Read/Post Comments    Get our Newsletter   Get our RSS Feed

by John Jagerson

During the early stages of the current economic crisis in the U.S. there was a lot of talk about the fact that it was "unprecedented." This is not exactly true. Credit crises have occurred in the past and are currently in their earlier stages in other parts of the world. They all look very much like the one we are experiencing in the U.S. The fact that we have historical examples of similar issues is interesting but what is helpful is understand what solutions were tried and how effective they were.

Currently the argument from government and industry is that the issues with the last solutions were that they were too slowly implemented. The risk, according to Washington, is not where the money is spent to stimulate the economy but how fast it is spent. That may be true but at this point it is speculation. Whether this crisis lasts as long as the last one or not there are important similarities that investors should understand and prepare to profit from.

Note: This video was originally published in October 2008. In the subsequent videos in this series we will be evaluating how the crisis has continued to emerge, how the solutions are similar and what individual traders can do to profit today.

In today's article I will run through a classic example of a credit crisis that occurred approximately 10 years ago in Japan. The similarity in the sequence of events between that crisis and the current one are marked. We can make this practical by evaluating the market's reaction to that crisis as well as applying the model to emerging crises. The first part of this article will cover the series of events leading to the Japanese crisis and its American similarities.

In the next article I will walk through the results of the Japanese banking crisis and how that model may play out again in the US. I will also draw a correlation to an emerging crisis that should develop within the next year.

1970-1985 JPY: Massive banking deregulation in Japan 

1989-2003 USD: Continued banking deregulation, expansion of FDIC to weak banks and changes to the Fed discount window

1895-1995 JPY: Real estate and other assets bubble

2002-2006 USD: Acceleration of real estate bubble and sub-prime lending

1994 JPY: Recognition of excessive bad debts by policy makers and first major bank failures

2006 USD: Recognition of excessive bad debts by policy makers and first major bank failures (NCFC)

1997 JPY: Credit crisis turns into a liquidity crunch and 3 major banks fail

2008 USD: Credit crisis turns into a liquidity crunch and several major banks fail

1997 JPY: Japanese government injects 90trillion JPY into failing banks to ease credit problems

2008 USD: US government proposes injection of $700billion USD into failing banks to ease credit problems

Comments

Add New

Write comment
Name:
Email:	do not notifynotify
Title:
	Please input the anti-spam code that you can read in the image.

Comments deemed inappropriate will be removed

3.25 Copyright (C) 2007 Alain Georgette / Copyright (C) 2006 Frantisek Hliva. All rights reserved."