”
Krugman also has something to say about policy changes in Japan (EWJ).