|Mechanism of Japanese recession
As discussed above in this book, the reason of Japanese recession can
be analyzed theoretically.
It started with bubble economy in last half of 1980s. Equity price and
land price rose to a large extent and economic transaction expanded.
The problem is disposal after bubble economy collapse. As equity price
and land price lowered to a large extent, economic value was lost drastically.
Considering only this point, interest rate should have been minus and currency
should have been decreased as much as lost economic value. But as plus
interest rate was continued, large amount of bad debt occurred. Individual
/ company that couldn’t repay their debts because of loss appeared one
Amount of holding loss of equity and land was over 600 trillion yen in 1992. (Compared to 1989.). As a result, a large amount of bad debts occurred. Scale of economy diminished by deflation occurrence rule, as bad debts occurred. Economic growth rate in 1992 diminished over 3% as compared to previous year, because the bad debts occurred.
Financial policy about 10 trillion yen per year as economic measures was
repeated between 1992 and 1997, but economic growth rate was low, between
0.7 to 2.5%. Therefore, economic growth rate from around 1992 might be
minus or zero without economic measures. Deflation pressure by bubble collapse
was so strong.
The reason why economic measures were done but economy was not recovered
was that lender policy was mistaken. Since 1991 interest rate on loans
of bank was over economic growth rate. Bad debts occurred continuously
as much as the difference between these rates.
If interest rate was lowered drastically with financial policy and the status that interest rate on loans was under economic growth rate was continued, bad debts didn’t increase and economy might be recovered.
But in classical economic system [Interest rate must be plus], interest
rate on loans couldn’t be under economic growth rate. Economic growth rate
was too low.
In short, because of control mistake of interest rate, increase of bad debts couldn’t be stopped.
Financial policy has an effect on expansion of economy. But, when reimbursement cost of national bond as source of money is paid by tax increase, economy diminishes reversely. Therefore, these financial policies can’t be root expansionary policy, if it is not used as promising investment fund. In short, lender policy is more important than financial policy in order to stabilize economy. Because lender policy was mistaken, Japanese economy became extremely worse.
Debtor’s loss by the difference of rates was 110 trillion yen for 11 years from 1991 to 2001. As loss of about 10 trillion yen as annual average occurred, recession happened. Companies that can’t bear an excessive burden were in bankruptcy continuously, and bad debt disposal burden was concentrated on banks.
This is also the cause of jobless problem. Because companies paid excess burden of interest by decrease of labor cost, jobless worker increased. The reason why official staff decreased and contracted worker or temporary hire increased was also decrease of labor cost. If labor cost of an official staff is 5 million yen per year, 10 trillion yen corresponds to labor cost of 2 million staffs. Therefore, if companies don’t burdened excess interest, about 2 hundred official staffs can be increased. (It may be impossible for decrease of interest burden to be labor cost, but about 1 hundred official staffs can be increased.). Though rate of perfect jobless worker continues to be over 5%, rate of perfect jobless worker goes back to level before bubble economy by decrease of 2 hundred jobless workers. After all, excess burden of interest increased jobless workers and forced the economy into a slowdown.
Economic growth rate has been minus since 1998. It meant that interest
rate on loans needed to be minus, but plus interest rate continued. As
difference between rates expanded, bad debts over 10 trillion yen occurred
per year averagely since 1998.
Bad debts occurrence diminishes economy. It forces the economy into slowdown.
Therefore, interest rate on loans of banks should be lowered as soon as
possible and new occurrence of bad debts should be prevented. Otherwise,
stable economy can’t be recovered. Minus interest rate is needed for this
The words “Winning group” “Losing group” have been used for companies since 1990’s, it was caused by mistake of interest rate management. To the amount of difference between interest rate on loans of banks and economic growth rate, excessive debt companies were burdened too much, on the other hand, excessive credit companies could get too much funds. And these merit / demerit expanded as time passed. As explained above, companies of financial strength became stronger and companies of financial weakness became weaker. If minus interest rate had been introduced to interest rate on loans of banks, these words might not be used.
In addition, it might be the cause of recession that bad debt came to
the front late. Bad debt’s problem came to the front after bankruptcy of
Hokkaido Takushoku Bank and Yamaichi Securities Company in 1997. Until
then, as bad debt had been underestimated, existence had been paid little
If grand scale occurrence of bad debt had come to the surface much earlier, bad debt should have been disposed of much earlier. Bad debt continued to increase as time passed because of interest rate factor and so on. Therefore, if it had been disposed of much earlier, the cost burden should have been relieved. Then economy should not get so worse.
It must be said that banks and Finance Ministry are responsible for hiding
of bad debt.