The Japanese ‘Lost Decade’ originally commenced in the 1990’s but so far it seems to have lasted over twenty years, which doesn’t bode well for someone’s mathematics. Whether this was technically a depression or not can be argued either way but, more importantly, it probably felt like one. With uncomfortable levels of unemployment, grindingly slow growth and regular bouts of deflation, the miracle economy of the 70’s and 80’s that the rest of the world admired was now languishing in economic mire.
Despite having world beating manufacturing brands (apart from the odd dodgy car), domestically the country failed to reform many outmoded practices of financial protectionism and political ineptitude. Instead of being the country of the rising sun it really should be known as the country of the false dawn.

Now however, are we beginning to see some similarities in the economic behaviour of Japan and that of the USA? The great strength of the US economy has been its ability over the generations to redevelop and reinvent itself just when many seemed to write it off. From the old rust belt industries of the 1980’s through to the tech boom (and bust), their ability to adjust and change in adverse circumstances was always one of those great American strengths. ‘Yes we can’ was the by-line borrowed from Bob the Builder by the Obama campaign. The question now is – ‘Can we?’

Twenty years of a banking boom followed by an explosive bust is not repaired in just a couple of years. Much restructuring is going to have to take place. The problem is that in a democracy, unpleasant medicine is rarely very popular. With the mid-term elections due in November it looks from current reading as though the Democrats are going to be in for a thorough spanking.
As a result the candidates are likely to be coming out with ever more extreme opinions and views to try and win over their angered and frustrated voters. Watch out for the flag waving Tea Party pressure group as well as the strange Porcine with Lipstick Lady from Alaska.

All too easy then for populist views to be aired which will no doubt include everything from China bashing to more local protectionist policies. The truth is that a generation of value has been destroyed in the housing disasters and as a result the driver of the US economy, the US consumer, is going to be hobbled until this nettle is properly grasped, squeezed and killed.

Will the Americans even have to go to the extreme of the ancient Athenian policy of drastic reform as put through by Solon, where wholesale debt cancelling was adopted to try and re-set the floundering and distorted Athenian economy? It seemed to work there, but of course they had the benefit of a rearmament and investment programme driven by the impending war with
Persia – or should I say Iran. Draw whatever parallels you like! So with weak growth at below the necessary run rate and deflationary concerns, maybe we will see the introduction of one of those awful US compound words – Deflession - being used to describe an extended period of low growth which also feels like depression, along with bouts of deflation. With growth levels of around 1% that is what it may well start to feel like. However, before I cause any unnecessary concern, we are not back in the 1930’s for one clear reason – we have some very significant developing nations that are still growing. Even if the likes of India and China do slow their speed of growth, their contribution to global economic development will be a vital fillip for us all.

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And finally...... The New York City Police Department released a memo recently, warning its officers to be on the alert for criminals wearing underwear with hidden pockets. The NYPD became aware of the secretive undergarments, which can apparently stash up to a 67-ounce bottle of soda, when they arrested a Brooklyn man last month.

"The arrested perpetrator gave information that drugs and weapons are being concealed in underwear that contains secret pockets," according to the memo. The manufacturer, the carefully pronounced Stashitware, sells their product for only $12. The
pocket on the underwear is big enough to hold two litres of soda, a cell phone, a lighter and multiple other items in the compartment.

Of course there is in fact nothing new on this as those who may have read about the English 18th century coastal smugglers used to regularly wear such garments for the smuggling of tea, tobacco, silk, brandy and other such obviously dangerous goods. Frankly I think we should just stay with the boxers.

Have a good week.

Justin A. Urquhart Stewart
Director
Seven Investment Management Limited