Understanding the US Debt | Tragedy in Japan, The U.S. is next?
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Tragedy in Japan, The U.S. is next?

The enormity of the unfolding tragedy in Japan has saddened the world. It is difficult to imagine three successive events, an earthquake, a tsunami, and a nuclear disaster, all hitting one country at the same time. These unfortunate incidents could not have been easily predicted or prevented.

But there’s another tragedy that has been unfolding in Japan for the last 20 years – an avoidable tragedy that’s cost Japan trillions of dollars and affected every one of its citizen. And this tragedy is also unfolding in the United States.
Growing up, I remember reading and hearing about the economic might of Japan – how it was on its way to surpassing the United States. Let me share an excerpt from my new book –

…By the 1980’s, it was the Western countries who were studying Japan to improve their own economies. In 1980, Japan was the 2nd largest economy in the world – second only to the United States. This is even more impressive when considering Japan is geographically a fraction of the size of the U.S. and, in 1980, half the number of citizens. From 1980 to 1995, Japan’s economy grew from 38% to 71% as large as the United States’. Based on growth, Japan was on its way to becoming the world’s largest economy.

Fast forward to 2010 – Japan is not the world’s largest economy; it is the 3rd largest, having been surpassed by China. Japan’s estimated 2010 debt as a percentage of GDP is 225%, the 2nd largest ratio of all 183 countries tracked by the International Monetary Fund World Economic Outlook Database.

Japan is in very bad economic shape – its debt ratio is worse than even Greece or Italy. Japan had a bursting of its real estate market in the late 1980’s, and it responded with a massive amount of stimulus spending. The spending effort was a complete failure – leaving Japan in worse condition than before. Does this sound familiar?

When analyzing Japan’s decisions in the 1990’s, it is hard not to become angry with the United States government. Japan experienced a crisis similar to what the U.S. began facing in 2008. America had a clear and very recent model of what not to do in terms of reviving an economy and avoiding debt – and yet we followed right in Japan’s footsteps.

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